PowerPoint Slides to Accompany

BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman

Chapter 7
Ethics and Social
Responsibility of Business
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright 2004 by Prentice-Hall. All rights reserved.

Introduction
Businesses

organized in the United States

are subject to its laws.
They are also subject to the laws of other
countries in which they operate.
Business persons owe a duty to act ethically
in the conduct of their affairs.
Businesses owe a social responsibility not to
harm society.
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Law and Ethics

Ethics

A set of moral principles or values

that governs the conduct of an individual or a
group.
What is lawful conduct is not always ethical
conduct.

The law may permit something that would be

ethically wrong.

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Moral Theories and Business Ethics

Ethical
Fundamentalism

Utilitarianism

Ethical Relativism

Rawlss Social
Justice Theory

Kantian Ethics

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Ethical Fundamentalism
Ethical

fundamentalism - When a person

looks to an outside source for ethical rules or
commands.
Critics argue that ethical fundamentalism
does not permit people to determine right
and wrong for themselves.

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Utilitarianism
A moral

theory that dictates that people must

choose the action or follow the rule that
provides the greatest good to society.
This does not mean the greatest good for the
greatest number of people.
Has been criticized because it is difficult to
estimate the good that will result from
different actions.
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Kantian Ethics (Duty Ethics)

A moral

theory that says people owe moral

duties that are based on universal rules.
Based on the premise that people can use
reasoning to reach ethical decisions.
This theory would have people behave
according to the categorical imperative:
Do unto others as you would have them do
unto you.
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Kantian Ethics (Duty Ethics) (continued)

Deontologys universal rules are based on

two important principles:
1. Consistency all cases are treated alike

with no exceptions.
2. Reversibility the actor must abide by the
rule he or she uses to judge the morality of
someone elses conduct.

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Kantian Ethics (Duty Ethics) (continued)

Thus,

if you are going to make an exception

for yourself, that exception becomes a
universal rule that applies to all others.
A criticism of this theory is that it is hard to
reach a consensus as to what the universal
rules should be.

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Rawlss Social Justice Theory

Rawlss

social contract
A moral theory that says each person is
presumed to have entered into a social
contract, with all others in society, to obey
moral rules that are necessary for people to
live in peace and harmony.

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Rawlss Social Justice Theory

(continued)

Rawlss

Distributive Justice Theory

Fairness is considered the essence of justice.

The principles of justice should be chosen by
persons who do not yet know their station in
society.
This veil of ignorance would permit the
fairest possible principles to be selected.

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Rawlss Social Justice Theory

(continued)

There are two major criticisms of this

theory:
1. Establishing the blind original position for

choosing moral principles is impossible in

the real world.
2. Many persons in society would choose not
to maximize the benefit to the least
advantaged persons in society.

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Ethical Relativism
A moral

theory that holds that individuals

must decide what is ethical based on their
own feelings as to what is right or wrong .
There are no universal ethical rules to guide
a persons conduct.
If a person meets his or her own moral
standard in making a decision, no one can
criticize him or her for it.
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Ethical Relativism (continued)

A criticism

of this theory is that an action

usually thought to be unethical would not be
unethical if the perpetrator thought it was in
fact ethical.

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Theories of Ethics Summary (1 of 2)

Theory
Ethical
fundamentalism
Utilitarianism
Kantian ethics

Description
Persons look to an outside source or central
figure for ethical guidelines.
Persons choose the alternative that would
provide the greatest good to society.
A set of universal rules establishes ethical
duties. The rules are based on reasoning
and require (1) consistency in application
and (2) reversibility.

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Theories of Ethics Summary (2 of 2)

Theory
Rawlss social
justice theory

Description
Moral duties are based on an implied social
contract. Fairness is justice. Rules are
established from an original position.

Ethical relativism

Individuals decide what is ethical based on

their own feelings as to what is right or
wrong.

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The Social Responsibility of Business

Business

does not operate in a vacuum.

Decisions made by business have farreaching effects on society.
In the past, many business decisions were
made solely on a cost-benefit analysis.

Bottom line impact.

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The Social Responsibility of Business

(continued)
Such

decisions may cause negative

externalities for others.
Corporations are considered to owe some
degree of social responsibility for their
actions.

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Ethics Brief
Corporations that conduct social
audits will be more apt to prevent
unethical and illegal conduct by
managers, employees, and
agents.

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The Social Responsibility of Business

(continued)

Ethics

is a function of history, culture,

religion, and other factors.
Therefore, ethical standards vary from
country to country.
The Caux Round Table promulgated an
international ethics code called the Principles
for International Business.

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The Caux Round Table Principles:

Principle

1 The Responsibilities of Business

Beyond Shareholders Toward Shareholders

Principle

2 The Economic and Social Impact

of Business: Toward Innovation, Justice, and
World Community

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The Caux Round Table Principles: (continued)

Principle

3 Business Behavior: Beyond the

Letter of Law Toward a Spirit of Trust

Principle

4 Respect for Rules

Principle

5 Support for Multilateral Trade

Principle

6 Respect for the Environment

Principle

7 Avoidance of Illicit Operations

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Theories of Social Responsibility

Maximizing
Profits

Corporate
Citizenship

Moral
Minimum

Stakeholder
Interest

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Maximizing Profits
A theory

of social responsibility that says a

corporation owes a duty to take actions that
maximize profits for shareholders.

The

interests of other constituencies are not

important in and of themselves.

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Moral Minimum
A theory

of social responsibility that says a

corporations duty is to make a profit while
avoiding harm to others.

As

long as business avoids or corrects the

social injury it causes, it has met its duty of
social responsibility.

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Moral Minimum (continued)

The

legislative and judicial branches of

government have established laws that
enforce the moral minimum of social
responsibility on corporations.
e.g., Occupational safety laws
e.g., Consumer protection laws for product
safety

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Stakeholder Interest
A theory

of social responsibility that says a

corporation must consider the effects its
actions have on persons other than its
stockholders.
This theory is criticized because it is difficult
to harmonize the conflicting interests of
stakeholders.

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Other Stakeholders of a Business

Employees

Suppliers

Customers

Creditors

Local
Community
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Corporate Citizenship
A theory

of responsibility that says a

business has a responsibility to do good.
Business is responsible for helping to solve
social problems.
Corporations owe a duty to promote the
same social goals as do individual members
of society.

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Corporate Citizenship (continued)

This

theory argues that corporations owe a

debt to society to make it a better place.

This duty arises because of the social power

bestowed on corporations.

A major

criticism of this theory is that the

duty of a corporation to do good cannot be
expanded beyond certain limits.

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Theories of Social Responsibility Summary

Theory

Social Responsibility

Maximizing profits

To maximize profits for stockholders.

Moral minimum

To avoid causing harm and to compensate for

harm caused.

Stakeholder interest

To consider the interests of all stakeholders,

including stockholders, employees, customers,
suppliers, creditors, and local community.

Corporate citizenship To do good and solve social problems

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The Corporate Social Audit

Corporate

audits should be extended to

include the moral health of the corporation.

Corporations

that conduct social audits will

be more apt to prevent unethical and illegal
conduct by managers, employees, and
agents.

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The Corporate Social Audit (continued)

The

audit would examine how well:

Employees have adhered to the companys

code of ethics; and
The corporation has met its duty of social
responsibility.

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The Corporate Social Audit (continued)

Such

audits would focus on the corporations

efforts to:
Promote employment opportunities for
members of protected classes
Worker safety
Environmental protection
Consumer protection

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The Corporate Social Audit (continued)

Companies should institute the following
procedures when conducting a social audit:
An independent outside firm should be hired
to conduct the audit.

This will ensure autonomy and objectivity.

The

companys personnel should cooperate

fully with the auditing firm while the audit is
being conducted.
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The Corporate Social Audit (continued)

Procedures for conducting the audit (continued):
The auditing firm should report its findings
directly to the companys board of directors.
The

results of the audit should be reviewed

by the companys board of directors.

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The Corporate Social Audit (continued)

Procedures for conducting the audit (continued):
The board of directors should determine how
the company can:
Better meet its duty of social responsibility;
and
Use the audit to implement a program to
correct any deficiencies it finds.

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United Nations Code of Conduct for

Transnational Corporations
Respect

for National Sovereignty

Adherence to Socio-Cultural Objectives and
Values
Respect for Human Rights and Fundamental
Freedoms
Abstention from Corrupt Practices

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