Ethics

Question 1

What is ethics and why is it important in IB?

Answer 1

• The accepted principles of right or wrong that govern the conduct of a person, profession or organisation
• It is often argued that inward investment by a MNC can be a force for economic, political and social progress that ultimately improves the rights of people

Question 2

What are the philosophical approaches to ethics?

Answer 2

• Straw Men
• Utilitarian and Kantian ethics
• Rights theories
• Justice theories

Question 3

What are the aspects of the Straw Men approach?

Answer 3

• Friedman doctrine
• Cultural relativism
• The righteous moralist
• The naive moralist

Question 4

What is the Friedman doctrine and what is it?

Answer 4

• Aspect of the Straw Men philosophical approach to ethics
• Only social responsibility is to increase profits so long as the company obeys the law
• Explicitly rejects the idea that companies should undertake social expenditures beyond those mandates by the law and required for efficient running of the business
• If stockholders wish to use their proceeds to make social investments that is their right, but managers shouldn’t make that decision for them

Question 5

What is cultural relativism and what is it?

Answer 5

• Aspect of the Straw Men philosophical approach to ethics
• Belief that ethics are nothing more than the reflection of a culture, and accordingly a firm should adopt the ethics of the culture in which it is operating

Question 6

What is the righteous moralist and what is it?

Answer 6

• Aspect of the Straw Men philosophical approach to ethics
• Claim that a MNC’s home country’s standards of ethics are the appropriate ones for companies to follow in foreign countries
• Typical of managers in developed nations

Question 7

What is the naive moralist and what is it?

Answer 7

Assertion that MNC’s should imitate the ethics of other MNC’s operating in the same foreign country

Question 8

What is Utilitarian and Kantian ethics?

Answer 8

• Hold that the moral worth of actions or practices are determined by their consequences
• An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences
• Kantian ethics holds that people should be treated as ends and never purely as means to the ends of others

Question 9

What are rights theories?

Answer 9

Recognise that human being have fundamental rights and privileges that transcend national boundaries and cultures

Question 10

What are Justice theories?

Answer 10

• Focus on the attainment of a just distribution of economic goods and services
• A just distribution is one that is considered fair and equitable
• John Rawls

Question 11

What was John Rawl’s contribution to and what was it?

Answer 11

• Justice theory
• Argues that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone’s advantage
• Under the ‘veil of ignorance’ all people would agree that 1. each person should be permitted the maximum amount of basic liberty compatible with a similar liberty for others and 2. that once equal basic liberty is ensured, inequality in basic social goods (income & wealth distribution, and opportunities) is to be allowed only if such inequalities benefit everyone
• One can therefore argue that a market based system that produces unequal distribution is just as it in itself benefits the least advantaged members of society,

Question 12

What kinds of organisational stakeholders are there?

Answer 12

• Internal

* External

Question 13

Who are the internal organisational stakeholders?

Answer 13

• Shareholders (ROI)

- Employees (compensation)

Question 14

Who are the external organisational stakeholders?

Answer 14

• Suppliers (demand stability/price)
• Consumers (quality/price)
• Society at large (social contribution)
• Governments (taxes, legal compliance)
• Environment (sustainability)

Question 15

What are the approaches to the legal foundation of ethical behaviour?

Answer 15

• The law is inadequate

* Legal justification is appropriate

Question 16

What is the argument for the law being inadequate as a foundation of ethical behaviour?

Answer 16

• Some things that are unethical are not illegal
• Laws are slow to develop in emerging areas of concer
• Laws may be based on imprecisely defined moral concepts
• The law often needs to undergo scrutiny by the courts
• The law is not very efficient

Question 17

What is the argument for the law being adequate as a foundation of ethical behaviour?

Answer 17

• The law embodies many of a country’s moral principles
• The law provides a clearly defined set of rules
• The law contains enforceable rules that apply to everyone
• The law reflects careful and wide-ranging discussions

Question 18

What are the problems surrounding bribery?

Answer 18

• Affects performance of the company and the country
• Erodes government authority
• Damages reputations when disclosed
• Increases cost of doing business

Question 19

What are the steps to creating an ethical corporation?

Answer 19

• Business must explicitly articulate values that emphasis ethical behaviour i.e. code of ethics
• Leaders must repeatedly emphasise their imporantce and then act on them
• Incentive and rewards systems, including promotions and sanctions

Question 20

What are the social activism approaches used?

Answer 20

• Developing campaigns against business
• Attempting to build market intelligence
• Engaging businesses
• Strive to make market mechanisms more intelligent
  
  • Setting standards, fair trade goods etc
• Disrupting markets

Question 21

What have been the trends towards social activism towards business?

Answer 21

• 80s
  
  • Concerns about the role of companies in repressive regimes
• 90s
  
  • Attention to operational and supply chain issues
  • Shift from pushing governments to introduce stronger regulations to direct targeting of companies
• 2000s
  
  • Using social media to raise awareness of specific issues and targeting highly visible corporations
  • Targeting companies and industries with poor labour, product or environmental standards
  • Targeting companies that proclaim high levels of social
    responsibility

Question 22

What is CSR?

Answer 22

• Social responsibility refers to the idea that business people should consider the social consequences of economic actions when making
  business decisions and that there should be a presumption in favour of decisions that have both good economic and social consequences
• CSR is about understanding and managing and organisations influences on and relationships with the rest of society in a way that minimises the negative and maximises the positive
• Shift from the shareholder model to the stakeholder model

Question 23

What are the important aspects of CSR?

Answer 23

• Triple Bottom Line

* Carrolls CSR Pyramid

Question 24

What is the triple bottom line?

Answer 24

• Financial viability, social acceptability and environmental
  sustainability
• Places new demands on managers to
  
  • Engage in actives that create value for society and minimise harm to the environment
  • Satisfy the competing interests of diverse stakeholders
  • Evaluate and report these activites - social accounting

Question 25

What is Carrolls CRS pyramid?

Answer 25

- Philanthropic responsibilty - Ethical responsibility - Legal responsibility - Economic responsibility

Question 26

Why do firms undertake CSR initiatives?

Answer 26

- Ethical motivations - Re-defining the purpose of business to include external stakeholders - Managers personal values - Visible and confronting social needs, particularly in developing countries

Question 27

What institutional factors affect CSR?

Answer 27

- Reputation risk management - “License to operate” in the community gives the firm legitimacy in society - Increased demand from consumers, NGOs, investors, governments, media

Question 28

What strategic motivations for CSR?

Answer 28

- “Business case” - capturing growing demand by socially and environmentally aware consumers - Defensive strategy to forestall more stringent government regulation

Question 29

What are the critques of CSR?

Answer 29

- Threats to profitablity - Problems reconciling social and commercial objectives, market distortions - Unrealistic expectations - Trying to appease diverse stakeholders - Global “salvationism” - Should firms decide the best interests of society? - “Greenwash” and “Bluewash” - A smokescreen for deflecting criticism of firm behaviour - Burden of monitoring and auditing - Higher costs on SMEs and developing countries - Need for a development-oriented approach - CSR agenda focused too heavily on TNCs in developed countries