Government, Regulation,

and Business Ethics

Lecture 11
 Overview
 The specific stake that governments have in corporate
activity
 The ethical issues and problems faced in business-
government relations
 The shifts in these issues and problems in context of
globalization
 Further develop the notion of corporate citizenship by
analysing the changing role of business and CSOs
 Challenges posed by sustainability to business-
government relations and show the importance of strong
governmental regulation for achieving potentially
sustainable solutions
Government as a
stakeholder
 Defining government, laws, and
regulations
 Government
 variety of institutions and actors at different levels that
share a common power to issue laws

 Laws
 serve as a codification into explicit rules of the social
consensus about what a society regards as right and
wrong

 Regulation
 rules that are issued by governmental actors and other
delegated authorities to constrain, enable, or encourage
particular business behaviours. Regulation includes rule
definitions, laws, mechanisms, processes, sanctions, and
incentives
 Government as a
stakeholder of business
Government as a
stakeholder of
business

Government as the elected Government as an actor (or

representative of citizen’s interests group of actors) with interests of
its own

Restricting Enabling Dependent Competing with

business business on business business
 representative of
citizens’ interests
 Unlike many other stakeholders, government in
principle represents an entire community since it is
elected by the citizens of a certain town, region,
country or even continent
 In this role as the elected representative of citizen
s ’ interests
 Defines the conditions for the licence to operate of
business
Restricting business
Enabling business
 Debate about the degree of governmental
responsibility for a functioning economy
 Laissez-faire vs. forceful role in industrial policy
 (or group of actors) with
interests of its own
 Governments have a self-interest to be re-
elected
 Governments very dependent on business
 Governments also compete with business
Ethical issues in the
relation between
business and
government
Identifying the basic problems and issues:
legitimacy, accountability and modes of
influence
 Main source of ethical problems stems from
fiduciary relation to society in general
 Government therefore in bipolar situation

Regulation that
Taxes, jobs, protects their
investment, etc. interests
Business Government Society
Profitable and Consent
stable economic
framework
 Legitimacy of business
influence
 Business can have a significant influence on the
implementation and direction of governmental
policies. It is therefore to no surprise that the
issue of ‘public sector ethics’ has gained
enormous momentum (Dobel 2007). The main ethical
consideration arising from this situation is twofold
 legitimacy of business influence;
 accountability.
 Is power and political influence of business
leaders a threat to democracy?
 To what degree is it legitimate for business to
have an influence in politics?
Modes of business influence
on government
 Numerous ways that business can influence
government
 Oberman (cited in Getz 1997:59) distinguishes among
different ways, using following criteria:
 Avenue of approach to decision-maker
Direct
indirect
 Breadth of transmission
Public
private
 Content of communication
Information orientated
Pressure orientated
Business influence on
government
 Lobbying
 Lobbying represents a direct, usually private
attempt by business actors to influence
governmental decision-making through
information provision and persuasion.
 It is considered a weak form of influence (McGrath 2005)

 Different types of lobbying:

 Atmosphere setting
 Monitoring
 Provision of information to policy-makers
 Advocacy and influencing
 Application of pressure
 individual conflicts of
interest
 Donations to parties by business can raise conflict
of interest problems
 Prospect of preferential treatment
 The situation is a dilemma: having good relations
with political parties seems necessary, but party
financing has dangers
 It gains influence
 but it could severely harm the company’s image and
perhaps encourage questionable behaviour on the part of
employees
 Overlap of posts between business and government
 ‘Revolving doors’ common globally (e.g., US, Europe,
Japan)
 This raises substantial conflicts of interest
 governmental actors by
business
 Corruption is the abuse of entrusted power for
private gain (Transparency International)
 Main issue of government corruption in relation to
business is activities where private firms shape the
formulation, implementation, or enforcement of public
policies or rules by payments to public officials and
politicians

 State capture is a situation where private firms

shape the formulation of regulation by payments
to public officials and politicians
 Where state capture becomes a ‘universal law’ (Kant),
a normally functioning economy becomes nearly
impossible
 context of privatization
and deregulation
 Privatization profits
 Key issue is a fair price
 Citizens turned consumers
 Economic basis for decisions, rather than political
 Natural monopolies
 Can lead to over-charging or delivering poor
quality
 PPPs, Public-private-partnerships
 Private sector profit-maximization tends to
dominate at the expense of quality and
effectiveness for citizens
Corporate citizenship and
regulation
Business as key player in the regulatory game
 Corporate citizenship and regulation:
business as key player in the regulatory
game
 Debate over how to improve rulemaking
 Business involvement through self-regulation or
‘reflexive regulation’ and corporatism
 Reasons for new forms of regulation:
 Encouragement of a proactive approach from
industry
 And the hope/assumption of
Cost-effectiveness
Faster achievement of objectives
Governments, business
and sustainability
Global climate change legislation and
business responses: Support vs.
obstruction
 The debate on climate change regulation has been a key
political arena of sustainability
 CO2 reductions represent a big threat for some industries
 Result: Global Climate Coalition, to lobby against regulation
 Variable success (and the coalition has been disbanded)
 In Europe, public appetite for action, so firms lobbied to
shape the regulation that emerged. ETS introduced in 2005
 Strictest approach, but uses market mechanisms, flexibly
 In Australia, Canada, USA, lobbying was against action
 Global supply of food and water is another key issue
 Bolivian example of ethical issues in water privatization
 Volatility of global markets for wheat and rice, exacerbated
by rise of biofuels
 Summary
We have:
 Looked at the stake held by government in business
and set out how the role of government and its central
task of issuing regulation for business, affects this
stakeholder relationship
 Discussed the complex role of governments and the
interdependencies and mutual interests that they
have with business
 Looked at the way globalisation shifts the role of
business and government in regulating issues of
relevance to business ethics
 Seen how sustainable development can clash too
strongly with short-term profit goals of business to be
left to merely voluntary approaches