Industry and Chain Responsabilities

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Industry and Chain Responsibilities and Integrative Social Contracts TheoryAuthor(s): Johan WempeSource: Journal of Business Ethics, Vol. 88, Supplement 4: A Tribute to Thomas W. Dunfee aLeader in the Field of Business Ethics (2009), pp. 751-764Published by: SpringerStable URL: http://www.jstor.org/stable/27749746.

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752 Johan Wempecorporate responsibility concept thatwas developedin the 1980s and the early 1900s does not measureup when analysing the current large social issues.It ismy opinion that the cause of thisproblem liesin the fact thatwe relate moral responsibility only to(1) actions of natural persons or formal organisedcollectives, (2) that can be considered as responsiblefor an undesired effect in a causal sense and (3) thatcan be judged by applying universal norms. As such,only natural persons or formal, organised collectivesqualify for amoral assessment. It is only possible tohold these natural persons or formal collectivesaccountable in retrospect for behaviour that leads toundesired effects. Furthermore, it is only possible toevaluate behaviour when it is possible to applyuniversal norms.

However, the major social issues of today inwhich companies play a role demand a richer concept of responsibility.Many actions reflect thenormsof the chain involved, the industry, the sector orother comprehensive social systems to which theindividual or thewell-organised collective belong.One should not restrict the concept of responsibilityto individuals and well-structured organisations; it isalso possible and useful to hold a comprehensivesocial system responsible for those results that gobeyond the intentions and responsibilities of theagents within that social system.Responsible behaviour should not only be based on aminimum standard thatmust be met, but should also be concernedwith the question of how to contribute to the success of the community. With this, the concept ofresponsibility becomes defined from the perspectiveof the community. Here, we leave the idea of theuniversal applicability of norms behind us.What roledoes the person or organisation fill within thecommunity? This is a new way of looking at socialissues, a new paradigm, a new ethics. In this article,I would like to outline the contours of this newapproach to ethics.To some extent, integrative social contracts theory (ISCT) offers a solution to the problems forwhich current business ethics has no answer. Thistheory offers the possibility of formulating standardsfrom the perspective of a community. Within thistheory, it is also possible todefine new communities,such as an industry or a chain, and to developstandards for these new 'communities'. However,ISCT needs to go farther; it is not sufficient to

develop standards and to retrospectively assess theconduct of themembers of a community based uponthat standard. It is also important to be able todetermine inwhat communities a person or organisation plays a role, how decisions aremade about acommunity's goals and how members of that community are able to contribute to these goals.Let me startmy line of reasoning with an analysisof a case that clarifies the character of the demandson firms and how the standards in this area havedeveloped enormously over the course of barely20 years. The case concerns the role of pharmaceutical companies in the fight against HIV/AIDSand other life-threatening diseases in developingcountries. This will be compared to a very similarcase that played out in the 1980s: Merck's commitment to the fight against River Blindness. Thecomparison between the two situations illustrateshow our expectations of businesses have changedenormously over the past 20 years. As a consequence, we need to rethink the standards thatweapply to companies.

AIDS blockers for AfricaRecently, a discussion arose about the provision ofAIDS blockers to developing countries. The SouthAfrican government pressured a number of pharmaceutical companies to make these medicinesavailable in South Africa at below market price.HIV/AIDS is a serious problem in Africa. Manypeople are infected and, apart from the serious suffering that this disease causes, it is also an economicdisaster forAfrica. Employees who are infected withHIV translate into a high dropout rate for companies. The large number of deaths amongst adults intheir prime means a loss in production capacity.African societies have to contend with many orphans. Initially, the large pharmaceutical companiesrefused to acknowledge the request from the SouthAfrican government that they offerAIDS blockers tothe South African markets at much lower prices.The multinationals were particularly afraid thatmedicines thatwere offered cheaply to South Africawould reach thewestern markets through the blackmarket. High prices for new medicines, and theirprotection through patent rights, are necessary forthe pharmaceutical companies to recoup the huge

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Industryand Chain Responsibilities and ISCT 753investment costs in research and product development. South Africa then threatened to no longerrecognise the patent rightsfor theAIDS blockers andtomake itpossible for these medicines to be boughtfor a fraction of the existing costs using so-calledparallel imports. These involve producers who copybranded, patented products without having investedany money in research and development. Many ofthese companies are based in India because offavourable local legislation: according to Indian law,a drug only qualifies for a patent when it is a newinvention or a significant improvement on anexisting one. The law denies patent protection tonew versions of drugs invented before 1995. Withthis situation, India is sometimes called the pharmacyof developing countries.

This problem does not only concern HIV/AIDSmedicines; it concerns all the medicines that aredeveloped to cure life-threatening diseases. In the1990s, therewas much debate about thisproblem. Amajor reason for the debate was the adoption of theTRIPS agreement (Agreement on Trade-Relatedaspects of Intellectual Property Rights) in 1994. Thisagreement dealt with the protection of intellectualproperty, including patents on medicines.The agreement appeared to have devastatingeffects on access tomedicines for developing countries. The pharmaceutical companies were usingthis agreement to ban generic medicines fromlocal markets and, by doing so, creating de factomonopolies and keeping the prices of theirmedicines high. Forced by the developing countries andpublic opinion, the World Trade Organisation(WTO) addressed this critical issue as part of thelaunch of a new round of global trade negotiations.In 2001, the Doha Declaration on the TRIPSAgreement and Public Health was adopted, statingthat intellectual property rules should not preventcountries protecting public health. The Declarationaffirmed that developing countries could introducepublic health safeguards through price reductionsusing generic competition. It also directed membercountries to facilitate access to generic medicines forpoor countries with insufficient drug manufacturingcapacity.3 However, 5 years after the adoption of theDoha Declaration, in 2006, virtually no progress wasvisible. The large pharmaceutical companies wereagainst this agreement and Western governments,particularly theUS, supported their pharmaceutical

companies in opposing the Doha declaration byforcing developing countries into bilateral agreements to leave the patents of the pharmaceuticalcompanies unaffected.An important legal case involved a high-levelappeal by the Swiss pharmaceutical company Novartis. This multinational wanted to determine whether an Indian court had been correct to deny apatent to a modified form of a leukaemia drugknown as Glivec. Novartis lost this appeal. TheIndian court rejected the application on the groundsthat the new drug was insufficiendy differentfromthe previous version.4 The Indian Government and

many NGOs welcomed the ruling. Itwas seen as anexemplary case for the possibility of producing othermedicines for life-threatening diseases by Indianpharmaceutical companies. The court case broughtby Novartis effectively challenged India's ability toproduce cheap AIDS drugs. According toNovartis'head of research, Paul Herrling, there were clearinadequacies in India's patent laws. These wouldhave negative consequences for patients and publichealth in India. 'Medical progress occurs throughincremental innovation. If Indian patent law doesnot recognise these important advances, patients willbe denied new and better medicines*. A spokeswoman for the company said Novartis thought ithad 'advanced the debate' with this court case andnow wanted to combine forceswith other interestedparties in continuing its campaign.5What is interesting is the change in the waypeople view this situation compared with how theyviewed a very similar instance 20 years earlier. Atthat time, the pharmaceutical company Merckdecided to develop a cure for river blindness in itsown research laboratory and to make it freelyavailable worldwide. River blindness is a disease thatis caused by small worms that enter the bodythrough the skin and eventually harm the opticnerve. This disease only occurs in developingcountries, especially in the poorest areas, wheretherewould not have been themeans to buy thesenew medicines. Merck's actions created the possibility to completely eradicate the disease. Owing tothis,Merck was regarded formany years as themostethical company in the world and was presented bybusiness ethicists in the media, and in universityclassrooms, as a good example of corporate socialresponsibility. What is striking is the difference in



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754 Johan Wempethe general public's attitude towards this issue incontrast to the issue of AIDS blockers. Merck waspraised for its contribution to solving amajor socialissue: its behaviour was seen as above and beyondwhat was expected. In comparison, the pharmaceutical companies that are active inAfrica today arebeing called to account to live up to their 'duty' anddeliver a social contribution. It isnowadays regardedas improper for these companies tomake a profit atthe expense of the sufferingof the African population who are unable to afford these expensivemedicines.6 Today, the public expects more ofpharmaceutical companies.

Fundamental questions or business ethicsFour characteristics of this case attract attention:

First, there is no clear agent that we canhold accountable for the failure to makeAIDS blockers available at an affordable priceinAfrica. Each pharmaceutical company canpoint to the responsibilities of a large number of other parties, competitors as well asgovernments, clients, shareholders and nongovernmental organisations. The issues described point beyond the responsibility ofindividual companies. They concern amultitude of companies, organisations and individuals that have a joint responsibility.Second, there is no clear moral norm that isbeing infringed. The pharmaceutical companies point to the fact that they are fulfillingtheir obligations. They are not doing anythingillegal, and they are not philanthropic institutions. The pharmaceutical companies alsohighlight a social interest that, in their opinion, justifies their actions: a price reductionforHIV/AIDS blockers inAfrica might limittheir possibilities to invest inR&D and, withthis,develop new medicines in the future.Third, the company is only an element of alarger system. There are factors that lie beyond a company's control and limit to a largeextent the level of responsibility that theindividual companies can take. The pharmaceutical companies feel pressured by themarkets. If they sold theHIV/AIDS blockers in

Africa at less than the market price, then thereduced profitswould have to be recoveredelsewhere. Further, in the western markets,they face competitors who will exploit thisadvantage. The possibilities for individualcompanies to take steps to contribute to solving theHIV/AIDS problem is largely determined by what themarkets allow.Finally, there is a shift taking place from thequestion of assigning responsibility to a company, or holding a company later accountable, to the question of how companies cancontribute to solving social issues. What isit reasonable to expect from an individualpharmaceutical company in terms of its socialcontribution to solving theHIV/AIDS problem inAfrica?

These characteristics of current social issues raisefundamental questions regarding business ethics.

1. The idea of shared responsibility forces arethink of the collective responsibility concept. How can a company's responsibility beunderstood when it is shared with othercompanies and other social actors? Do thepharmaceutical companies have a sharedresponsibility for solving the HIV/AIDSproblem inAfrica? If so, what does that imply for the responsibility of individual pharmaceutical companies? Is there a differencein responsibility between those companieswith markets in Africa and those withoutAfrican operations?2. The change, from thinking in terms ofminimum obligations to thinking in terms of anobligation to contribute to a social cause(achieving a public good), also has far-reachingconsequences for the conceptual developmentof business ethics.What are the responsibilitiesof pharmaceutical companies in general forsolving theAIDS problem inAfrica?

Collective responsibility reconsideredThe responsibility of collectives is a difficult issuethat has not been extensively analysed. In ancienttimes and during theMiddle Ages, thinking in terms



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Industryand Chain Responsibilities and ISCT 755of collective responsibility was not seen as problematic. In fact, it has only become problematic inrelatively recent times. The individual, as the subjectof rights and duties, became increasingly centralduring the seventeenth and eighteenth centuries.The most important theoretical movements in ethics, the deontological ethics building on thework ofImmanuel Kant, and utilitarianism based on the ideasof Jeremy Bentham and John Stuart Mill, relystrongly on the idea of individual responsibility.

During theVietnam War, a discussion started onthe responsibility of collectives. The massacre atMyLai by American soldierswas an important factor inthis discussion. Can you hold individual soldiersresponsible for crimes they commit whilst underorders from their superiors? Is it then the superiors,or the superiors of the superiors, as natural persons,who should be held responsible for such actions?Thinking only in terms of individual responsibilityseemed to be inadequate for conceptualising theresponsibility for the committed crimes. The role ofthe organisation within which these individualsfunction is relevant.

In the 1980s and 1990s, the responsibility of companies, as collectives, was seen as one of themostimportant fundamental questions for business ethics.What is the responsibility ofGerman companies todayfor the prisoners thatwere used by them during thewar? The scope of the question has widened. Attention is now paid to the responsibility for damagecaused by a company in the distant past.What is theresponsibility of a company for the health problems oftheir former employees resulting fromusing asbestosduring the production process? What is the responsibility of a company for the environmental damageresultingfrom thedumping of poisonous waste? Whatifnone of themanagers who made the irresponsibledecisions are still active in the company? What if thecompany has new owners?Whereas you can call awarcriminal to account for his crimes years later, itdoesnot seem so fair to do the samewith a company.Whoare you punishing? In addition, with a company,whether the people were aware at the time of thehealth or environmental risks play a part aswell. Inorder to judge the actions of an individual inmoralterms, theremust be intent,which means that actionswere taken knowingly and willingly. How, then, doyou know that a company is aware of the risks it istaking, and that thesewere therefore takenwillingly?

Until 1983, the dominant standpoint amongst thefirst generation of business ethicists was that company responsibility was primarily a concise way ofspeaking. They were reacting toMilton Friedmanwho sees no room formorality within the companycontext (Friedman, 1970). Responsibility, for thosebusiness ethicists,was the personal responsibility ofmanagers. This standpoint was expressed, amongstothers, byManuel Velasquez in his 'Why corporations are not responsible for anything they do'(Velasquez, 1983).When a person acts on behalf of acompany, it ispossible to assess their actions inmoralterms, but one cannot involve the role of thecompany context in that assessment. According toVelasquez, moral responsibility is bound to naturalpersons. Velasquez' approach offers no solution forlocating responsibility in complex and unclear situations in which several officials could be heldresponsible, or rather responsibility is spread amongstvarious people, or in situations inwhich responsibility stretches over a lengthy period. In these situations, it is not possible to equate responsibility tothe responsibilities of natural persons.Two key events saw a turning point in theway ofthinking about the responsibility of companies as acollective responsibility: the publication of PeterFrench's Individual and Collective Responsibility(French, 1984) in 1984, and Royal Dutch Shell'sdecision in 1995 not to sink the Brent Spar oilplatform to the bottom of the ocean (Kaptein and

Wempe, 2002, pp. 6?13), which was seen as givinginto wide social criticism. The publication ofFrench's book started a discussion amongst businessethicists about whether the company, as a collectiveactor, could also be held responsible. The Brent Sparaffair, to some extent, terminated this debate: notbecause there were no longer any differences inopinion, but because Shell was the firstmultinationalto accept a collective responsibility.With this, thedebate seemed outmoded.

Owing especially to Peter French's publication, ithas become largely accepted that a company'sactions cannot be regarded as only the sum of individual actions. Precisely through collaborating, anadvantage is realised, which means that the responsibility for the effects of the company's actions cannot be distributed amongst managers or employeeswithout losing some responsibility: the overallresponsibility ismore than the sum of the individual



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756 Johan Wemperesponsibilities. According to French, a company canact in the secondary sense. It is possible tomake adistinction between the physical act and themeaningofthat act (Copp, 1979, p. 177). A person can sign acontract. Signing the contract is the physical act: it isan act of a natural person. This is acting in a primarysense. When the director, following the correctprocedure, signs a contract on behalf of the company, the company is acting in an indirect, or secondary, manner. When actions are guided by formaldecision-making procedures, and are in line with thecompany's culture, there is intentional action by thecompany, which means that actions are taken willingly and knowingly on behalf of the company. Thecompany is therefore not only a legal agent but alsoamoral agent. By considering the company to be a

moral agent, it becomes possible to also use themoral criteria that can be applied to natural personsfor the assessment of a company's actions. Ifnaturalpersons are not allowed to litter the streets, thenShell should not be allowed to dump theBrent Sparin the ocean.

People have long opposed the idea of collectiveresponsibility. This rejection is primarily inspired bythe fear that accepting the idea of collective responsibility would lead to a decrease in individualresponsibility. The assumption being that responsibility for a given event is a quantity that can beestablished in precise terms.According to this schoolof thought, the acceptance of collective responsibilityautomatically leads to a diminishing of individualresponsibility. However, this isnot necessarily so: theacceptance of collective responsibility does not implythat individual responsibility is inevitably diminished.In a number of cases, the opposite occurs. Where aresult is achieved through cooperation, total responsibility increases. Each member of a collective who isable to influence that collective is responsible for theoverall result. Take, for example, two people whojointly kill somebody - they are both responsible forthemurder. Ifonly one of the two people committedthe murder but the other was able to stop themurderer, then the second person is also to an extentresponsible for the crime. This last example showsthatmore is at stake in the responsibility of peoplewho are cooperating with each other. Cooperationcreates thepossibility to correct othermembers of thegroup, and this implies responsibility.

In the 1980s and 1990s, a number of articles andbooks on the issue of the collective responsibility ofcompanies were published.7 This seemed to reflectan endless debate between believers and nonbelievers. Surprisingly, perhaps, the discussion fadedaway at the end of the 1990s without a clear conclusion. A key factor is thatmany largemultinationalcompanies, such as Shell, accepted some form ofcollective responsibility. During that time, certaincompanies were accused of irresponsible behaviour,and philosophers debated the topic of collectiveresponsibility; however, thiswas not accepted as avalid concept by the multinationals. The termresponsibility in connection to a company was seenas a sloppy way of speaking: in the end, ithad to bethe executives or employees who had acted irresponsibly. Often itwas seen as purely a question oflegal liability:who has to pay? The criticisms of theirintention to sink theBrent Spar oil platform led to areversal in the thinking of the company. Shellrecognised that it had a social responsibility. Itwasno longer only niche players such as theBody Shopand Fair Trade that profiled themselves with ethicalproducts. Mainstream companies acknowledged thatthey had a social role and tried to shape that underthe title of Corporate Social Responsibility. Thequestion for these companies was no longerwhetherthey fulfilled a social role, but what moral standardsthey should apply and how far their social responsibilities stretched. Business ethicists started to develop all kind of instruments tohelp these companiesimplement ethical policies. The concept of Corporate Social Responsibility was embraced by businessethicists. Business ethics was cast in a new jacket.Since then, much energy has been put into thedevelopment of codes of conduct, the integration ofethics in business, moral and ethical audits and sustainability reporting. It is precisely the structure of acompany that has made it possible to understandcompany activities as deliberate acts, and to judgethese in moral terms. The same structure offersopportunities to steer the company in an ethicalmanner.

Currently, we are facing a new problem concerning collective responsibility. We now have tothink about the responsibility of non-formalised orless formalised forms of organisations such as sectorsof industry, branches and chains.



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Industry and Chain Responsibilities and ISCT 757The questions raised about the responsibilityof pharmaceutical companies for the availability ofAIDS medicines in Africa mean that the issue of

collective responsibility must be reconsidered. Weare, just as in the 1980s and 1990s, confronting theboundaries of our conceptual framework. We areable to understand the activities of awell-organisedcompany asmoral actions, but many activities of acompany are to an extent forced. Companies are partof a chain and may have little influence over howtheir raw materials and consumables are producedand supplied. Ultimately, they also need to complywith the requirements of customers and final consumers. Companies are part of an industry or sector.Investors constantly compare themwith their competitors. It is difficult not to adhere to all the practices that are seen as normal in the sector or industry.Companies that ignore the 'norm'will be priced outof themarket, will no longer attract employees orwill be unable to attract shareholder capital. This isthe problem faced by the pharmaceutical companiesthat sought a solution to the question of theaffbrdability of AIDS medicines for patients inAfrica. Companies cannot escape the comprehensivesystems of which they are a part. Shareholders ofpharmaceutical companies base the valuation ofthese companies on the value of the patents and thedegree of innovativeness in the business. For shareholders, it is important to know whether patents alsomean revenue in the future. The shareholders willinclude pension funds, and such institutional shareholders experience a duty to protect the funds entrusted to them by making profitable investments.What does this dependence on shareholders andcustomers imply for the moral responsibility of apharmaceutical company? Does this reduce theresponsibility?Where there isno freedom, there canbe no responsibility.

Many social organisations, suchas an industrial

chain, an industry or a sector, have a very limitedstructure. They perform no actions and there isnobody who acts (in a secondary sense) on behalf ofthat chain, a sector or industry.The chair of a tradeassociation isnot themanager ofthat industry.Thereis also no formal structure laid down in articles ofassociation, further developed in an organisationalchart, inwhich duties and responsibilities have beendocumented and which are supported by perfor

mance interviews.

In recent years, within various disciplines, research has been conducted into forms of organisationthat lack a hierarchical structure and a leader, adirector or a management team that steers theorganisation using rules and procedures or throughpersonal guidance. This research is based on fundamental ideas taken from systems theory.

The systems approachThe systems approach was introduced by the biologist Ludwig von Bertalanffy. For him, itwas clearthat the mechanistic and reductionist methods ofanalysis,which were developed in the pure sciences,failed to explain biological phenomena. A characteristic of science is that physical systems are oftentreated as closed systems.A physicist can describe anatom or the solar system; he can link themass of anobject to the force exerted by that object. Theassumption, in all such cases, is that all the relevantelements of the system are included in the model.The symptoms are reduced to linear relationships, orderivatives thereof: the relationship between distance, speed and time is a good example. With suchamodel, the physicist is able tomake statements andeven forecasts. This reductionist and mechanisticway of analysing physical phenomena works wellwithin the sciences, but Bertalanffy realised thatwithin biology it is not possible to abstract a biological system from its environment. A biologicalorganism uses oxygen, water and food, it grows, itsometimes moves and sometimes itdies, itproducescarbon dioxide and leaves metabolic waste and organic residues behind. A biological organism is anopen system; it interactswith other systems in thearea. It receives inputs, processes the inputs anddelivers outputs. The biological organism, togetherwith the environment of that organism, forms

acomprehensive system.We often try to understand social issues anddetermine how to handle them in a similarway tophysical issues.We reduce the issues to a few simplelinear relationships and make decisions based on theresulting linear models. This approach ignoresmanyaspects. Economic theory therefore often uses theceteris paribus get-out clause in such situations.Where there is a difference between theory andpractice, economists are able to refer to the premises



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758 Johan Wempebehind themodel. Inmany cases, the approach thatisused in physics failswhen it is applied to social andsocioeconomic systems. Inmany cases, the argumentadvanced by Bertalanffy is also applicable here: as inbiology, adopting a systems approach can often leadto a better understanding of social issues.A system is seen as an organised whole. It includesa collection of entities, both real and abstract,whichinfluence each other. Every element of a system hasan influential relationship with at least one otherelement in the system. A social system consists ofpeople, or organisations of people. We often call thisa community. A system can also involve abstractelements. Take for example a legal or a moral system. A legal system includes laws and regulations,and also institutions. A moral system contains valuesand norms: themoral aspects of a culture, and itsstructure and moral institutions, are incorporated. Amoral system entails values and norms and also theway inwhich these values and norms are institutionalised in rules, procedures and institutions, andincorporated within a culture.

Systems can be nested; in other words, a systemcan be an element of a larger,more comprehensive,system. In such a situation, we have to deal withsub-systems. The sub-system is in itselfa system that

might consist of interrelated elements, whilst, at thesame time, it is an element of a comprehensivesystem. Elements taken from various systems arecollectively able to function as a system in themselves. A good example is the public transport systemwithin a city. This is a sub-system of the city system.However, togetherwith the provincial, national andinternational public transport systems, itforms a newsystem.

Adaptive systems are able to respond to changes intheir environment. By adapting to changes, they arebetter able to survive. Interestingly, such changes dooccur without any administrative body. Such actionis seen in bees: through dance movements, a bee isable to give information about sources of nectar toother bees. This exchange of information takes placewithout the intervention of a 'chief who collatesinformation and takes decisions. The termQueenBee ismisleading in this sense.Within complex adaptive systems, 'emergence'can occur. Emergence is 'the movement from lowlevel rules to higher-level sophistication' (Johnson,2001a, p. 18). Owing to the interactions between

the elements of a system, or different systems,unintended and unpredictable processes can start.Ants, for example, will build a collective anthill. Alarge number of ants respond to each other's activities. Each activity is guided by simple rules. Theanthill arises from all these actions without anyawareness of the result to be achieved and withoutany steering from a governing body. Ants stopbuilding the anthill when they have reached theright size for the colony. If there are a large numberof interactions between a multitude of elements,then emergence ismore likely to occur. Feedbackloops lead to a situation where small changes canhave amajor impact.Public transport in rural areas is an example ofsuch an emergent process. If people feel that theycan relyon public transport, theywill be less inclinedto buy a car. This will lead to a more effective use ofpublic transport. The opportunities for systeminnovation are reduced when the interaction between systems and system elements is obstructed,and this comes with certain risks. It ispossible that aninteraction between different elements will putnegative processes into motion. In a large gathering,mass hysteria might occur. A small change in theclimate might lead to changes in nature which, inturn,will lead to a new equilibrium. A cutback inpublic transport in rural areas can launch a negativespiral.Once people feel that they can no longer relyon public transport, they will possibly buy a car.When the car has been purchased, more journeyswill be made.

When looking for a solution to major socialissues, it is important to consider these emergentprocesses. Inmany cases, social issues are a result ofunintended negative emergent processes. Emergencecan also be used in system renewal and can help infinding appropriate solutions to large social problems. Inwhat circumstances will emergence withinsocial systems occur, and what factors stimulateemergence that leads to a form of self-organisationthat contributes to resolving the social issues?The coordinated response of elements of a systemcan lead to changes: a sound vibration can lead to anavalanche. Intelligent change in systems ispossible ifthe actors within a system recognise patterns in thebehaviour of other actors, respond to these signalsand function as a interactive source for other actors.The behaviour of car drivers caught in a trafficjam is



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Industryand Chain Responsibilities and ISCT 759an example of this.The behaviour of brokers on thestockmarket also offers a superb example of a systemin which actors respond to other actors within thatsystem. In this respect, social systems differ fromphysical or biological systems. It isknowledge of thefunctioning of a system8 and of its control mechanism that makes this possible. People, as part of asocial system, can be aware of how the systemworksand how desired effects can be promoted.Information about trafficjams displayed on signsor broadcast on the radio enables car drivers to respond in an intelligentway. People who have yet tostart out will probably delay their journey. Thosewho are already on theway will, ifpossible, adapttheir behaviour, maybe by changing their plannedroute. Drivers stuck in a jam will be able to informthe people they were planning to visit about thedelay. In general, information on the stock exchangewill promote rational behaviour. Through rulesimposed on all companies listed on the stock exchange, traders are able to trust the informationprovided by the companies. Owing to these rules,they know that everyone is informed simultaneously, which also promotes rational behaviour. Inorder to prevent irrational behaviour on the stockexchange, it is sometimes desirable that the tradingin a share is stopped. When information about acompany isunclear, or not all the parties are equallyinformed, then one party selling sharesmight lead tothe sale of shares by others. The stock market ruleslimit the risk of panic.

According to the Dutch politic philosopherHerman van Gunsteren (2008, pp. 87-92), there arefour principles that further the self-organisation ofsystems: diversity, remembrance of patterns of earlierreactions to an event, selection and indirect control.These are not themechanisms of the self-organisationprocess itself,which involves feedback mechanisms,etc. The principles that stimulate self-organisationreflect the conditions under which self-organisation isactivated. Diversity ensures that a variety of newsolutions to social issues are tried. People look ateach other's behavioural patterns and are encouragedto learn from one another. Thanks to the remembrance principle; it is possible to compare a reactionto the patterns of behaviour in response to an earliersimilar event. Selection makes it possible to chooseintelligent solutions. Owing to the diversity principle, multiple patterns are developed. Memory makes

it possible to compare different patterns of behaviour. Selection makes it possible to choose the bestpattern of behaviour. Indirect control, for instance,through changes in the feedback rules, helps theagents within a system to formulate goals and toprevent negative emergence. The SEC rules are anexample of this. Control has to be indirect, toguarantee diversity.Once we believe thatwe understand theworkingof social systems and we accept that actors withinthese systems are able to use themechanisms to steerthe system,we have to ask ourselves whether suchknowledge and the ability to indirectly steer impliesa moral responsibility? Is it possible to understandthis responsibility as a responsibility of the individualagents, or as a responsibility of the social systemitself? Inmy opinion, it is justified and useful to holda social system responsible for those results that gobeyond the intentions and responsibilities of theagents within the social system.An important characteristic of emergence is thatthe action of an individual agent is not a sufficientcondition for a certain result. Some agents havesufficientpower to influence the behaviour of otheragents within the system through the applied rules.This does not guarantee, however, that the desiredbehaviour will be shown. It is often not possible inadvance to identify,within the social system, causalrelationships that ensure that the desired effect isachieved. There are too many mechanisms thatmayinfluence the result.

Emergence amounts to that system behaviourwhich cannot be understood as the sum of the actions of the actorswithin the system.Within a socialsystem, it is possible for actors to have an understanding of the functioning of that system. This canbecome a shared understanding of the social issue bythe actorswithin that system. The climate issue is agood example. There are many sources of CO2emissions that have an impact on theC02 balance inthe atmosphere. The energy consumed by humans isone of them.We are, however, only responsible fora small part of global C02 emissions and theabsorption ofC02. The absorption and emissions ofC02 by the oceans are many times larger.Manyscientists have studied this, but it has only recentlybeen recognised by the IPCC that the disruption ofthe C02 balance has been caused by human intervention. AI Gore with his movie 'An Inconvenient



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760 Johan WempeTruth' got the general public to pay attention toclimate change. The world community isnow muchmore inclined to accept that human behaviour is animportant part of the climate system. This understanding may open the way for governments tointervene and create conditions where they can instal mechanisms directed at guaranteeing a carefuluse of energy and developing renewable energysources.When such social issues are analysed at the systemslevel, system errors become apparent and the sub

optimisation can be tackled, leading to solutions at thesub-system level. However, on the higher levels, thebest solutions are not achieved. It also becomes clearthat adverse effects are often passed to other systems.At the level of a system, it is possible to understand the functioning of the system as behaviour, andto describe the awareness ofthat behaviour as a formof collective consciousness. People within the systemcan have knowledge about the way the systemfunctions and may be able to influence and ifnecessary create the conditions that steer the system inthe appropriate way. This is essentially the argumentadvanced by Al Gore. In his address to the BaliSummit about the renewal of the Kyoto protocol,Gore warned the 11,000 delegates about the cost ofnot solving the biggest challenge facing society atlarge. Gore said: 'Our children will ask us

- whatwere you thinking? Didn't you hear the IPCC?Didn't you see the glaciers and the north polar icecap melt? Didn't you see themany more droughtsand storms and floods? Didn't you see the sea levelrise? Didn't you care? Or they can ask us ? how didyou find the moral courage to successfully confrontthe biggest challenge that faces the earth?'9

Owing to the lack of control by a leader orgoverning body, it is impossible to describe thisbehaviour as willing and knowing acting. There isno boss, as it were, where the organisation'sawareness is located, and it is only the coordinationbetween the actions of individual actors that ensuresthat the goals of the social system are realised.

Nevertheless, self-organisation, as a form of organisation, also bringswith it responsibility. The theoriesof collective action make a clear distinction betweenorganised collectives and the actions of individualswithin an aggregate. When natural persons have awill and knowledge ofwhat they are doing, they aremorally responsible for everything they do. Organ

ised collectives can willingly and knowingly act andare, therefore, also morally responsible. The systemsapproach shows us that there are multiple levels oforganisation in a collective and, as a consequence ofthis, that there are various levels of moral responsibility. It is possible and useful to understand thefunctioning of a social system as acting. Social systems can have important social consequences, andactorswithin the system can be aware of the role thatthey play within the social system. Therefore, it isjustified to describe the behaviour of the social system as the responsibility of that social system. Thequestion then iswhat this responsibility entails, andhow does this system responsibility relate to theresponsibility of the elements of that system, orrather the actors that function within it.

The responsibility of social systemsThe responsibility of a social system or a communitycan be understood as a collective one. A social system can be held responsible when the social systemcauses a social problem and/or is able to contributeto the solution and fails to do so. The moralresponsibility of a social system or a community isembodied in the actors that have roles within thesystem. Effectively, the responsibility of the actors isa derivative of the system's responsibility. The rolethat each actor plays determines their contribution tothe good functioning of the social system. Thisexpectation implies amoral norm for the actors andis, at the same time, a part of the system's responsibility. The moral expectations of actors within asocial system are interlinked, influence each otherand form amoral system. These actors can be individual actors as well as collectives. When we recognise the responsibility of the system, this does notdiminish the individual responsibility of the agents.In fact, system responsibility implies an extra level ofresponsibility. Furthermore, corporate responsibilityis a special form of system responsibility. This systemhas additional well-defined roles and, due to this,more precisely defined responsibilities.In a sense, a company is a special form of socialsystem. The responsibility of a company can beconceptualised in the same way as that of a socialsystem. In both cases, it is possible to translate theresponsibility of the collective to the roles that the



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Industryand Chain Responsibilities and ISCT 761various actors within the business community fulfil.All employees and stakeholders contribute to thegood functioning of the company, and each actorembodies some of the responsibility of the company.The concrete content of that role depends on thefunction that the actor fulfilswithin the firm. In awell functioning company, these roles are clearlydefined and coordinated. Based on the role of thevarious stakeholders, the responsibility for the success or failure of the company can be translated intoresponsibilities of certain departments, business unitsand officials.

The concept of moral responsibility can also beapplied to a social system that is less structured. Thiscould be an industry, a sector for example, a chain orcompanies within a particular district or region.Within social systems (communities), certain types ofissues that require joint action might be at stake. Thecase outlined in this article about the responsibility ofthe pharmaceutical industry for making affordableAIDS medicines available in Africa is a goodexample of a less-structured social system.Actors within such a less-structured social systemcan use the following steps to understand theresponsibility of that system, and to determine therole they play within the system and, from that,howthey contribute to the system's responsibility.

1. Step 1: In order to determine the responsibility of a system for a social problem, it isimportant that the borders of that social system are clearly defined. You could say thatall the actors that are needed to find a solution to a problem belong to the relevantsocial system. In general, the borders of thesystem should be drawn as tightly as possible:the smaller the system, the easier it is to finda solution. If a solution involves passing theburden to actors outside the system, forexample, to people who are depending onthe development of new drugs, then theboundaries have been drawn too narrowly.In such a situation, it is desirable to determine which parties need to be involved tofind a solution to the social problem. Partieswithin the system have to actively mobiliseother relevant parties. One might expectsocietal actors to adopt an open attitude towards major social issues and, where appro

priate, contribute to their solution. However,when is it desirable and appropriate for themto contribute to solving a social problem?With this approach, a dynamic that can leadto entirely new ways of organising the chain,sector or industrywill emerge.2. Step 2: Subsequently, roles should bedefined. What can be expected of each actor?The tendency will be to hmit one's responsibility and to put it on the shoulders of others. The new way of understanding responsibility, that is necessary to solve the majorsocial issues, requires actors to thinkmore interms of contributing to a solution. Whatcontribution can each actor deliver to helpresolve the issue? It is important that actorswithin a social system are only satisfiedwhenthe system is operating smoothly and solutions to any problems have been found. Thisalso means for the actors that the conditionshave to be such that they are able to makethe desired contributions.

3. Step 3: In order to resolve system errors, theprinciples of system governance should beused: i.e. the promotion of diversity, the comparison of patterns behind the solution methods, the selection of the best patterns and theencouragement of the use of indirect control.

ISCT and the responsibility f communitiesWhat is the content of that responsibility in a social

system? Here, ISCT offers a way forward. TomDonaldson and Tom Dunfee's (1999) ISCT provides, in some respects, an attractive conceptualframework for further development of a moraltheory of social systems. ISCT tries to find amiddle

way between the extremes of relativism and absolutism. Internationally operating companies areespecially faced with a variety of standards in different countries and cultures. Should one rely on the'superiority' of the standards in one's own culture, orshould you respect the moral norms of the hostcountry, even if they conflict in a fundamental waywith your own standards? ISCT offers a solution tothis dilemma by grounding the norms that areapplicable in local communities in two types of



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762 Johan Wempesocial contracts: the hypothetical but universallyvalid macro-social contract, and the factually validmicro-social contract of local communities.

An important concept inDonaldson and Dunfee'stheory is the notion of moral free space. Localeconomic and political communities have the rightto choose distinctive conceptions of appropriateeconomic behaviour within certain boundaries.These are the so-called micro-social contracts. Anexample of norms that are established by such amicro-social contract is the binding effect of agreements in various markets. The settlement terms inbuying a house are different from those operating ina cattle market.

Hypernorms are generally applicable norms thatrestrict themoral free space of communities to agreeon norms using micro-social contracts. In this respect,Donaldson and Dunfee refer to norms such asrespect for human dignity and keeping promises.ISCT can be developed further into a moraltheory of social systems. By making a distinctionbetween micro- and macro-social contracts, ISCTpresupposes a stratification of social systems and theirassociated standards. Communities that rely on amicro-social contract have the right, within theframeworks of the hypernorms, to develop theirown moral framework and formulate appropriatestandards for the actors within that community. Inthisway, the community or social system is seen as amoral subject: that is, as a bearer ofmoral qualities. Ittherefore becomes possible to conceptualise themorality of a social system or community. ISCT alsooffers insights into the relationship between themoral contract embedded in themicro-social contract and the moral contract that is part of thecomprehensive macro-social system.A second feature of ISCT is that it allows theresponsibility of the community to be translated intostandards for the players within it. Thinking concerning the roles of the actors in themicro-socialsystem, and the relationships between them, can bepart of the contents of themicro-social contract.

Despite the apparent attractiveness of applyingISCT to social systems, it fails in some respects todevelop moral standards for systems.Within ISCT,the definition of the community is excluded fromthe discussion. In fact, ISCT assumes that thecommunity is a given and is stable. However, it isprecisely in its application to industries, sectors and

chains that it is important to create space for thedynamics within and between the different socialsystems.New social issues force agents to developnew social systems. It is desirable to develop ISCTand formulate criteria for determining which actorshave to be involved in the micro-social system andshould contribute to solving the social issue. Such amore comprehensive social systemwill include notonly businesses but also government and civil societyorganisations.A second adjustment to the ISCT concerns thecharacter of the standards that are developed as partof the micro-social contract. ISCT simply arguesthat these norms should not be in conflict with thehypernorms. It is important that the standards foracting within the micro-social system are coordinated, that the actors contribute to the good functioning of the micro-social system and that thestandardswhich the actors develop not only limit theaction (defines what is not acceptable), but alsoformulate how these rules will contribute to thecomprehensive social system.It is important that ISCT addresses how nestedsocial systems can be governed. This isnot only possible through hierarchical steering but also, and moreeffectively, by self-organisation. Therefore, ISCTneeds to rethink the principles of self-organisation.

Back to the caseThe pharmaceutical companies rightly emphasisetheir role in the development of new medicines.Patents are necessary tomake itfinancially attractiveto innovate. At the same time, the African governments, on behalf of theirpoor citizens needing AIDSmedicines, and the Indian government, on behalf ofthe producers of generic medicines, are also right toexpect affordable vital medicines for people indeveloping countries. You could argue that theWTO, the pharmaceutical companies and governments have failed to establish amicro-social contractinwhich not only the social issue is taken into account, but also the conditions under which pharmaceutical companies must operate. Lawsuits do notdo more than minimise the contribution of the actors to the solution of the social problem. Cooperation, the only way to resolve the issue,will not beachieved.



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Industryand Chain Responsibilities and ISCT 763As part ofWorld Health Organisation's recently

adopted Global Strategy on Public Health, Innovation and Intellectual Property, a form of a microsocial contract has been developed to assure access tomedicines by people in developing countries. Thismicro-social contract includes a patent pool. This is amechanism whereby a number of patents held bydifferent entities, such as companies, universities andresearch institutes, are made available to others forproduction or further development. The patentholders receive royalties that are paid by those whouse the patents. A patent pool can help speed up theavailability of generic versions of new medicinesbecause development can start well before the20-year patent term expires.10

FinallyImportant social issues make it necessary to thinkabout developing a new approach to ethics. In orderto analyse themajor social issues thatwe are facing, itis necessary to develop ethical concepts that can beused to evaluate less-structured collectives such aschains, sectors and industries. During the 1980s and1990s, ethicists developed concepts for the analysisof structured hierarchical collectives. Thinking interms of collective responsibility needs to be reconsidered. Adopting the systems approach and theoriesabout self-organisation can help in this. Itwill also benecessary to think about the norms that can beapplied to less-structured social systems. Provided asocial system is understood as a micro-social contract, and ISCT provides a good basis for this.However, ISCT needs to be developed further. Inparticular, ISCT should be able to deal with thedynamics between the various social systems.Furthermore, themoral norms thatwe need toapply to systems should explain how actors have tocontribute to the good functioning of the microsocial system, and how the micro-social systemshould contribute to the successful operation of thecomprehensive social systems.The seriousness of themajor social issueswe facemakes such a development of business ethics mosturgent. A furtherdevelopment of ISCT could play animportant role in thisnew approach to (business) ethics.

Notes1 E. Vucheva, 'Laissez-faire * capitalism is finished,

says France, EUobeserver.com. See: http://euobserver.com. Consulted on January9, 2009.2 In 2000, theUN identified seven global issues andadopted seven rnillenniumgoals to solve these issues: endpoverty and hunger, universal education, gender equality,child health, maternal health, combat HIV/AIDS andenvironmental sustainability.A solution to these largesocietal problems is only possible ifall the involved parties, governments, companies and civil society cooperateand contribute to the solution of the issues.The eighthmillennium goal is thereforeto create a global partnershipto achieve these goals. See: http://www.un.org/millenniumgoals. Consulted on January 1,2009.3 See: Oxfam Briefing Paper, Patents versuspatients.Five yearsafter he oha Declaration, Oxfam, 2006.4 See: http://www.rnsf-azg.be/nl/main-menu/actueel/dossien/dossier-deta?/table/3.html.onsulted on January1,2009.5 New York Times,August 7, 2007. See: http://www.nytimes. om/2007/08/07/business/worldbusiness/07drug.html. Consulted on January 1, 2009.6 I limitmyself here to the way in which thebehaviour of the pharmaceutical companies was judged15 years ago and now. Of course, there aremajor differences. For example, in the Merck case, there was norisk that the freelyavailable medicines would end up onthe western market since there was no demand forthem. Itwas this concern that led to the pharmaceuticalcompanies resisting a reduction in the price of AIDSblockers for African markets.7 Donaldson, Werhane, Lary May andmany others.8 Steve Johnson describes four principles that furtherlocal interaction and by that emergence within systems(Johnson,2001).9 A. Gore, Climate Change and Responsibility,Speech for the United Nations International ClimateChange Conference, Bali Indonesia, December 13,2007. See: www.irregulartimes.com/gorebalispeech.html. The IPCC is the Intergovernmental Panel onClimate Change: a group of scientist that advises governments about climate change. Recendy it concludedthat global warming is partly caused by humanactivity.10WHO, Global Strategy and plan of action on public health, innovation and intellectual property. See thewebsite of theWHO. http://www.who.int/gb/ebwha/pdf_files/A61/A61_R21-en.pdf. Consulted on January9, 2009.



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764 Johan WempeReferencesCopp, D.: 1979, 'CoUective Actions and SecondaryActions', American PhilosophicalQuarterly July, 177

186.Donaldson, T. and T. Dunfee: 1999, Ties thatBind: ASocial ContractsApproach to Business Ethics (Harvard

Business School Press, Boston).French, P. A.: 1984, Collective andCorporateResponsibility(Columbia University Press,New York).Friedman, M.: 1970, 'The Social Responsibility ofBusiness is to Increase ItsProfits',TheNew York TimesMagazine, 13 September, in W. M. Hoffman andJ.Mills Moore: 1984, Business Ethics: Readings andCases in Corporate Morality (McGraw-Hill BookCompany, New York).

Johnson, S.: 2001, Emergence:The Connected Lives ofAnts,Brains, Cities, and Software Sribener,New York).

Kaptein, M. andJ.Wempe: 2002, The Balanced Company:A Theory of orporate IntegrityOxfordUniversity Press,Oxford).van Gunsteren, H.: 2008, Vertrouwen inDemocratic Overdeprincipesvan zelforganisatie. Confidence inDemocracy.About thePrinciplesof SelfOrganization] (Van Gennep,

Amsterdam).Velasquez, M.: 1983, 'Why Corporations are Not

Responsible forAnything They Do\ Journal ofBusinessandProfessional thics 3, 1-18.

Saxion University,P.O. Box 70000,7500 AB Enschede,The NetherlandsE-mail: [email protected]

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