Notes MGMT3016 Weeks 1-4 PDF

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Ethics Notes Lecture 1 -

In 2015 the 193 UN Members adopted the 2030 Agenda for Sustainable Development Aim: to create a more prosperous, sustainable and environmentally friendly future by the year 2030.

SDGs -

17 specific goals and 169 targets Aim: End hunger and poverty Improve access to education, Address gender inequality, Protect the environment o the SDGs will require US$5-7 trillion in investment annually from 2015-2030, o Need investment from private capital. o In Australia, businesses came together to outline its support as part of the Global Compact Network Australia (GCNA), o 30 CEOs have signing off on their commitment to change

The Global Compact Network Australia Report 2020 -

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Businesses prioritizing Indigenous engagement is key to a sustainable future Respecting human rights is the minimum standard expected of businesses, but businesses also have a significant opportunity to demonstrate their respect for human rights and take additional voluntary actions that promote and support human rights.” Society expects businesses to do more than simply take a ‘do no harm’ approach to human rights. a human rights-based approach that prioritises people and sustainability now and into the future.”

What is Ethics/Business Ethics? -

“issues of Right and wrong” “Good or bad” Right: something that people have or ethical claim Responsibility to respect others rights Obligation or duties Fairness Business ethics are rules, standards, codes or principles which provide guidelines for morally right behaviour in specific business situations Business ethics also inquires about the most appropriate or just designs for firms, markets, market regulations, and political oversight in a democratic society and a globalized economy.

Unethical Behaviour -

acts of omission, or commission,

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by individuals, groups of individuals and organisations which violate socially-constructed norms, regulatory, and/or legal structures.

2 Perspectives -

business is incompatible with ethics vs business could be ethical

Legality and Ethics -

An activity may be legal but ethically questionable Example: Apartheid in South Africa, Animal testing, labour abuses in developing countries The law is the system of rules of conduct established by the government of a society to maintain stability and justice. Law defines the legal rights and duties of the people & organizations and provides the means of enforcing these rights and duties.

Morality Vs Ethics -

Morality refers to principles of right and wrong. Morality consists of what a person ought to do in order to conform to society’s behavioural norms.

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Ethics : study of morality it is the philosophical reasoning for or against the morality that society stipulates. inquiring the legitimacy of various notions of good, bad, right, wrong, fairness Ethics, is more proactive and seeks to critique moral principles as time passes. Example: moral but unethical?

Moral relativism -

moral standards differ between groups, within a single culture, between cultures and across time. there are no ultimate universal ethical principles,

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all value judgements are relevant to the particular cultural context.

Moral absolutism -

There are universal moral standards However, there will be variations in how individuals actually behave

Market drivers: -

Market infrastructure Consumers Investors and owners Shareholders Employees Other stakeholders

Social drivers: -

National advocates Individual activists Local community Main stream media Social media International lobby groups Business and professional associations Educational institutions Non-government organisations (NGOs)

Government drivers: -

Formal legislation Regulatory bodies

Conclusion: Good for business Research from the US Ethics Resource Centre (2013) show strong ethics and compliance, and ethical cultures result in: •

elevated standards

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lower levels of observed misconduct, increased rates of reporting unethical conduct

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decreased levels of retaliation against those who report unethical conduct.

Shared value •

This stresses that the creation of social value can help a commercial business to create economic value in a virtuous cycle.

Lecture 2: Framing Business Ethics Corporations -

1. Corporations are regarded as ‘artificial persons’ in the eyes of the law they have certain rights and responsibilities just as individuals 2. Corporations are notionally ‘owned’ by shareholders, but exist independently of them limited liability-shareholders not responsible for the debts or damaged caused by the corporation 3. Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders managers act in the best interests of shareholders

Question: -

Whether companies are actors that have to make decisions beyond simply producing goods and services on profitable basis If companies provide us with great products that we want to buy Employ workers to produce them And pay taxes to government, Is it not enough??

Shareholder Value Maximisation -

the responsibility of the corporate officers (Agents) is to make decisions that are in the best interests of the shareholders (owners)

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Engaging in CSR is in direct conflict with the shareholder model because it diverts resources and energies away from profit maximizing behaviours

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2. a business is not the appropriate vehicle to donate or involve in charity because

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A) finding a cause that all of its shareholders agree with is difficult

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B) by spending energies and resources on CSR the business is giving up profit maximization

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If business are making profit: shareholders could donate to whatever organization they wish

Can a corp have social responsibilities -

Friedman: No Only human beings have a moral responsibility for their actions (not organizations) It is managers’ responsibility to act solely in the interests of shareholders Social issues and problems are the responsibility of state rather than corporate managers

Opposing Argument -

Yes Every organisation has a corporate internal decision structure which directs decisions in line with predetermined goals (French 1979) All organisations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation – organizational culture (Moore 1999)

Why corps have social responsibilities Business reasons (‘enlightened self-interest’) -

Extra and/or more satisfied customers Employees may be more attracted/committed Long-term investment which benefits corporation

Moral reasons: -

Corporations cause social problems Corporations should use their power responsibly All corporate activities have some social impacts Corporations rely on the contribution of a wide set of stakeholders in society, not just shareholders

Stakeholder Theory of firm -

Theory developed by Edward Freeman (1984) Goes beyond shareholder concerns to include all stakeholders of the firm. Stakeholders have been defined (Freeman 1984) “any group or individual who can affect or is affected by the achievement of the organisation’s objectives” More precise definition of ‘affects’ and ‘affected by’ (Evan and Freeman 1993) Principle of corporate rights - the corporation has the obligation not to violate the rights of others Principle of corporate effect – companies are responsible for the effects of their actions on others

Descriptive stakeholder theory -

Focus: whether managers do in fact attend to various stakeholders and act in accord with their interests. To what extent managers attend to various stakeholders and act in accord with their interests.

Normative stakeholder theory -

Focus: whether managers ought to attend to stakeholders other than shareholders and, if so, on what grounds these various stakeholders have justifiable claims on the firm.

Instrumental stakeholder theory • •

investigates the consequences- the economic benefits-that follow from attending to a range of stakeholders. justifying the claims of stakeholders on the basis of the benefits influential stakeholders: groups or individuals who can influence a company’s achievement of its objectives affected stakeholders: groups or individuals who are affected by a company’s activities

Normative Relationships -

stakeholders have a normative relationship with a company if the company has ethical reasons to take them into account influential stakeholders have a normative relationship because of their reciprocity rights (mutually benefits) affected stakeholders have a normative relationship because effect entails a right to consideration

Instrumental Relationships

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‘stakeholders have an instrumental relationship with a company if they help it to achieve its objectives influential stakeholders have instrumental relationship their support helps it to achieve its objectives affected stakeholders do not have an instrumental relationship with a company because they have no influence on its achievement of its objectives Stakeholder Theory: Corporations have to take all of the stakeholder groups into account when making a decision. According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management. management has to take into account the rights and interests of all legitimate stakeholders: Stakeholder democracy Corporate governance

CORPORATE SOCIAL RESPONSIBILITY: A THREE-DOMAIN APPROACH Abstract: Extrapolating from Carroll's four domains of corporate social responsibility (1979) and Pyramid of CSR (1991), an alternative apS proach to conceptualizing corporate social responsibility (CSR) is proposed. A threeSdomain approach is presented in which the three core domains of economic, legal, and ethical responsibilities are deH picted in a Venn model framework. The Venn framework yields seven CSR categories resulting from the overlap of the three core domains. Corporate examples are suggested and classified according to the new model, followed by a discussion of limitations and teaching and research implications.

Economic Domain: For the purposes of the three-domain model, the economic domain captures those activities which are intended to have either a direct or indirect positive economic impact on the corporation in question. In this sense, it is similar to the Carroll formulation of this component. The positive impact is based on two dis- tinct but related criteria (Poitras 1994): (i) the maximization of profits and/or (ii) the maximization of share value. Examples of direct economic activities include actions intended to increase sales or avoid litigation. Examples of possible indi- rect economic activities include activities that are designed to improve employee morale or the company's public image. Any activity that is

pursued with improv- ing profits and/or share value in mind is deemed to be economically motivated. Reading: A Stakeholder Theory Perspective on Business Models: Value Creation for Sustainability -

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The core idea of value creation for customers is expressed in a variety of terms, including value proposition, value object, ofering, and customer beneft The term value proposition is predominantly used to refer to the bundle of products and services ofered to customers to satisfy their needs and to create value for them, Many business model frameworks also emphasize the value created for fnancial stakeholders (e.g., investors and shareholders) as a second major stakeholder group. Their benefts are often mentioned in conjunction with the fnancial model or the economic value created by a business The literature on sustainability-oriented business models extends these concepts by highlighting the potential to create other types of value, ecological and social value, for example, through reduced use of natural resources or the provision of services to neglected social It is argued that by contributing to ecological and social value creation, business models can create competitive advantages while contributing to the sustainable development of markets and society (Schaltegger et al. 2012, 2016b). In the triple bottom line approach (Elkington 2004), value is understood as the net outcomes of a business model with regard to ecological, social and economic performance. These outcomes can be a net reduction of negative efects or, ideally, net positive contributions to the natural environment and society (Upward and Jones 2016). Therefore, while conventional frameworks focus on value created for customers and the focal business, sustainabilityoriented frameworks also include ecological and social outcomes that beneft other stakeholders. If value creation is not mutually benefcial for all parties, a business would lose its business partners and resources as well as its legitimacy. This means that value should be created both with and for diferent stakeholders The integration thesis in stakeholder theory holds that most business decisions have an ethical content, and vice versa, many ethical decisions a business dimension (Freeman et al. 2010; Hörisch et al. 2014). Thus, ethical and business decisions are not two separate phenomena. How businesses engage with their stakeholders also afects the kind of value created. Although a discussion of ethical considerations is virtually absent from the literature on conventional business models, it is treated in sustainability-oriented business models As part of the stakeholder perspective on value creation, the integration thesis is closely linked to the cultivation and maintenance of efective relationships with all stakeholders because unethical behavior may result in the withdrawal of stakeholder support, thereby threatening the viability of the business model. A stakeholder theory perspective invites a discussion of the underlying reasons for stakeholders to engage in business operations (Bridoux and Stoelhorst 2016; Garriga 2014) as well as their potentially difering views on what constitutes value and what is considered sustainable and ethical conduct.

Key Stakeholders

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Customers: Customers are viewed as a key stakeholder group in much of the business model literature o Customers will only engage in a value exchange if they believe the product or service meets a business or personal need. This need is related to the value of the product in its use (e.g., a pullover will keep the customer warm) but also its symbolic value (e.g., the customer feels that a particular design or brand helps to satisfy the need of belonging to a specifc social group). On the most basic level, customers pay an amount of money in exchange for a product and its associated value. o stakeholder theory sees customers as active participants in a business model. They do not merely pay for a product or service (see Stubbs and Cocklin 2008) but also provide other values to the business, for example, personal data and information about consumption preferences, thus helping to meet a business need for detailed information about the target group. They may also be involved in value creation processes, for example, by individualizing product designs or participating in open innovation initiatives Societal stakeholders: are also rarely discussed in the business model literature but exceptions can be found in the sustainability-oriented stream o by acting as intermediaries for often marginalized groups and speaking for nature, societal stakeholders like NGOs contribute to value creation activities, particularly with regards to the ecological and social impacts of business activities. The value provided by societal stakeholders includes the provision and maintenance of a stable operating environment for the business through regulations and social norms (Darnall et al. 2010; Lee 2011). As part of the value exchange in this dimension, the business contributes to societal stakeholders’ ability to fulfll their roles, for example, by making its actions transparent to allow for their evaluation of the legality and legitimacy of its operations, by paying taxes, and by supporting NGOs through membership fees, donations or employee volunteer programs

The Framework: Firstly, it provides a nuanced understanding of stakeholder relationships and of what constitutes value Secondly, each relationship and its related mutual value exchange contribute to overall value creation in the business model, which in turn leads to a portfolio of value.

Thirdly, the focus on all types of value, of which fnancial value is only one, provides a richer basis for developing business models for sustainability. This also allows managing contributions from a broad range of diferent stakeholders, which is crucial to fnding robust and innovative solutions to business and society issues and efectively implementing them.

A BMfS is defned as a business model fulflling these three criteria: (i) it ofers multiple value propositions to customers and all other stakeholders, (ii) it creates and delivers the corresponding forms of value, i.e., a value portfolio, (iii) and it captures economic value for the business while it maintains or regenerates natural, social and economic capital beyond the boundaries of the focal organization -

Proposition I All relevant stakeholders are engaged in identifying and solving sustainability issues as part of a business model for sustainability’s value creation processes.

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Proposition II The joint purpose of a business model for sustainability is directed toward sustainable development and explicitly refers to stakeholder contributions to achieve this purpose. Proposition III A business model for sustainability aligns stakeholder interests to contribute efectively to sustainable development, in particular by integrating the ecological, social, and economic value stakeholders receive Proposition IV Business models for sustainability embody an integrated perspective of ethical and business considerations in their value creation with and for stakeholders.

Reading: Achieving Social and Economic Equality by Unifying Business and Ethics: Adam Smith as the Cause of and Cure for the Separation Thesis -

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how managers themselves might combat social and economic inequality via the decisions they make in their roles as agents of the firm. Noting the ‘’tradeoffs and competing claims to resources and outcomes’ stemming from the tension between their firms’ social and economic goals I begin by arguing that the general perception that conflict exists among the interests of managers and those who are affected by their decisions is due to the widespread acceptance of the separation thesis, or the belief that business decisions have no moral content and moral decisions have no business content (Freeman, 1994). I contend that the genesis of the separation thesis is the claim by neoclassical economists, citing Smith’s (1994) An Inquiry into the Nature and Causes of the Wealth of Nations (WON), that economic decisions should be made solely on the basis of self- interest, devoid of any ethical concern for others (Friedman, 1970). Notwithstanding the pervasiveness of this perspective, it misinterprets Smith’s thought. By viewing WON in the context of...