1 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY Ethics is the part of philosophy that studies the morality of human acts.

It studies human acts from the point of view of their moral value in relation with mans ultimate end. Ethics is concerned with the orientation of human acts with respect to the final goal of the human being. The goodness or evil of human acts depends on their conformity or lack of conformity to mans final goal Ethics as a science aims to obtain, based on universal principles, true and systematic knowledge of upright and true human behavior. Ethics is a science. A science is a body of knowledge containing certain and universal truths, which are demonstrated and based on the knowledge of causes. Ethics gives the scientific foundation of the universal principles that explain the morality of human actions. It is a theoretical science: It is real knowledge of the truth about what is good and evil in order to reflect on the morality of human acts. It is a normative science in that, based on philosophical reflection, it establishes norms, rules of conduct to help people choose what is really good for them. It is a practical science: It aims at changing ones life. Aristotle: We do not study Ethics to know what virtue is, but to learn how we can make ourselves virtuous and good; otherwise it will be a useless study. Ethics should lead to the acquisition of virtues. Virtues are good habits that are acquired by the repetition of actions. At the same time the will plays an important role in acquiring moral knowledge: it is not easy to consider the right order of actions if one does not want to accept the truth or if one does not want to live in an upright manner. Ethics is concerned with the moral good, the absolute good, which is in reference to the orientation of the will to mans final goal. This is the goodness or evil that characterizes human actions as free actions and therefore affect man as such; it makes the doer of the action good or bad in the absolute sense. Lying or greed can make a man bad insofar as he is a man, and not insofar as he is a mathematician or a scientist. A liar or a greedy person can still be considered technically good as a mathematician or a scientist. Every action aims at the pursuit of some good or end, but that end is normally wanted not in itself but with a view to achieving other ends, one of which is said to be the ultimate end or final goal. This final goal which is desired in itself, is the root of all ones desires; it becomes the reason for which we desire and choose everything else in life. In this sense the final goal is the unifying factor behind every action we carry out; our voluntary acts are not isolated actions but form a unity which configure us as persons. Let us consider for example the case of a person who one day decides not to go to work because he does not feel like going; on the following day he goes out with his friends and drinks without measure because he felt like drinking; on the next day he decides to spend the whole night in the office and neglects his family because he had the inkling to work. The final goal of this person is not to his work nor his drink but his pleasure. The question about mans final goal or ultimate end is one of the main tasks of Ethics.

2 Happiness and mans ultimate end It is a universal experience that everyone desires to be happy. The problem arises however, when one tries to define the content of happiness. Aristotle: Character of the human act: all actions aim at some good. He then compared the various opinions of men on what constitutes happiness: honor, pleasure and riches could give us happiness. These however cannot be identified with happiness for happiness is something that is pursued for its own sake whereas honor, pleasure and riches are desired not for their own sake but insofar as they make one happy. He then identified happiness with a kind of life or activity that can make man happy: a life in conformity with reason or a virtuous life. For Aristotle happiness is a form of contemplation. He considered the contemplation of truth, above all of what is noble and divine, as the most perfect activity that he identifies with perfect happiness. Using the reflections of Aristotle, St. Thomas Aquinas examined the different kinds of life that could appear or in fact make one happy. He reflected on whether happiness consists in wealth, honor, fame, power, health or pleasure. He concluded that it is impossible for any created good to constitute mans happiness for happiness is the perfect good, which should satisfy the human will completely. Only God who is the supreme Good can satisfy mans desire for happiness. Mans happiness consists in the contemplation of God who is supreme truth, and in loving God as the supreme Good. We can thus see that the ultimate end and happiness coincide. Human acts are distinguished from acts of man. Acts of man are actions that are carried out by man over which he has no rational and free control. They are carried out without the influence of the intelligence and the will; they are not free acts. Some examples are: The natural acts such as digestion, beating of the heart, blood circulation, growth Acts of persons without the use of reason: children, insane persons Reflex actions such as the blinking of the eye

All human acts (free acts) have a moral value because when a man carries them out, he uses his reason and his will. The capacity to govern ones actions is linked to moral responsibility. When man acts in a deliberate manner he is the owner of his acts and he becomes responsible for them. Corporate Social Responsibility The purpose of the business enterprise can be stated in different terms: To provide a service to the community To generate profits To ensure its existence (as a going concern) Service can be defined as the search for excellence of its members. A business serves the society when the persons with whom it is in contact become better persons and thus better members of the society.

The business person himself, as he conducts the affairs of the business with the aim of achieving his financial objectives, should be concerned about his own excellence and that of the people with whom he relates with in the business., The aim of the business therefore is to promote the excellence of its members and of society as it carries out its specific activity, that of generating goods and services.

Limits of Social Responsibility: Not necessary for company to use its resources indiscriminately in curing all kinds of social ills. Limitations of time, capacities and resources make it impossible to handle all problems. Organizations, like individuals need to concentrate on pursuing some specific objectives. To act effectively. Groups: members joined for specialized purposes. It would be unfair if some members devoted a substantial part of the common resources and efforts to some project that others did not envisage at the time of joining the group. Position that asserts that a firm has similar responsibilities to all its stakeholders is wrong. Similar to utilitarians who say we have the same responsibilities towards all human beings. Not possible e.g. father does not balance the interests of all parties affected by his actions spouse, children, relations, neighbors, landlord, etc. 3 conceptions of who are members of the firm: i) ii) iii) Shareholders, rest considered outsiders Managers: See shareholders as transient investors; see themselves as truly committed to the company. Anyone seriously committed to the company is a member, less restrictive workers and managers considered members

Mechanisms used to attain this end: quality circles, profit-sharing, flat structures, collegial mechanisms, job enrichment, performance bonuses, office parties etc. Best: conception of a firm as a community of managers and employees and shareholders. Why? i) From the point of view of fairness: all contributed to success of the firm, success and failures ii) More motivating for all, feel more committed, as feel its ones own. iii) Refusal to form a community with others ethical flaw A firm cannot inflict directly willed harm on a human being. A firm must not choose courses of action which have side effects which are harmful to others if this is incompatible to fairness. Elementary duties of fairness: i) complying with the just laws of ones community

4 ii) iii) avoiding deception or any form of undue exploitation of ones customers abiding by ones contractual commitments: paying interest to creditors, providing shareholders with returns commensurate with the risk they incurred, paying fair salaries all these are a companys primary responsibilities.

It then has to avoid and/or compensate for the negative side effects of its activities Next, increase rewards of its managers, employees and shareholders in this order Unity between Ethics and Economics The business enterprise should not be considered form a purely economic dimension. Its activities should not be evaluated only in terms of its financial repercussions. The concern for the common good could be profitable or not, in the short run or in the long run. There is a mutual influence between ethical decisions and economic decisions. Ethical decisions do have economic effects and economic decisions, ethical effects. There is a mutual influence between society and business A business firm is not an institution, which is sort of neutral or independent from the structure of the society. The business is deeply inserted into society and influences society. It can give a response to the problems of that society and thus improve the levels of satisfaction, the quality of life and social stability. A business enterprise has the power to configure the society in which it operates and in the process of doing so contributes to its own economic growth. When a business firm gives a salary increase to its employees or improves the living standards of its potential clients, it indirectly affects its own profitability because it contributes to the strengthening of the national economy which is a condition for its own survival. Ethics teaches that any action, whether carried out by an individual or by a group, including the apparently most private action, gives rise to rights and duties that affect the common good. All who live in society form part of that society. Whatever good or evil that is done to a member of this society, does it also in a way to the entire society, as would happen to the human body when one of its parts is harmed. The business enterprise cannot therefore deny its effective influence in the good of the community. Whatever action it carries out is either in itself a confirmation of its social responsibility (when its actions have positive effects to the community) or must give rise to actions which are socially irresponsible (when its actions have harmed the community) There are a number of reasons why social responsibility can actually contribute to profitability: The society is what ultimately makes it possible for businesses to receive their benefits. It expects businesses to effectively serve its needs. Businesses that do satisfy these expectations gain the trust of the society in which it operates and achieve their economic goals.

5 Ethical behavior contributes to the good reputation of a firm and it promotes employee commitment to the success of the firm. Apart from contributing to business success consistent ethical behavior takes the form of competitive advantage that cannot be easily imitated by competitors. Reputation, trust and commitment insofar as they are derived from consistent ethical decisions do provide competitive advantages that last for a long period of time. Why should the business contribute to the common good? o For reasons of justice, the business enterprise has the duty to contribute to the promotion of the common good. By the fact that it benefits from the entirety of conditions which form part of the public good, it has the obligation to increase or maintain that good. o Based on the argument of capacity. If a business is capable of collaborating in promoting the welfare of society, then it should do so on its own initiative. This principle is based on the fact that moral behavior is not limited to avoiding doing what is harmful but in doing what is good. o Freedom, authentic freedom, requires a positive effort to do what is good; in order to be good it is not enough not to want evil but to positively want what is good. To desire evil for another is wrong; but at the same time it is wrong not to want the good for another being capable of doing it. The greatest obstacle to freedom or the greatest form of slavery is precisely egoism or the exclusive concern for ones self-interest. Historically in ancient Greece, the slave was formally excluded from any participation in public affairs, to intervene in the running of and in the improvement of the society to which he belonged. In this case, the denial of freedom and the denial of the capacity to work for the common good were almost synonymous. As opposed to animals that only look after their particular good, all human persons are capable of desiring the common good, opening his will to other values which are wider. To seek ones private god is already done by animals. To want the common good can only be done by persons. The particular way in which a business is expected to promote the common good is not essentially different from the way each citizen is called to do so. In one case or another, the promotion of the common good is done in the measure that each one carries out his specific function. By achieving its economic goals, the business enterprise is contributing to the overall good of society. Just as individuals contribute fundamentally by their honest professional work, the business firm contributes to the common good by fulfilling its specific goal. However at the same time, this objective is said to be fulfilled if in the process the perfection of the persons who work in the business firm is achieved. Reference: Melendo, Tomas, Claves de la Eficacia Empresarial, Rialp, Madrid, 1990

Acting ethically: the perspective of the firm Usually, people think of ethics in relation to individual actions. However, there are 2 important reasons why the ethical quality of the actions of firms matters. 1) The ethical standing of an individual is affected by that of the groups with which he is associated, for instance, somebodys moral character can be sullied by his being associated with a firm which acts immorally. 2) The ethical values of an organization have an important influence on its ability to perform effectively. Group action and personal moral responsibility a) Imagine a situation in which A, B and C are independent traders who happen to share the same premises but which otherwise act with total independence of each other. Imagine that A represents to a buyer the quality of some merchandise which he knows to be in bad condition and sells it as if it were good quality. It is obvious that A has acted unethically and that B and C are not involved in his immorality. Depending on the circumstances B and C may have some responsibility to warn the buyer, but this responsibility will be relatively weak. Why? b) Imagine now a situation in which X, Y and Z are business partners. Y and Z now come to know that X, acting for the partnership, is trying to defraud a customer in a way similar to that used by A in the situation above. Now Y and Z are implicated in Xs immorality and have a special responsibility which is definitely stronger than that of strangers, to do what they reasonably can to prevent X from carrying out his project. If the fraud had been consummated already they would have a duty to do what they reasonably could to get the partnership to redress the customers loss. Even if now X were to die they would still have a duty to make good the customers loss out of the partnerships assets. Similar principles apply at much larger levels, e.g. they help to explain why present-day Japanese authorities feel the duty to publicly apologize on behalf of their country for the actions of the Japanese army during World War II and why the German authorities still feel that Germany has special duties towards the Jews. The root of the matter is that certain individual responsibilities derive from the fact that an individual belongs to a certain community and they would not obtain if the individual in question did not belong to that community. Some of these responsibilities are: 1) To do what one reasonably can to shape the policies and actions of the groups to which one belongs so that they will be ethical. 2) To take care that the groups to which one belongs discharge any responsibilities which the groups as such may have even if this will result in expenditure of scarce

7 resources and the people whose decisions caused the harm that now has to be redressed are no longer around. 3) To stop ones association with a group which is engaged in unethical practices 4) To select carefully the groups with which one becomes associated, e.g. you cannot pretend to act very ethically and then accept a job with the Mafia. Ethical standards and business effectiveness: New products or services, organizational structures, compensation policies, exploitation of new markets, possession of valuable assets, are all factors that can provide a competitive advantage but these are often easily replicated by ones competitors. On the contrary, factors like reputation, trust and commitment, insofar as they spring from the fact that a firm acts in a consistently ethical way, are far harder to imitate and can provide competitive advantages that last for decades. For instance, insofar as the firms actions have consistently sought to take fairly into account the interests of all concerned, the firm will have won the trust of many of those with whom it relates and it will find it easier to enter into productive relations with them. However, if its actions only reflect the interests of the people who control the firm, its reputation will be poor and other parties will tend to mistrust it. Employee commitment: The concept of commitment to common goals is very clear in team sports. Some players play a passing game; their objective is to contribute to team performance and they are ready to pass the ball to whichever colleague is best placed in the field. Other players are selfish and are intent on scoring themselves and enhancing their individual reputation. There is a strong positive relationship between the ethical standards of a firm and the commitment of its employees to the common good of the firm. But there is still another important factor why in ethical firms employees will have higher commitment: they have reasons to sacrifice their own individual interests in some occasions: the objectives of the firm will not be limited to maximizing somebodys profits but will include objectives which are valuable in themselves such as satisfying some genuine needs of a set of customers, fostering the human fulfillment of those who work in it, and so on; such objectives may much more easily motivate personal sacrifices. For instance, the motivating power of Merck (pharmaceutical company) states in its management guide, We are in the business of preserving and improving human life. All our actions must be measured by our success in achieving this goal Responsibilities towards Employees: Ethical treatment of employees is based on the following fundamental principles: Because of the value and dignity of human beings they should be treated with respect and concern The firm has to discharge in good faith its obligations under the contracts into which it has entered with each employee. The work relationship has its origin in an agreement between the parties to it and respect for the terms of that agreement is thus a basic ethical requirement. What is often overlooked is that contracts contain not only explicit but also implicit terms. As the relationship is hierarchical, decisions are

8 often made which give more weight to the employers interests rather than those of the employees. Ideally employees should be, and feel that they are valued members of a human community. It is therefore important to observe standards of fairness in dealing with them, as any perceived unfairness quickly erodes community among human beings. Stability of employment: Losing his job is likely to cause grave inconvenience to an employee: He will go through a period of uncertainty and anxiety Will face a period more or less long without stable income Will incur search costs in looking for a new job May be forced to move to a different locality And so on A firm truly committed towards providing stability of employment is laying the foundation for a two-way commitment. It is well-known that the guarantee of life-time employment constitutes one of the bases of the extraordinary loyalty that Japanese employees traditionally exhibit towards their companies. Policies of restructuring and downsizing have been very popular over the years. Jack Welch, CEO of General Electric, US summarized his tenure as follows: We started out with 411,000 employees. We acquired an additional 111,150 employees. Through divestitures, we reduced 122,700 employees. We restructure and downsized to get more efficient, reducing some 123,450, Now we have 276,000. Enormous in and out. Comment Work is not only an instrumental means to get income but something with intrinsic value. In working human beings bring many different skills and abilities into place, further developing them; they also play a creative role, becoming authors of something that was not there before; work provides an essential link of union with other people and the wider community. Providing adequate for people is a burden that falls on employers, the country as a whole and even demands international cooperation Fair compensation: Some people implicitly or explicitly think of labor as just one more commodity. For them a workers salary is simply the price to be paid for that labor and it is fair if it responds to the terms of the agreement. Discuss. Why should there be a minimum salary payable to employees? Equal pay for equal work discuss Pay differentials: One can find firms in African countries where the CEO earns more than two or three hundred times the salary of the lowest paid workers. Can a CEO in one such firm claim we are all associates in a common enterprise? Discuss

Privacy: Basically, privacy refers to the fact that some aspects of our being and life are not open to everybody. When we speak of a right to privacy we usually want to insist on the right of people not have these aspects invaded by others against their will. 3 types may be distinguished: a) Psychological privacy: It exists when people are actually able to keep to themselves their intimate thoughts, opinions, beliefs and emotions and reveal them only when they choose to do so. Means to invade that sphere of privacy are intrusive questioning, administration of psychological tests, and use of polygraphs (lie detectors) b) Physical privacy: It exists when a person has an ambit within which his physical activities are protected from the gaze of others. This privacy is invaded for instance, through the use of hidden tape recorders, tele-photos, personal searches etc. c) Behavior privacy: It exists when people are able to make decisions on how to conduct themselves without pressure from others. It is invaded for instance, when ones employer forbids one from being a member of a certain political party, or when serious objections are made to ones smoking, drinking, or belonging to a certain church. In most cases the ethical problems of privacy in employment situations revolve around articulating criteria to balance the value of privacy to employees with the legitimate needs of employers. Protection from harm: i) ii) iii) The work may pose hazards to life or health for e.g. construction workers may be exposed to falls, drivers to motor accidents, laborers to back injuries etc. Employees may suffer harassment from their co-workers or supervisors for e.g. sexual harassment, racial or tribal slurs, insults Work arrangements can put a significant strain on the employees family life for e.g. the need to work long or disruptive hours, weekend work, frequent traveling and postings to other countries.

Work in small and medium-sized businesses, the work of artisans and independent work can represent an occasion to make the actual work experience more human, both in terms of establishing positive personal relationships in smaller-sized communities and in terms of opportunities for greater initiative and industriousness. In these sectors however, there are more than just a few cases of unjust treatment, of poorly paid and, and above all, uncertain work. In developing countries, there has been an expansion in recent years of informal and hidden economic activities. This represents a promising sign of economic growth and development but it raises many ethical and legal problems. Large numbers of people are forced to work under seriously distressing conditions and in situations that lack the rules

10 necessary for safeguarding workers dignity. Levels of productivity, income and living standards are extremely low and often inadequate for guaranteeing to workers and their families the minimum level of subsistence. It is important to foster an attitude of openness and concern to ensure that the wellbeing of the employees is not sacrificed to the achievement of economic results or even worse, sacrificed out of sheer negligence or incompetence. Trade Unions: It is a basic human right of employees to form or join trade unions and in practice this means that they have a right to be represented collectively if they so wish, in the discussion of conditions of service with their employers, in the defense of their legitimate interests, and in making decisions related to their participation in the life of their firms. It would be unethical for the employer to put obstacles in the way of those employees who wish to join a trade union, to refuse to negotiate with such a union or much more to threaten with victimization those employees who join them. However, being first of all instruments of solidarity and justice, unions may not misuse the tools of contention; they must overcome the temptation of believing that all workers should be union members, they must be capable of self-regulation and be able to evaluate the consequences that their decisions will have on the common good. Unions also have the duty of acting as representatives working for the proper arrangement of economic life and of educating the social consciences of workers so that they will feel that they have an active role, according to their proper capacities and aptitudes in the task of economic and social development and in the attainment of the universal common good. It is not unethical however, for an employer to oppose the activity of an organization if he has good reasons to believe that such activity will not be geared to the defense of the legitimate interests of the workers, but rather to creating disruption or fostering conflict such as a political agenda, or the creation of opportunities of personal enrichment for the officials of the union. Relations within the world of work must be marked by cooperation: hatred and attempts to eliminate the other are completely unacceptable. Properly speaking, unions are promoters of the struggle for social justice. This struggle should be seen as a normal endeavour for the just goodnot a struggle against others. Responsibilities towards other stakeholders: Rights of shareholders may be summarized into 3 types: i) A right of ultimate control over the company expressed in a right to vote in decisions which have a bearing on the companys constitution; appointment and dismissal of directors, size, organization and scope of the company

Shareholders usually have the right of ultimate control over the affairs of the company in the sense that they can appoint directors and in this way, if a sufficient number of shareholders are determined to implement a certain policy in the company, they have the means to ensure that they ultimately prevail. It should be remembered that a company is a group of people working together towards some common ends. Nobody as a moral right to act as he

11 pleases, in relation to a group of human beings whose lives are going to be deeply affected by his actions. Perhaps the ideal solution is the German one which gives legal protection to the moral rights of both shareholders and employees by including both in the supervisory boards of companies. ii) The right to receive information on the companys affairs which will enable them to exercise knowingly their own rights.

As the duty to provide essential information to shareholders is not only legal but also ethical, financial statements must not only comply with the law also be prepared in good faith in order to provide a realistic and understandable picture of the companys affairs. For example, in 1988 General Motors reported record earnings in that year, enabling its managers to realize huge bonuses. However, almost 40% of these profits did not result from operations but from accounting decisions. One such decision was an increase from 35 to 45 years in the life over which General Motors plants are depreciated, this added $790 million to GMs reported profits but nothing to its true income. iii) The right to receive financial returns.

It is a basic responsibility of those who control the affairs of a company to strive to provide adequate financial returns for the shareholders . Below are given the ethical codes of two different companies on the duty of the company towards its shareholders. One company code provides: We hold that the prime objective of management is to increase shareholder value The code of another company states: We are committed to providing a fair and attractive economic return to our shareholders. Comment The ethics of Competition: A viable ethic of competition is that of co-operation through competition. This basically means: i) ii) iii) iv) There is, and should be, competition with ones competitors and that competition is real, i.e. vigorous and determined. Competition is not an end in itself but a means to serving customers better Competition goes on within a framework of rules and constraints that limit and civilize it. Competition helps each competitor to fulfill themselves better as it makes them perform better due to the increased use of their imagination and energy.

According to these principles, for e.g. hiring a key employee of a competitor because one needs her in ones own company is not unethical if no unfair means have been used, but hiring the same person only in order to deprive the competitor of her services would be

12 unethical. Similarly promoting labor problems in a competitors establishment or buying soft drinks of the competitor only to destroy the bottles and hamper its production are also unethical. Spreading misinformation about competitors is always unethical. Responsibilities towards Society The generalization in a country of a climate of corruption is the source of many undesirable consequences. Some of them are reviewed below: i) Where corruption prevails contracts, appointments, payments, sales, favorable judicial decisions, etc. are no longer obtained because one deserves them but because one has offered the highest bribe. This discourages honest effort. The prevalence of corruption tends to discourage economic initiative, e.g. the tip for a quickly issued licence encourages officials to invent new licences. The more corruption becomes common, the more people tend to mistrust the motives of others, especially of those in positions of power, e.g. They want to increase the price of petrol, in order to pocket the money or the trade union leaders are telling us to stop the strike because they were bought As corruption becomes prevalent, those in positions of responsibility lose the ability to implement policy. For e.g. the government may ban the importation of clothing in order to stimulate local industry, but that may only mean a new opportunity for customs officials to enrich themselves, and not that local clothes manufacturers are going to face less foreign competition. A generalized climate of corruption makes it very difficult to raise the money needed to finance legitimate government activities. For e.g. the money raised by personal income tax may be small compared to what should be raised if there were general compliance with the existing tax laws. The problem is further compounded when what is actually raised is diverted or squandered which means that essential projects cannot be undertaken and essential needs remain unsatisfied. Corruption encourages scarce resources to be misdirected to low priority sectors. For e.g. Western observers often wonder about the preference for unnecessarily advanced rather than appropriate technology by third world countries. Overinvoicing provides the obvious explanation for this preference. People in poor countries want to import goods where bribes are easiest to take, not the ones that are most profitable to state firms. As a result very poor countries end up with equipment way beyond their needs.

ii) iii)

iv)

v)

vi)

This argument may suggest why so many poor countries would rather spend their limited resources on infrastructure projects and defence, where corruption opportunities abound, rather than on education and health, where they are more limited. vii) Corruption is like cancer which of itself always tends to spread and grow larger. Where once 10% was acceptable, soon 20% becomes necessary. Where once only some functionaries in key positions in key positions demanded special payments,

13 soon every clerk demands his cut. Where once one only had to pay to obtain special favors or privileges, soon one cannot have even the most elementary rights upheld without paying for them and sooner or later every citizen becomes a regular victim of extortion by whoever is in a position of authority. a) What are the consequences of all the above examples? b) What solutions do you suggest to the problem of corruption? Responsibilities towards the Environment and the Sharing of Goods: The goods of the earth must be shared equitably, in accordance with justice and charity. The environmental crisis and poverty are connected by a complex set of causes that can be resolved by the principle of the universal destination of goods which offers a fundamental moral and cultural orientation. The present environmental crisis affects those who are poorest in a particular way, whether they live in those lands subject to desertification, are involved in armed conflicts or because they do not have the economic and technological means to protect themselves from other calamities. Countless numbers of poor people live in polluted suburbs of large cities, in huge complexes of unsafe houses, e.g. slums. Inadequate access to safe drinking water affects the well-being of a huge number of people and is often the cause of disease, suffering, conflicts, poverty and even death. It is moreover necessary to keep in mind the situation of those countries that are penalized by unfair international trade regulations and countries with a scarcity of capital goods, often aggravated by the burden of foreign debt. In such cases hunger and poverty make it virtually impossible to avoid an intense and excessive exploitation of the environment. a) Give practical examples of the above that you have observed in your own country b) Give examples of what business organizations can do to solve these problems as part of their corporate social responsibility. All citizens where corporate or individual, have a moral duty to obey the law which derives from their duty to promote the common good of the communities to which they belong. This is so because the law provides an essential coordinating mechanism to ensure the effectiveness of common action. There is no moral duty, however, to comply with laws that are clearly unjust. A law may be unjust either by distributing unfairly the benefits or burdens of common life, by failing to promote any aspect of the common good, or by being enforced or administered in a manifestly unfair manner. Business firms have a responsibility to avoid harming the environment as a side effect of their economic activity. However in assessing the means one is required to take to avoid harming the environment, it is the well-being of human beings that constitutes the ultimate standard of assessment. They also have a responsibility to co-operate for the solutions of the problems of the communities in which they operate which goes far beyond the responsibility to obey the law

14 and to pay taxes. For example a firm should be especially responsible in making the decision to close a given factory or branch, especially when it is a dominant employer in the locality as this will usually have especially grave effects on the local community. Available alternatives should be carefully considered. Globalization: Our modern era is marked by the complex phenomenon of economic and financial globalization, a process that progressively integrates national economies at the level of the exchange of goods and services and of financial transactions. Globalization gives rise to new hopes while at the same time, it poses troubling questions. It is able to produce potentially beneficial effects for the whole of humanity. Give examples. Looking after the common good means making use of the new opportunities for the redistribution of wealth among the different areas of the planet, to the benefit of the underprivileged that until now, have been excluded or sidelined in social and economic progress. An adequate solidarity in the era of globalization requires that human rights be defended. We are witnessing an alarming gap between a series of new rights being promoted in advanced societies as a result of new prosperity and new technologies and other more basic human rights still not being met in situations of underdevelopment. As globalization spreads it must be accompanied by an ever more mature awareness on the part of different organizations of civil society of the new tasks to which they are called on a worldwide level. If these organizations take resolute action, it will be possible to place the present process of economic and financial growth taking place on a global scale within a framework that guarantees an effective respect of human rights and of the rights of peoples as well as an equitable distribution of resources within every country and between different countries. Task: Give examples of organizations that you know of that have actually shown this respect for human rights and an equitable distribution of resources and cases where they have not. Wealth exists to be shared: Economic activity and material progress must be placed at the service of man and society. Goods when legitimately owned, always have a universal destination: any type of improper accumulation is immoral because it openly contradicts the universal destination assigned to all goods by the Creator. Riches fulfill their function of service to man when they are destined to produce benefits for others and for society. The social-economic system must be marked by the twofold presence of public and private activity, including private non-profit activity. In this way sundry decision-making and activity-planning centers come to take shape. Private non-profit organizations have their own specific role to play in the economic sphere. These organizations are marked by the fearless attempt to unite efficiency in production with solidarity. The State is called to respect the nature of these organizations and to make proper use of their various features, putting into

15 practice the fundamental principle of subsidiarity which requires that the dignity and autonomous responsibility of the subsidiary subject be respected and promoted. Principle of subsidiarity: It is impossible to promote the dignity of the person without showing concern for that aggregate of economic, social, cultural, sports-oriented, recreational, professional and political expressions to which people spontaneously give life and which make it possible for them to achieve effective social growth. Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and a grave evil to assign to a greater and higher association what lesser and subordinate organizations can do. On the basis of this principle, all societies of a superior order must adopt attitudes of help (subsidium) therefore of support, promotion, development with respect to lower-order societies. This means that the State cannot supplant the initiative, freedom and responsibility of the lower societies but help them when necessary. The principle of subsidiarity protects people from abuses by higher level authority and calls on these same authorities to help individuals and intermediate groups to fulfill their duties. This principle is imperative because every person, family and intermediate group has something original to offer to the community. Denial or limitation of subsidiarity limits and sometimes even destroys the spirit of freedom and initiative. In order for the principle of subsidiarity to be put into practice there is a corresponding need for: i. ii. iii. iv. v. vi. Respect and effective promotion of the human person and the family Greater appreciation of associations and intermediate organizations in their fundamental choices The encouragement of private initiative so that every social entity remains at the service of the common good Safeguarding human rights and the rights of minorities Striking a balance between the public and private spheres with the resulting recognition of the social function of the private sphere Appropriate methods for making citizens more responsible in actively being a part of the political and social reality of their country.

Various circumstances may make it advisable that the State step in to supply certain functions. For example: i) ii) Situations in which it is necessary for the State itself to stimulate the economy because it is impossible for civil society to support initiatives on its own. If there is a serious social imbalance or injustice where only the intervention of the public authority can create conditions of greater equality, justice and peace.

In light of the principle of subsidiarity, however, this institutional substitution must not continue any longer than is absolutely necessary, since justification for such intervention is found only in the exceptional nature of the situation.

16 Profit: When a business makes a profit, this means that productive factors have been properly employed. However a business may show profit while not properly serving society. For example it is possible for the financial accounts to be in order, and yet for the people who make up the firms most valuable asset to be humiliated and their dignity offended. Give examples It is essential that within a business the legitimate pursuit of profit should be in harmony with the protection of the dignity of the people who work at different levels in the same company. Environment: Programs of economic development must carefully consider the need to respect the integrity and the cycles of nature because natural resources are limited and some are not renewable. An economy respectful of the environment will not have the maximization of profits as its only objective, because environmental protection cannot be assured solely on the basis of calculations of costs and benefits. Entrepreneurs and directors of public agencies involved in the research, production and selling of products derived from new biotechnologies must take into account not only legitimate profit but also the common good. An example of problems posed by the impact on the environment of economic activity: Imagine a 60-year old paper mill sited by a river. It has always discharged the byproducts of its operations into the river. This always produced bad smells and an unsightly foam, especially in the vicinity of the mill, but the river seemed well able to cope and 2 kms downstream from the mill no ill effects were perceptible. Over the last 30 years, other mills have been opened in the vicinity. As new mills were added the river became dirtier and more unsightly. Matters came to a head a short time after the last mill began operations. Suddenly dead fish started floating down the river. Experts were call in. They carried out studies and their main conclusion was that in order to restore the lifecarrying capacity of the river and to ensure that there would be no harm to humans, the dumping of toxic effluents would have to be reduced immediately by at least 30% in order to bring the concentration of a particular substance in the river waters below the level of five parts per million, above which it was certain that it was harmful to fish and likely that it could also have harmful effects on humans. Analyze the problems and suggest solutions. Whose responsibility is it to do what? If humanity today succeeds in combining the new scientific capacities with a strong ethical dimension, it will be able to: Promote the environment as a home and a resource for man and for all men Eliminate the causes of pollution Guarantee adequate conditions of hygiene and health for all Technology that pollutes, can also cleanse, production that amasses can also distribute justly, on condition that the ethic of respect for life and human dignity prevails. Care for the

17 environment represents a challenge for all of humanity. It is a matter of a common and universal duty, that of respecting a common good. This responsibility for the environment extends not only to present needs but also to those of the future. Conflicts of Interest: It is the presence of the conflict between personal interest and official responsibility which creates the ethical problem, referred to as a conflict of interest. Some examples: i) The services manager of a bank has to sell a one-year old Peugeot 504 car which is no longer needed by the bank. Part of his responsibility in this task is deciding the price that the bank will accept for the car. As he needs a vehicle he decides to buy the car that the bank is selling himself, in a personal capacity. A CEO owns a house and he rents it to the company which he manages, to be used for the accommodation of senior staff of the company. A partner in a real estate firm learns that a client is looking for a certain type of house. Acting in her own name, rather than in that of the firm, and working during her free time, she locates an appropriate house, introduces it to the client and eventually receives the customary commission. A credit manager in a bank receives a nice watch as a Christmas present from a businessman who has obtained credit from the bank. A departmental head in an insurance company has his sister working under him in his department.

ii) iii)

iv) v)

a) Discuss the conflicts of interest in the above examples. b) Give examples of your own Social Responsibilities: a) Firms have a responsibility to act ethically because individual human beings have that responsibility, both in the occasions in which they act on their own and in those occasions in which they act jointly with others. b) In several important respects firms have special responsibilities towards their members (shareholders, managers and employees) Example 1: The CEO of a new TV company has just received a memo from the stations Director of Programs. The gist of it is that audience ratings to date are very disappointing and that it is imperative to take radical measures to increase audience. Among the new programs proposed, feature daily pornographic movies, a heavy increase in the violence content of fims for children and increase of scandalous revelations about the private lives of prominent citizens. The CEO is certain that following these recommendations would in fact increase audience. Discuss the above example from a business ethics point of view

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Example 2: XYZ is a pharmaceutical company which operates in a developing country. It wants to market a new sleeping pull which it has developed and which the company feels has a tremendous market potential. Since XYZ is in a very bad financial condition after having invested over two million dollars to develop the drug, the CEO wants to launch the new drug as quickly as possible. Research indicates that the drug, though very effective has harmful side effects on unborn children. Discuss the alternatives the company has and give the one you think is best from an ethical point of view. In order of priority, a firms main responsibilities are as follows: i) ii) iii) iv) v) vi) vii) viii) ix) x) Not to harm anybody intentionally Not to undertake activities which have harmful collateral side effects except with proportionate reason To comply with the law Not to engage in deception To contract fairly and discharge its duties under its contracts, especially those made with consumers, creditors, suppliers and employees To provide the shareholders with a return commensurate with the level of risk they assume Make employees and shareholders share in the prosperity they have contributed to create To support with a relatively small share of the firms profits worthy initiatives in the community To expand or improve the companys operations thereby contributing to job creation, satisfaction of needs and creation of wealth in the community Devote resources to sustaining and strengthening the companys special traditions of service to the common good of the society.

Discuss how your own organization carries out (x) Instilling ethical standards in Organizations: i) ii) Articulation of ethically sound beliefs and purposes: There must be a shared conception of the basic purposes of the firm which is ethically sound Management selection:

a) Many important decisions lie beyond the effective supervision of top management. If the people who make them are appointed without a careful consideration of their ethical standards, then it will be very difficult for their decisions to conform to high principles in the face of contrary pressures. b) There is no truer indicator of what top management really values than the type f people they select for important assignments (Peter Drucker) The rest of the organization typically scrutinizes carefully such choices and draw their own conclusions as to what the real management values are. One thing that damages the

19 ethical climate of an organization is the conviction that the people on the fast track are those who obtain results, regardless of the means they use to do so. iii) Careful attention must be paid to the ethical standards of professional advisers such as solicitors, tax advisers, management consultants, advertising experts and so on. The reason is that such people can have as much, or more influence on the firms decisions as do the firms managers. Management communication: A management which regularly and consistently reiterates the importance of being fair to all parties concerned will make some progress in driving this standard into the organization. Of course, giving example is essentially a way of communicating in a credible way, the values that one holds. Ethics training: In order to internalize certain values and to adhere to certain types of behavior, training is usually needed. This is as true of ethical standards as it is of accounting standards or of Total Quality. One way of doing this is by using ombudsmen, i.e. appoint a person or a committee to whom an employee can have recourse if he has misgivings about the ethical quality of some actions he has been ordered to take or of things which are being done in the organization.

iv)

v)

Another way is by using compliance reviews. Whenever a company launches a formal ethics program, especially if it contains an ethical code as part of it, it will be useful to specify a review procedure to monitor how far the code is being implemented and to determine from time to time whether changes should be introduced to the original design.