Social Responsibility and Business Ethics
Social Responsibility
Social Responsibility is the awareness that business activities have an impact on society and the consideration of the impact by firms in decision making.
Socially responsible firms can be profitable while voluntarily engaging in activities beneficial to society.
Pyramid of Social Responsibility
(Carroll 1991)
Social Responsibility
Social Responsibility is a cost to all firms.
Society increasingly expects businesses to do more than just make profits.
Social responsibility is a necessary part of doing business today.
Strategy Formulation
The mission of a firm defines its reason for existence: it asks the question “Why are we in business?”
This vision describes where the organisation is headed and what it intends to be: it is a statement of the future that would not happen by itself.
Strategy Formulation
Values or guiding principles guide the journey to that vision by defining attitudes and policies for all employees, which are reinforced through conscious and subconscious behaviour at all levels of the organisation.
Social Responsibility
Companies must weigh the impact of their decisions on:
Consumers
Employees
Investors
Environment
Responsibility to Consumers
Successful businesses provide products that satisfy their customers’ needs. Increasingly however, customers are turning a critical eye on the firms’ policies and actions and exerting pressure in the market place.
Consumerism
Consumerism includes the activities of individuals, groups and organisations aimed at protecting consumer rights.
Consumer groups test and report on safety and performance of products, and act as consumer advocates before law making bodies.
American Labels
On an American Airlines packet of nuts:
Instructions – open packet, eat nuts.
On Nytol Nighttime Sleep Aid:
Warning: May cause drowsiness.
Warning on a Conair Pro Style 1600 hair dryer: Do not use in shower. Never use while sleeping
American Labels
Batman Halloween costume box – Parent: Please exercise caution – mask and chest plate are not protective and cape does not enable wearer to fly.
Dog Shampoo – The contents of this bottle should not be fed to fish.
Paint Removal Gun – Do not touch nozzle until tool as cooled, Do not use as hairdryer, Tools and paint scrapings become hot
Massage Chair
Warning: Do not use massage chair without clothing…and never force any body part into the backrest area while the rollers are moving.
Boycotts
Do Boycotts work?
Exxon Valdez
Boycotts of French products
Apartheid
World Trade Organisation Protests
Responsibility to Employees
Safe working conditions
Equal opportunities
Fair compensation
Adequate benefits
Managers that are responsive to the problems
Responsibility to the Environment
Water pollution
Air pollution
Land pollution
Chemical pollution
Noise pollution
Disposal of waste
Land Management
Erosion
BHOPAL – The beginning of awareness
Corporate Disaster
Ecological disaster
Human disaster
Ecological footprint
The Ecological Footprint is the global measure of environmental sustainability
The footprint is the land and water area (in hectares) needed to supply the resources one person consumes and to absorb the waste
The area available for every person is hectares
Ecological footprint
In 2004, on average, each person was using hectares
The burning of fossil fuels, the growth and production of food and increased air travel has the greatest impact on the ecological footprint
At present, the average Australian uses hectares. Australia has the 4th largest footprint globally
Ecological footprint
China, the world’s largest population, has a footprint of hectares. This is due to a combination of:- diet (green vegetables, rice and low meat intake), lifestyle (low levels in car ownership, energy usage and airplane travel).
Our demand for natural resources is exceeding supply.
If all of the world’s people consumed resources and produced waste at this rate, we would require Earths to maintain our current lifestyle.
Responsibility to Investors
The Social responsibility of business is to increase profits. ‘Milton Friedman’
Businesses have a responsibility to manage funds so as to return a fair profit to investors. Loss of investor confidence restricts a firm’s ability to meet future capital needs.
Enron
2001 collapse that caused the largest the largest Chapter 11 bankruptcy (until Worldcom and Lehman Brothers). Caused by institutionalized, systematic, and creatively planned accounting fraud
The scandal also brought into question the accounting practices of many corporations throughout the United States, resulted in the creation of the Sarbanes-Oxley Act of 2002.
Ponzi scheme - Madoff
Bernard Madoff, that former NASDAQ chairman, operated what has been called the largest investor fraud ever committed by an individual.
Prosecutors estimated the size of the fraud to be $ billion.
Ponzie scheme - fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned
On June 29, 2009, he was sentenced to 150 years in prison with restitution of $170 billion.
Wall Street
“Greed is Good”
“If you want a friend get a dog”
Wall Street – 1985 20th Century Fox
Advancing Corporate
Social Responsibility
Many companies practice social responsibility through programs of:
support
Regulation
Audits
practice
Syriana - 2005
Discusses
Globalization
Corruption
Greed
Religion
Culture
unethical behaviour
social responsibility of nations and individuals
Business Ethics
A code of behaviour which society considers moral and appropriate for guiding the way in which its members deal with one another. We feel an obligation to consider not only our personal well being but also that of other humans.
Dr. Albert Schweitzer
Fundamental International Rights
The right to physical movement
The right to ownership of property
The right to freedom from torture
The right to a fair trial
The right to nondiscriminatory treatment
The right to physical security
The right to freedom of speech and association
The right to minimal education
The right to political participation
The right to subsistence
Business Ethics
“Do unto others as you would have them do unto you”
Ethics is very much a legitimate business tool. - Discuss
Business Ethics
What are the meanings of ethical concepts like good and right? Can these concepts be defined
What processes can a person use to reach a conclusion about an ethical dilemma? On what can this conclusion be based.
Do ethical dilemmas have answers that will be usually accepted as right, proper and appropriate.
Factors influencing Ethical Behaviour
Business Environment
Organisation
Culture
Individual Values and Customs
Religion
Politics
Finance
Geography
Social Circumstance
Encouraging Ethical Behaviour
Code of Ethics
Ethics Committee
Ethics Legislation
Multinational Companies(MNC) and the Global Environment
Change scope and nature of USA based multinationals
Face challenges of operating in new world of business
Corporate legitimacy
MNC and host country philosophy
MNC and host country challenges
Cultural differences
Business and government differences
Seven Moral Guidelines for MNCs
Inflict no intentional or directly harm
Produce more good than bad for the host country
Contribute to host country’s development
Respect the human rights of their employees
Pay their fair share of taxes
Respect local cultural beliefs that do not violate moral norms
Cooperate with the government to develop and enforce background institutions
Four Actions for Improving International Business Ethics
1. Create global codes of conduct
Global codes and standards set by corporations
Global codes and standards set by international organisations
Four Actions for Improving International Business Ethics
2. Integrate ethics into a global strategy
3. Suspend activities in host country
4. Create ethical impact statements
Ethical Standards
Based on the expectation of:
Society
Culture
Group
Firm
Individual’s personal value system(this varies from culture to culture and country to country)
Corporate Responsibility
Accountability
Business Conduct
Community Involvement
Corporate Governance
Environment
Human Rights
Marketplace/Consumers
Workplace/Employees
Management Beyond Borders: An International Study Among Managers in Nine European Union Countries
Jeurissen, . and van Luijk, . (1998)
The ethical reputations of managers in nine EU countries; a cross referential survey”, Journal of Business Ethics, Vol. 17, pp. 995-1005
Managers in Nine European Union Countries were asked to rank these goals
1. Compliance with contract made
2. Maintaining a sound financial structure
3. Job Security
4. Efficiency
5. Concern for the Environment
6. Capacity to innovate
7. Employee well being and safety
8. Profit Maximization
9. Flexibility
10. Equal treatment of men and women
11. Positive Company Image
12. Contributing to the solution of social problems
13. Quality Product and Service
What is Standardisation?
Standardisation is essentially an economic undertaking made possible by the achievement of widespread agreements on the coherent and mutually beneficial use of science, technology and business know-how.
Aim:
To facilitate international exchange of goods and services and to develop cooperation in the sphere of intellectual, scientific and economic activity.
Objectives of Standardisation
Increase and measure – product quality and reliability at competitive price, providing with clear guidelines for the study of complex process and clear definitions such as ISO 9000,QS 9000,VD^A
Improve user safety, environmental protection and reduction of waste by means of international co-operation such as ISO14000.
Enhance compatibility and interoperability of goods and services
Encourage the simplification for improved usability
Optimize model variety and extend production series by encouraging the study of prototypes of products
Facilitate the distribution efficiency and ease of maintenance
Accelerate the process of cost reduction to end-users, by developing metrics that help to determine the cost in each stage in the process.
Questions…?
What is a standard and why are they necessary?
A standard is an agreed upon method
They are necessary for interoperability
What makes Internet standard setting difficult?
Different industrial factions and motives, as well as the involvement of participants from different countries
Multiple standard ordaining bodies
Global Codes and Standards Developed by International Organisations
Caux Principles
Global Reporting Initiative
Global Sullivan Principles
OOECD Guidelines for Multinational Enterprises
Principles for Global Corporate Responsibility:Benchmarks
UN Global Compact
CAUX Principles for Business: (Issued in 1994)
The Caux Principles are as aspirational set of recommendations covering many areas of corporate behaviour.
They seed to express a world wide standard for ethical and responsible corporate behaviour and are offered as a foundation for dialogue and action by business and leaders worldwide.
Issued in 1994, the Principles are sponsored by the Caux Roundtable (comprised of senior business leaders from Europe, Japan and North America).
No formal mechanism for corporate commitment to these principles exists.
Global Reporting Initiative (GRI)
(issued in 1999, but development is ongoing)
The GRI is an international reporting standard for voluntary use by organisations reporting on the economic, environmental and social dimensions of their activities, products and services.
Using input from reporters and report users, the GRI has sought to develop a list of specific indicators for reporting on social, environmental and economic performance.
GRI is a nonfinancial reporting framework, does not provide recommendations on business conduct but the framework is necessarily underpinned by norms for business conduct.
GRI is led by the Coalition of Environmentally Responsible Economies (CERES) and includes NGO’s, corporations, academics and others.
The GRI does not assess company's conformity with its reporting guidelines.
Global Sullivan Principles;
(issued in 1999)
GSP are an aspirational standard developed with the input of several MNCs.
Eight broad directives on labour, business ethics and environmental practices of MNCs and their business partners.
Issued in 1999, written by Reverend Leon Sullivan, whose original Sullivan Principles provided guidelines for companies doing business in South Africa during the period of apartheid.
Companies endorse the Principles by publicly pledging to integrate them into their operations.
Continuing support requires that companies provide an annual letter to Reverend Sullivan restating the company’s commitment and outlining progress to date.
OECD Guidelines for Multinational Enterprises
(revised in 2000)
The Guidelines are recommendations covering nine areas of business conduct addressed by government to multinational enterprises.
While observance of the recommendations by enterprises is purely voluntary, adhering governments sign a binding decision to participate in Guidelines implementation and to promote their observance by enterprises operating in or fro their territory.
Principles for Global Corporate Responsibility – Benchmarks: (revised in 1998)
The Benchmarks are designed to provide a model framework through which stakeholders can assess corporate codes of conduct, policies and practices related to corporate social responsibility expectations.
The principles were revised in 1998 to include the input of a range of human rights, environmental and labour groups, religious organisations and companies.
The standard contains nearly 60 principles the sponsors consider “fundamental to a responsible company’s actions”.
Finally the standard includes “Benchmarks” to be used by external parties to assess the company’s performance related to the recommended policies and practices.
Benchmarks’ sponsors (several religious NGOs based in the United Kingdom and North America) do not seek endorsements from companies.
Social Accountability 8000
(issued in 1998)
SA 8000 is a voluntary, factory based monitoring and certification standard for assessing labour conditions in global manufacturing operations. SA 8000 is modeled after the quality and environmental auditing processes developed through the ISO in its ISO 9000 and ISO 1400 standards.
SA 8000 relies on certified monitors to verify factory compliance with the standard.
The sponsor of the standard, Social Accountability International (an NGO) is currently reviewing the standard and hopes to issue a revised version soon.
United Nations Global Compact:
(issued in 1999)
The Un Global Compact was announced at the World Economic Forum in Davos, Switzerland in January 1999 and formally launched in 2000.
UN Secretary General Kofi Annan called on world business leaders to “embrace and enact” a set of nine principles in their individual corporate practices and by supporting complementary public policy initiatives.
The standard includes specific practices that endorsing companies would commit to enact.
Endorsements from companies are sought under the Global Compact.
A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.
