Business and Society
The Ethics of Business
and
Corporate Social Responsibility
How Are Business and Society
Related?
 Do organizations have morality?
Yes: Economic forces are insufficient to hold
organization together (Wieland)
No: The firm operates mechanically, to reach a state of
equilibrium (Maitland)
 So, what is it? Competing views:
Market Capitalism
Dominance
Stakeholder
 Which one is “correct”?
1. Market Capitalism
Based on these ideas:
Competition
“Individuals have the freedom to own and
control property and to make economic
decisions in their own interest”
“The ultimate goal is the good of the greatest
number”
Let’s look at….
Adam Smith
Milton Friedman
Adam Smith and The Wealth of Nations
It’s basic human nature to “truck, barter,
and exchange”
It’s rational to exchange goods that you
can produce efficiently for goods that you
are less efficient at producing
In a voluntary exchange, both parties
increase marginal utility; an item is worth
what a willing seller will take and a willing
buyer pay
Adam Smith, continued
 There’s competition among sellers and buyers (if
something is desirable, more than one person
will want it and more than one will sell)
 Thus, the law of supply and demand; the
invisible hand will balance out, to a state of
equilibrium (second corporate ethics article)
 Competition also forces sellers to become more
efficient, thus…
Division of Labor
The best way to increase efficiency
Also referred to as “deskilling”
Why?
By specializing, the worker becomes more
skilled, or at least more efficient
Time not lost by switching among different tasks
Incentive to develop machinery
Adam Smith: Recap
“But man has almost constant occasion for
the help of his brethren and it is in vain for
him to expect it from their benevolence
only”
By pursuing his own interest he frequently
promotes that of the society more
effectively than when he really intends to
promote it.”
Milton Friedman


1.
2.
“The Social Responsibility of Business is to Increase
its Profits”
His reasoning……
A corporation is an “artificial” person – thus, unlike a
real person, it has no ethical or moral obligations
(though …would disagree)
Managers are responsible to owners: “That
responsibility is to conduct the business in accordance
with their desires, which generally will be to make as
much money as possible while conforming to the basic
rules of the society, both those embodied in law and
those embedded in ethical custom
Freidman’s Reasoning, continued
3.
4.
5.
Individual managers fulfill their private ethical / moral
obligations from their personal resources
If managers are to spend money on public uses, they
must be accountable, just as are politicians. The
analogy here is with taxation; by spending money pf
public uses, the manger is in effect taxing employees,
customers and owners for the benefit of society as a
whole
For Freidman, this is “socialist” -- using “political
mechanisms, not market mechanisms…the
appropriate way to determine the allocation of scare
resources to alternate uses”
Friedman, Finale
6. Further, if business social spending (the
specific expenditures) were a good ides
(accepted by society), it would be a public
responsibility and funded through taxes
7. However, an organization may legitimately
spend money on what may be perceived as
social responsibility, but where there is a
benefit to the firm (for example, funding
education)
8. Thus, corporations are judged solely by
financial performance, as defined by the
owners / shareholders
However…….
What about public goods ?
Things (such as education) where society
believes that market forces are
inappropriate
The question is, what are public goods?
2. Dominance
Businesses are controlled by a small elite
group
These individuals are not elected and are
unaccountable for their actions, especially
as those affect the less powerful
Businesses will use their power for their
own self-interest and disregard the
interests of others
Theoretical underpinnings in Marxism
First, Malthus and Ricardo
Thomas Malthus
The food supply increases arithmetically, while
population increases geometrically
Thus, the population will always increase up to
the limit of resources
Ricardo extends this…
The consequence will be that workers’ wages
will always be pushed to subsistence levels
Karl Marx
Marx takes Adam Smith’s “self-love” and
turns it into “naked self-interest”
Self-interest is economic and individuals
struggle in their self-interest, so…
Struggle becomes class struggle
A vast proletariat, a small bourgeois
Points on the Spectrum
 The Simple Life Folks (granola crowd)
 Large organizations, by their very existence, are destructive
of human values
 We should adopt a simpler lifestyle, freeing ourselves of the
need for large businesses
 We are interested in maximizing human potential
 Redemption-May-Be-Possible
 Large organizations exploit those without power (especially
multinational firms and indigenous peoples)
 Don’t abolish business firms, but major reform is needed
 Critics from Within
 Businesses have done a lot to earn their bad reputation
 Responsible business leaders must begin cleaning out the
stables
Do the Facts Justify Criticism ??
 Of the globe’s 100 largest economic entities, 51
are corporations; only 49 are countries
 The 300 largest global corporations hold onequarter of the entire globe’s productive assets
 72% of Americans say business has too much
power over too many aspects of American life
2004 Revenues ($B)
Saudi Arabia
$310.2
1)
WalMart
$288.0
2)
BP
$285.1
3)
Exxon / Mobil
$270.8
4)
Royal Dutch / Shell
$286.7
5)
General Motors
$193.5
Portugal
$188.7
6)
DaimlerChrysler
$176.7
7)
Toyota Motor
$172.6
8)
Ford Motor
$172.2
Czech Republic
$172.2
General Electric
$152.9
9)
10) Total
Finland
$152.6
$151.2
Can Any One Individual Make a
Difference?
Solomon – people do have an ethical
character, independent of circumstances
Harman – they don’t
Both cite Milgram experiments as
evidence
3. Dynamic Forces Model
It’s a lot more complicated than the MC
and D folks would like it to be
Business and society are connected to
one another
Business and society influence one
another
Survival requires responsiveness to the
environment (society)
Some Applications of the Dynamic
Forces Model
 Concern with public image (for example, “cause-related
marketing”)
 “Doing well by doing good”
 Michael Porter: “The Competitive Advantage of Corporate
Philanthropy”
 Basically, corporations, if they deliberately target contributions in
areas that are of benefit to them, both the firm and the cause
benefit
 How-To?
 Firm has expertise to select recipients
 Bring in additional funding
 Assist recipients to make most effective use of resources
4. The Stakeholder Approach
 How do we solve the problem of the free rider?
 Organizations and people are bound together in a
network of mutual relationships
 Stakeholders
 Those people or groups essential to an organization’s success
 Those people or groups affected by what an organization does
 People with a “legitimate interest”
 An organization is obligated (duty) to consider the
interests of stakeholders
Who Are the Stakeholders?
Primary and secondary (how close are
they to the organization?)
Who?
Management
Employees
Owners
Local community
Suppliers
Customers
The Models and Values
MC
S
D
DF
The Models and Change
Market
Capitalism
No change needed

Dominance
 Abolish
Dynamic Forces  Adapt
Stakeholder
 Transform
The Models and Society
D
DF
Society
MC
S
A Pyramid of
Values
Philanthropic Responsibilities: Be a
good corporate citizen. Contribute
resources to the community; improve quality
of life.
Ethical Responsibilities: Be
ethical. Obligation to do what is
right, just and fair. Avoid harm.
Legal Responsibilities: Obey the
law. Law is society's codification of
right and wrong. Play by the rules
of the game.
Economic Responsibilities: Be profitable. The
foundation upon which all others rest.
Why Does Business Get Such A Bad
Reputation?
Stock Market Operators of the 19th
Century
 Cornelius “Commodore” Vanderbilt (1794-1877)
 Early involvement with steamboats
 Organized travel to California during gold rush (1849)
 Daniel Drew (1797-1879)
 Began with cattle (invented “watered stock”)
 Jim Fisk (1834-1872)
 Worked in a circus, flamboyant Wall Street operator
 killed by Edward Stokes, over Josie Mansfield
 Jay Gould (1836-1892)
 Surveyor, tanner, speculator (“Mephistopheles of Wall Street”)
 Later controlled over half of western railroads
The Erie Wars (I)
 Vanderbilt owned the NY Central and Hudson
River RR
 In 1867 Vanderbilt attempted to buy the Erie RR
(to eliminate competition)
 Drew (Erie treasurer) decided to fight back
 Drew, Gould, and Fisk printed 100,000
unauthorized shares of Erie stock and sold these
to Vanderbilt
 Vanderbilt attempted to have Fisk, Gould, and
Drew arrested in New York
The Erie Wars (II)
So, Fisk, Gould, and Drew fled to New
Jersey with armed guards
Gould purchased NY legislators to make
the watered stock sale legal
Drew, Fisk, and Gould profited ($7 million);
Vanderbilt lost about $1.5 million
John D. Rockefeller and Standard
Oil: The Beginnings
 Rockefeller born in 1839 in modest
circumstances
 Began work as a clerk, donating 10% of
earnings to charity
 Oil discovered in Titusville, PA in 1859; kerosene
became very popular for lighting (no need for
gasoline yet)
 By 1859, Rockefeller saved enough to go into
business for himself
 1863: Rockefeller got into oil business with first
refinery
John D. Rockefeller and Standard Oil:
Building the Trust
 1870: Rockefeller organized Standard Oil Company
 By 1872, Standard Oil controlled nearly all the refining
firms in Cleveland
 How?
 South Improvement Company and railroad rebates
 Squeezing out competition
 But, also lowered prices and improved quality
 1882: all Standard Oil properties were merged in the
Standard Oil Trust
 1892: the trust dissolved by a court decision in Ohio
John D. Rockefeller and Standard Oil:
Busting the Trust
 1890: Sherman Antitrust Act
 1892: formation of the Standard Oil Company of New Jersey (NJ
permitted parent company structure)
 Estimated 75% to 90% of the petroleum business in the U.S. in
1890s.
 1896: Rockefeller retired from active leadership of the company
 1902: Ida Tarbell’s exposé
 In 1911 the U.S. Supreme Court found the Standard Oil trust to be in
violation of the anti-trust laws and ordered the dissolution of the
parent New Jersey corporation (but was it really dissolved….)
 1913: Ludlow massacre
 Philanthropy and politics
Triangle Shirtwaist Fire (1911)
More Triangle Shirtwaist
Source: http://www.csun.edu/~ghy7463/mw2.html
Mill employees, Georgia *
* photo from about 1900, but similar to
sketches from early 1800’s
Source: http://www.historyplace.com/unitedstates/childlabor/index.html
Sweated Homework
“Mrs. Battaglia, Tessie (age - 12
years), Tony (age - 7 years), 170
Mulberry St. Rear house, 5th
floor. Garment workers.
Husband crippled by a fall,
tends to basement. Mrs.
Battaglia works in shop except
Saturdays, when the children
sew with her at home. Get 2 or
3 cents a pair finishing men's
pants. Said they earn $1 to
$1.50 on Saturday. Father
disabled and can earn very little.
New York, 01/25/1908”
Source:http://arcweb.archives.gov/arc/arch_results_detail.jsp?&pg=1&si=4&nh=1&st=b
Coal Mining
“Welch Mining Co.,
Welch, W. Va. Boy
running "trip rope" at
tipple. Overgrown, but
looked 13 years old.
Works 10 hours a day.
Welch, W. Va. ,
09/1908”
Source:http://arcweb.archives.gov/arc/arch_results_detail.jsp?&pg=1&si=4&nh=1&st=b