1. AN INTRODUCTION TO BUSINESS ETHICS
CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY
AN INTRODUCTION TO BUSINESS ETHICS
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2. This chapter seeks to
Help students continue developing the ability to identify and analyze ethical issues in business
Explain the ethical foundation for the classical model of corporate social responsibility
Review the ethical challenges to utilitarian and rights-based justifications of the classical model
Explain how the classical model is extended and developed through a moral minimum
Describe the stakeholder model of corporate social responsibility
Explain the ethical foundations of the stakeholder model
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3. Discussion Case: Walmart
New York Times reported in 2012 that a six-year internal investigation found widespread bribery and corruption within Walmart’s Mexican operations
Walmart employees paid $24 million in bribes to promote expansion of business in Mexico
Walmart executives in Mexico knew of the bribes, and hid them from U.S. Walmart corporate offices
When the internal investigation was shared with corporate headquarters, Walmart executives ended the investigation
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4. Discussion Case: Walmart (cont.)
The Times also reported than only upon learning of the newspaper’s own investigation and plans to write a story did Walmart executives notify legal authorities
The U.S. Justice Department began an investigation of possible violations of the U.S. Corrupt Foreign Practices Act
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5. Discussion Case: Walmart (cont.)
Walmart is the world’s largest retail business, claiming over 200 million customer visits per week at more than 8,100 retail stores in 15 countries
Its total sales for fiscal year 2011 were $418 billion
Worldwide, it employs over 2.1 million people
It is the largest private employer in the U.S. and Mexico, and the largest employer in 25 U.S. states
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6. Discussion Case: Walmart (cont.)
In many ways, Walmart is a socially responsible corporation
Values promoted by Wal-Mart include honesty, respect, fairness and integrity
Wal-Mart culture was founded on three basic beliefs: respect for individuals, service to customers, and striving for excellence
Defenders point out that its economic success is evidence of how well Walmart is fulfilling its social responsibility
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7. Discussion Case: Walmart (cont.)
Walmart has created immense value for shareholders, consumers, suppliers, and employees
It regularly contributes to community and social causes
The Walmart Foundation is the largest corporate cash contributor in the U.S.
In 2009, it donated more than $378 million in cash and in-kind gifts to charitable organizations
It has major sustainability goals for its operations: becoming more energy efficient, reducing its carbon footprint, reducing wastes and packaging
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8. Discussion Case: Walmart (cont.)
Critics portray Walmart as among the least-admired corporations in the world
Ethical criticisms have been raised against Wal-Mart on behalf of every major constituency—customers, employees, suppliers, competitors, communities—with whom Wal-Mart interacts
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9. Discussion Case: Walmart (cont.)
Critics claim that Walmart engages in deceptive and manipulative pricing
Low-priced goods and their placement in stores are a ploy to entice customers to purchase more and higher priced goods
Walmart aggressively controls labor costs through low wages, minimum work hours, high productivity, and keeping unions out
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10. Discussion Case: Walmart (cont.)
Critics claim that Walmart pays its workers poverty-level wages
While Walmart offers health care benefits to its employees, compared with other companies, Walmart employees pay a disproportionately high percentage of the cost
Walmart has created a government subsidy for its low wages
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11. Discussion Case: Walmart (cont.)
Walmart has been accused of illegally requiring employees to work overtime without pay and to work off-the-clock
Walmart has been sued for violating the Americans with Disabilities Act
Walmart is being sued for illegal anti-union activities
Walmart has been cited for being in violation of child labor laws
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12. Discussion Case: Walmart (cont.)
June 2001, current and former employees from California, Illinois, Ohio, Texas, and Florida, filed a class-action lawsuit against Walmart alleging sex-discrimination against women employees
October 2003, federal raids on 60 Walmart stores in 20 sates resulted in the arrest of over 250 illegal aliens working as janitors in Walmart stores – a ploy to lower wages, deny overtime pay and exploit illegal status of employees
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13. Discussion Case: Walmart (cont.)
Many local communities criticize Walmart as a major factor in the demise of small towns and local businesses
Walmart’s aggressive strategy to lower costs is criticized for the harms it can cause suppliers to bid against each other in a type of “reverse auction” in which suppliers compete to see who can offer their products at the lowest prices resulting in suppliers going out of business
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14. Discussion Case: Walmart (cont.)
The “Buy American” campaign from the 1980s is responsible for the loss of American jobs as American businesses have been forced to outsource their production as the only means to meet Walmart’s price targets
Walmart has been accused of using suppliers in China, Central America, and Saipan who use sweatshops to produce clothing for Walmart
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15. Business Ethics is normative
What is the proper role of business management in making decisions?
What is the proper role of business in society?
Do business managers have an overriding ethical responsibility to serve the interests of stockholders before acting for society’s interests?
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16. The Classical Model of Corporation Social Responsibility
Roots in free market economic theory
Most influential theory of corporate responsibility in last century
Milton Friedman, Nobel-prize winning Economist:
“[In a free economy], there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…”
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17. The Classical Model of Corporation Social Responsibility
Milton: By disregarding the role assigned management by the free market theory we would likely “undermine the very foundations of our free society.”
“The market” is one of the most influential public policy philosophies in history
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18. The Classical Model of Corporation Social Responsibility
Example: Walmart - Despite lawsuits and regulatory infractions, we can assume, as a matter of corporate policy, Walmart has always been committed to obeying the law - Walmart’s managers have sought to maximize stockholder profit within the law
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19. The Classical Model of Corporate Social Responsibility
How would “the market” evaluate Walmart’s strategy?
Efficiency means that more beneficial consequences result from each spending decision.
Efficiency attracts more investors whose resources can be used to increase business
Society benefits
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20. The Classical Model of Corporate Social Responsibility
The right of private property: business is understood as private property
Pursuing any social objective other than the maximization of profit is spending someone else’s money for your own purposes. This is ethically equivalent to theft.
Business management must pursue maximum profits under this model
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21. The Classical Model of Corporate Social Responsibility
Government must have a laissez-faire approach to business
Freedom from government regulation and control, allows the market to function most efficiently
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22. Assessment of Classical Model
Are free markets adequate as means to the ends of maximally satisfying consumer demand?
Are the ends pursued by free markets appropriate as legitimate ethical goals?
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23. Assessment of Classical Model
Market failures: the pursuit of profit will not result in a net increase in consumer satisfaction
Pollution
Resource depletion
Ground contamination
No pricing mechanism exists for these public goods, therefore no means exists to ensure that these goods get allocated to those who most value them
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24. Assessment of Classical Model
Market failures: the pursuit of profit will not result in a net increase in consumer satisfaction
Self-interested behavior results in worse outcomes than if behavior had been coordinated (Prisoner’s dilemma)
Food additives
Vehicles that use too much gasoline and pollute the air
Exposure to workplace chemicals
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25. Assessment of Classical Model
The market is so complex that it is extremely unlikely that a single and simple directive such as maximize profits will produce the greater overall good in all cases and in every situation
Questions about public and social goods remain unasked from within market transactions: what is good for individuals is not necessarily good for society
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26. Assessment of Classical Model
Utilitarianism is a pragmatic theory
Because we can never know the future in a complex and changing world, Utilitarians remain ready to revise their principles in light of changing consequences
Utilitarian-market principles should be: Maximize profit when doing so produces the greatest overall good for the greatest number of people
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27. Assessment of Classical Model
Ad hoc attempts to repair market failures are socially inadequate - First generation problem - Inappropriate influence - Consumer preferences are addresses only as they are expressed in the market: there is no guarantee of happiness
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28. Assessment of Classical Model
Economic growth measures only the quantity of what consumers spend, it does not assess the quality of what they are purchasing with that spending Efficient markets provide no substantive ethical basis for evaluating the ethical content or quality of consumer choice
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29. Assessment of Classical Model
Milton Friedman recognized limits to the pursuit of profits
Stay within the rules of the game
Conform to the basic rules of society
These restrictions are minimal.
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30. The Private Property Defense
Do the rights of private owners supersede the consequences of the market?
Property rights are not absolute.
One’s right to use property is constrained by the rights of others.
The property rights of stockholder: limited legal liability
Understood in the proper context: distinction between investors and owners
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31. The Moral Minimum
Normal Bowie: the pursuit of profit is constrained by an obligation to obey a moral minimum
This framework distinguishes between
Ethical imperatives to cause no harm
Ethical imperatives to prevent harm
Ethical imperatives to do good
While it is ethically good for managers to prevent harm or to do some good, their duty to stockholders overrides these concerns
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32. The Moral Minimum
Distinguishing between these three imperatives is a major challenge
For every case in which stockholder interests appears to conflict with the interests of employees, consumers, suppliers or society, business management must carefully analyze the situation to determine ethical responsibility
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33. The Moral Minimum
Compliance with the law is insufficient for an ethically responsible business
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34. The Stakeholder Theory
Every business affects a wide variety of people - benefiting some and imposing costs on others The Stakeholder theory rejects the premise that the primary beneficiaries of business decisions should be investors
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35. The Stakeholder Theory
William Evans and R. Edward Freeman: Narrow and Broad Stakeholder theory
Narrowly: A stakeholder includes “any group who are vital to the survival and success of the corporation”
Broadly: A stakeholder is “any group or individual who can affect or be affected by the corporation?”
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36. The Stakeholder Theory
While it was true a century ago that management had an overriding obligation to stockholders, the law now recognizes a wide range of managerial obligations to stakeholders such as consumers, employees, competitors, the environment, and the disabled
What is fiduciary duty?
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37. The Stakeholder Theory
Stakeholder theory requires management to balance the ethical interests of all affected parties
Stakeholder theory requires that management consider the consequences of its decisions for the well-being of all affected groups
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38. The Stakeholder Theory
Challenges to Stakeholder theory:
Problems with identifying stakeholders and their interests
Problems deciding what course of action follows from the imperative to balance stakeholder interests
Stakeholder theory seems to offer little practical advice to managers
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39. Conclusion
Corporate Social Responsibility Models lie across a continuum
Moderation occurs as the range of constraints increases upon the pursuit of profit
These theories are variations on the balancing of utilitarian and deontological ethics
Whose interests should reign supreme?
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