Business Ethics and Social Responsibility

“The one and only social responsibility of business is to increase its profits.” Milton Friedman (b. 1912), Nobel laureate in economics “The business of business is serving society, not just making money.” Dayton Hudson corporate constitution

 Ethics: How people ought to act

 Society as a whole benefits from ethical behavior  People feel better when they behave ethically  Unethical behavior can be very costly

 Utilitarian ethics ◦ Utilitarianism – Written by Englishman John Stuart Mill ◦ Correct decision - To maximize overall happiness and minimize overall pain ◦ Examples - Risk management and cost-benefit analyses ◦ Difficult to measure utility and predict benefit and harm accurately

 Deontological ethics ◦ Deontological: Greek word for obligatory  Duty to do the right thing, regardless of the result ◦ Kant’s categorical imperative: An act is only ethical if it would be acceptable for everyone to do the same thing  No decision that treats people as commodities can be considered just

 Rawlsian justice ◦ Veil of ignorance: Set up a societal system without knowing whether we would personally be one of its winners or losers ◦ Type of society to be set up:  Design a society that provided basic freedoms to everyone  Apply the difference principle ◦ Difference principle: Rawls’ suggestion that society should reward behavior that provides the most benefit to the community as a whole

 Money ◦ Can contribute to happiness ◦ Higher income levels actually reduce the ability to appreciate small pleasures ◦ Way of keeping score

 Rationalization ◦ More creative people tend to be less ethical  Better at rationalizing their bad behavior  Conformity  Following orders ◦ Fear of punishment ◦ Belief in authority figures ◦ Ability to rationalize

 Euphemisms ◦ In making ethical decisions, it is important to use accurate terminology  Lost in a crowd ◦ In a group:  People are less likely to take responsibility, assuming that someone else will ◦ In a business  Tempting to go with the flow rather than protest the wrongdoing

 Shareholder model ◦ Corporations have two primary responsibilities  Must comply with the law  Must make as much money as possible for shareholders ◦ Company should act in the best interests of the shareholders

 Stakeholder model ◦ Shareholders are included as one of several groups of stakeholders in a firm ◦ Even if a company will make a smaller profit for shareholders:  Should nonetheless pay decent wages, support charitable causes

 Debate ◦ Company considers an action that would not increase the shareholders’ return in any certain or measureable way

 To its employees ◦ Cannot be successful without good workers ◦ Employees should be treated well ◦ Outsourcing - Cutting jobs at home and relocating operations to another country  To its customers ◦ Treating customers well increases profits and helps shareholders

 To overseas contract worker ◦ Higher productivity leads to higher wages ◦ In China - Employees want to work even longer hours to earn more money ◦ Taiwan and South Korea welcomed sweatshops ◦ Companies argue that higher wages lead to increased prices  Drive away customers

 Intentional deception is tolerated