Business

Ethics
CHAPTER 8
 Learning Objectives
Recognize the
Examine the ethical
implications of

1. dimension of business,
its relevance, and 3. corporate social
resonsibility in running
necessity; a business; and

Compare the stockholder, show understanding of

2. 4.
stakeholder, abd social the various stages of
contract normative theories organizarional moral
of business ethics; development.
Introduction
The world of business is oftentimes seen as an amoral
world. It is viewed as a world solely driven by the profit-
motive and business people are often portrayed as
ruthless, self-interested individuals. One might thus
wonder how business and ethics can co-exist. One of
the principal tasks of ethics is to enforce the values of
justice and fairness in situations where there are grave
abuses of power and a gross imbalance in the allocation
of resources between people that are meant to share
them.
Introduction
This chapter tries to shed light on how ethics may be
effectively integrated into a business's operation. How
can a business fulfill its goal of making money without
compromising ethical responsibility? What are some
normative models that can be moral used in assessing a
business moral development? Simply put, how can the
profit motive and ethics co-exist
Multinational corporations are Multinational
companies that have manufacturing,
marketing, service, and administrative Corporations
operations in many different nations.
They market their products in
whatever nations that offer
manufacturing advantages and
attractive markets. They draw capital,
raw materials, and human labor from
wherever in the world they are cheap
and available. All of the 500 largest U.S.
industrial corporations are
multinationals.
Normative Theories of Business Ethics

It is not uncommon to hear the criticism that those who

theorize and teach business ethics have little or no
experience in the actual practice of business. Some argue
that deontology, virtue ethics, and consequentialist morals
are esoteric philosophical theories that are inapplicable to
real-life business situations
The Stockholder Theory

This theory states that "businesses are merely

arrangements by which one group of people, the
stockholders, advance capital to another group,
the managers, to be used to realize specified
ends and for which the stockholders receive an
ownership interest in the venture."
The Stockholder
Theory

As Hasnas explains, "If the stockholders vote that the

business should not close a plant without giving its
employees 90 days notice, should have no dealings with
a country with a racists regime, or should endow a local
public library, the management is obligated to carry out
such a directive regardless of its effect on the business'
bottom line.
The Stakeholder Theory

This theory "holds that the management's

fundamental obligation is not to maximize the
firm's financial success but to ensure its
survival by balancing the conflicting claims of
multiple stakeholders." A stakeholder is defined
as any group or individual that stands to benefit
or suffer from decisions made by a corporation.
 Two Principle of
Stakeholder Management

1. Principle of corporate legitimacy. The corporation

should be managed for the benefit of its stakeholders: its
customers, suppliers, owners, employees, and the local
communities. The rights of these groups must be ensured,
and further, the groups must participate, in some sense, in
decisions that substantially affect their welfare.
 Two Principle of
Stakeholder Management

2. Stakeholder fiduciary principle. Management bears a

fiduciary relationship to stakeholders and to the
corporation as an abstract entity. It must act in the interest
of the stakeholders as their agent, and it must act in the
interest of the corporation to ensure the survival of the
firm safeguarding the long-term stakes of each group.
The Social Contract Theory

This normative theory states that "all businesses

are ethically obligated to enhance the welfare
of society by satisfying consumer and
employee interests without violating any of
the general canons of justice."
 Hasnas enumerates how businesses may
enhance the welfare of society from the
perspective of the social contract:

1. Benefit consumers by increasing economic efficiency, stabilizing

levels of output and channels of distribution and increasing
liability resources

2. Benefit employees by increasing their income potential,

diffusing their personal liability, and facilitating their income
allocation

3. Minimizing pollution and depletion of natural resources, the

destruction of personal accountability, the misuse of political
power, as well as worker alienation, lack of control over working
conditions, and dehumanization51
Corporate Social
Responsibility

Corporate Social Responsibility, commonly referred to as CSR, is a

company's strategic initiative to contribute to the well-being of
society and the environment. Also known as corporate citizenship,
CSR aims to positively contribute to the reduction of waste and
pollution in the environment and contribute to social welfare
causes, such as educational programs for the poor. These
initiatives have short-term costs for the company that are ideally
not aiming for profit but instead promote sustainable
environmental and social development.
Reidenbach and Robin's Conceptual
Model of Corporate Moral Development

R. Eric Reidenbach and Donald P. Robin suggest that a business's moral

development can be evaluated based on certain behaviors and practices.
While making a profit is the primary goal of any business, society also expects
companies to contribute to social good. Sometimes, a business's culture may
allow unethical behavior, so it's important to have clear standards to judge
whether a business is acting ethically or not.

The following classificatory variables are used for Reidenbach and Robin's
model of corporate moral development: "management philosophy and
attitudes, evidence of ethical values manifested in the business's culture, and
the existence and proliferation of organizational cultural ethics and artifacts
(codes, ombudsmen, reward systems).
Reidenbach and Robin's Conceptual
Model of Corporate Moral
Development

There are five stages that comprise the model: amoral,

legalistic, responsive, emerging ethical, and ethical. The model
is inspired by Lawrence Kohlberg's Stages of Moral
Development. Reidenbach and Robin assert that a direct
application of Kohlberg's model is not possible since individuals
do not develop in the same manner as organizations. Briefly,
Kohlberg's model is as follows:
Reidenbach and Robin's Conceptual
Model of Corporate Moral
Development

Level 1: Pre-conventional morality

Stage 1: Obedience and punishment: behavior driven

by avoiding punishment
Stage 2: Individual Interest: behavior driven by self-
interest and rewards
Reidenbach and Robin's Conceptual
Model of Corporate Moral
Development

Level 2: Conventional morality

Stage 1: Interpersonal: behavior driven by social

approval
Stage 2: Authority: behavior driven by obeying
authority and conforming to social order
Reidenbach and Robin's Conceptual
Model of Corporate Moral
Development

Level 3: Post-Conventional morality Stage

1: Social Contract: behavior driven by the

balance of social order and individual rights
Stage 2: Universal Ethics: behavior driven by
internal
The Stages of Organizational
Moral Development

Stage 1: The amoral organization

This type of organization is defined by a "winning at any cost" attitude.

Ethics is the least of its concerns. It is an enterprise completely absorbed
in productivity and profitability. It only thinks about ethics when it gets
caught in some wrongdoing. For this type of organization, the only social
responsibility of a business is to make a profit. As Reidenbach and Robin
say, "Top management rules by power and authority and employees
respond by acquiescing to that authority and power through a reward
system which supports a 'go along' type of behavior. "
The Stages of Organizational
Moral Development

Stage 2: The legalistic corporation

Firms in stage two "exhibit compliance with the letter of the law as
opposed to the spirit of the law. " An organization in this state of moral
development exhibits respect for laws, codes, and regulations. This firm is
concerned with following state rules, placing a premium on the legality of
action over its morality. It places a great deal of responsibility on its legal
team to make sure that corporate policies are executed in accordance with
the laws of the state, so as to avoid any legal complications. From this
perspective, what is legal corresponds to what is right.
The Stages of Organizational
Moral Development

Stage 3: The responsive corporation

This type of corporation begins to acquire values other than profitability

and legality. Firms of this type have it in their interest to do right, but it
considers more expediency rather than an end in itself. In other words,
these types of corporations are inclined to give in to societal demands
and, therefore, realize that business has an obligation to operate with
society in mind. They have a code of ethics that seeks to align corporate
goals with societal demands.
The Stages of Organizational
Moral Development

Stage 4: The emergent ethical organization

This type of organization actively seeks a greater balance between profit and
ethics. It recognizes the existence of a social contract between business and
society. The ethical consequences of any corporate decision are given weight
along with its potential for profitability. Various instruments are designed to
make sure that the firm and its various agents conduct business ethically.
There are handbooks, policy statements, committees, ombudsmen, and
ethics program directors that seek to manage and ethically account for the
conduct of the organization with respect to its various responsibilities to
different stakeholders. "
The Stages of Organizational
Moral Development

Stage 5: The ethical organization

Stage five behavior is characterized by an organization-wide acceptance

of a common set of ethical values that permeates the organization's
culture. These core values guide the everyday behavior of an individual's
actions. Decisions are made based on the inherent justness and fairness
of the decision as well as the profitability of the decision. In this sense,
there is a balance between concerns for profits and ethics. Employees
are rewarded for walking away from actions in which the ethical position
of the organization would be compromised.
 Conclusion
Ethics is the study of how one ought to conduct oneself in relation to others.
Business, as most people see it, is a world that seems to be exempt from the ought
since it is quite understandable that business people seek only the good for
themselves. After all, what is business for if not for maximization of profit?
However, there are ways of doing business ethically. Values such as justice and
fairness need not be completely overlooked in one's business dealings with others.
As a business recognizes its social responsibilities as an entity that pools various
resources from different sources, both human and non-human, it realizes that it
has a responsibility to make sure that its operations do not hinder the flourishing
of these stakeholders. In the course of its ethical maturity, it also realizes that its
existence has profound effects on the welfare of citizens and the natural
environment.
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