Week 3

Ethics, stakeholders and the social contract

There are few circumstances among those which make up the present condition of human knowledge, more unlike what might have been expected, or more significant of the backward state in which speculation on the most important subjects still lingers, than the little progress which has been made in the decision of the controversy respecting the criterion of right and wrong.

John Stuart Mill (1863) - Utilitarianism

Licensed to Kill Inc.incorporated and licensed in Virginia, March

2003

Purpose, as written in articles of incorporation:

“the manufacture and marketing of tobacco in a way that each year kills over 400,000 Americans and 4.5million other persons worldwide”

What is a stakeholder?

those groups without whose support the organization would cease to exist

any group or individual who can affect or is affected by the achievement of the organization's objectives

Stakeholder categories

Voluntary – involuntary Internal - external

Stakeholder groups 1

Managers Employees Customers Investors Shareholders Suppliers Government

Stakeholder groups 2

Society The local community The environment The future

Multiple stakeholding

Customer Employee Shareholder Member of society Member of local community

Stakeholder objectives

Return on investment Low price Quality Security A pleasant environment

Stakeholder ownership

legal v actual ownership composition of the firm power and influence quasi-ownership of stakeholders power of internal stakeholders power of external stakeholders

Why a concern with stakeholders?

Ownership of the firm accountability improved performance natural justice the future

Stakeholder Theory

All stakeholders considered in decision making

Why: Morally & ethically correct Benefits shareholders What actually happens

Stakeholder importance for companies

Concerned with Very concerned withStakeholder % %Customers 89 57Employees 89 51Shareholders 100 78Suppliers 70 3The environment 62 5Society 73 3

Rationale for Stakeholder Theory

Maximising wealth for shareholders fails to maximise wealth for society and all its members

Only a concern with managing all stakeholder interests achieves this

Effects of an organisation’s activities the utilisation of natural resources as a part of its

production processes the effects of competition between itself and other

organisations in the same market the enrichment of a local community through the

creation of employment opportunities transformation of the landscape due to raw material

extraction or waste product storage the distribution of wealth created within the firm to the

owners of that firm (via dividends) and the workers of that firm (through wages) and the effect of this upon the welfare of individuals

Spatial externalisation

environmental degradation though spoil heaps or through increased traffic imposes costs upon the local community through reduced quality of life

causing pollution imposes costs upon society at large waste disposal problems impose costs upon whoever is

tasked with such disposal removing staff from shops imposes costs upon

customers who must queue for service just in time manufacturing imposes costs upon suppliers

by transferring stockholding costs to them

Temporal externalisation 1

deferring investment to a future time period and so increasing reported value in the present

failing to provide for asset disposal costs in capital investment appraisal and leaving such costs for future owners to incur

failure to dispose of waste material as it originates and leaving this as a problem for the future

causing pollution which must then be cleaned up in the future

Temporal externalisation 2

depletion of finite natural resources or failure to provide renewable sources of raw material will cause problem for the future viability of the organisation

lack of research and development and product development will also cause problem for the future viability of the organisation

eliminating staff training may save costs in the present at the expense of future competitiveness

The Social Contract

obligations to individuals obligations to groups and organisations obligations to government obligations to society obligations to self

Organisational ideologies

dominant ideology shapes activities operational foundation ethical foundation

external relationsrelationship with stakeholderssocial contractstandards of fair trading

Ethical foundation 2

internal relationscorporate culturecontractual obligationsstandards of employment

Social responsibility and organisational values

business ethics agency theory stakeholder theory

corporate governance Combined Code of Corporate

Governance

Ethics and control systems

the nature of control systems organisations v individuals

facilitating goal congruence organisational and individual goals reward structures coercion and manipulation behaviour modification

Arguments against business ethics

added cost legal and regulatory framework

collective responsibility decisions taken by groups groupthink / risky shift

individual ethics conflict between individual freedom

and corporate needs

Ethical standpoint and the individual

loyalty to employers reciprocation?

loyalty to profession codes of conduct future career

loyalty to self core values self actualisation

Determinants of ethical stance

social constraint obedience to the law

social expectations obedience to social norms and values

social concern long term perspective

Reasons for unethical behaviour

lapses in individual ethics legitimating decisions through public

acceptance ruthless pursuit of self interest outside pressure the bottom line responsibility shifting

organisations are externalising machines

“No hiding place”

the veil of incorporation ultra vires

collective v individual responsibility ignorance is no defense professional codes of conduct the Panopticon