Business Ethics, Corporate

Governance and CSR

Business Ethics

 ‘Principles of conduct within organizations that

guide decision making and behavior’ (David 2008)
Good business ethics is a prerequisite for good
strategic management

 ‘The study of business situations, activities, and

decisions where issues of right and wrong are
addressed’
Ethical Values, Issues and Choices

Ethical values: shared beliefs about right and wrong,

good and bad
 Govern the behaviour of a person or a group

Ethical issues: problems or dilemmas which present a

conflict of values
 Pay a ‘living wage’ or personal financial gain

Ethical choices: decisions about which option to take in

response to a dilemma
 Difficult decisions, because each option has its own

drawbacks
Some business practices always
considered unethical and often illegal

 Misleading advertising
 Misleading labeling

 Poor product or service safety

 Harming the environment

 Insider trading

 Padding expense accounts

 Dumping flawed products on foreign markets

But in many other cases, the law is unclear and all

choices have elements of both ‘right’ and ‘wrong’
Business Ethics ...

Free
Law Ethics
Choice

Legal Standard Social Standard Personal Standard

A personal responsibility?
Ethical Dilemma
What would you do?
 You are a strategic analyst at a successful hotel enterprise that
has been generating substantial excess cash flow.
 Your CEO instructed you to analyse the competitive structure of
closely related industries to find one the company could enter,
using its cash reserve to build up a substantial position.
 Your analysis suggests that the highest profit opportunities are
to be found in the gambling industry. You realise that it might
be possible to add casinos to several of your existing hotels,
lowering entry costs into this industry.
 However, you personally have strong moral objections to
gambling

Should your own personal beliefs influence your

recommendations to the CEO?
Criteria for Ethical Decision
Making
 Utilitarian approach – moral behavior produces the
greatest good for the greatest number
 Individualism approach – acts are moral when they
promote the individual’s best long-term interests
 Moral rights approach – moral decisions are those
that best maintain the rights of those affected,
including free consent, life and safety
 Justice approach – decisions must be based on
standards of equity, fairness, and impartiality; (esp.
important in HR managment)
Why is Business Ethics Important?

 Companies experience ‘social blowback’ when

stakeholders perceive that they have breached their
deal with society

 Good business ethics is a prerequisite for good

strategic management
The Emergence of Corporate Social Responsibility

 Companies have responded to increasing

expectations by advocating what is now a common
term in business: Corporate Social Responsibility
(CSR)

 Most large companies now feature CSR reports,

managers, departments, and the subject is
increasingly promoted as a core area of
management - next to marketing & accounting
Crane, Matten & Spence (2008)
Who determines a good business ethics
or CSR Agenda?
 Government: the law makers?
 Business ethics begins where the law ends

 The ‘strategists’: CEO, CSO, CFO, managers

 Core values, beliefs ‘embedded’ in organization
 Business ‘code of ethics’ (Banking, Media, Food Industry)

 Board of Directors
 Corporate Governance
 Duties & Responsibilities

 Stakeholders
 Consumers/pressure groups/local community/Media
Who is Responsible for Ethics / CSR?
Leadership & Management Issues
CEO / Strategists

Code of business ethics:

 Provides basis on which policies can be devised to
guide daily behavior and decisions in the workplace
 CEO & Management responsible for implementation
Who else is responsible for Ethics / CSR?
Governance Issues

Board of Directors Roles & Responsibilities

Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights

Is ‘being ethical’ good for business?

Is it possible to be both profitable and responsible?
Corporate Governance
Definitions…

 The way in which organizations are directed and

controlled
Cadbury (1992)

 The process by which corporations are made

responsive to the rights and wishes of stakeholders

Demb and Neubauer (1992)

Corporate Governance
The Growth of Modern Corporations
The ‘Agency Problem’

 The agency problem arises because of the

separation between ownership of an organization
and its control

 The agency problem is inherent in the relationship

between the providers of capital, referred to as
the ‘principal’, and those who employ that capital,
referred to as the ‘agent’.
Directors Roles & Responsibilities
BusinessWeek ’s ‘Principles of Good Governance’

 No more than 2 directors are current or former

company executives
 No directors do business with the company
 Each director owns a large equity stake in the company
 At least one outside director with extensive experience
 Each director attends at least 75% of all meetings
 Board is frugal on executive pay, diligent in CEO
succession, and prompt to act when trouble arises
 CEO is not also the chairperson of the board
 Shareholders have considerable power and information
to
choose & replace directors
Evaluating Corporate Responsibility

The Pyramid of CSR

Archie Carroll (1991)