CHAPTER FOUR
WEEK 4
EVOLUTION OF BUSINESS
ETHICS
Augustin Lee
Disclaimer

The subject matter of sensitive issues can be
local or global, and range from intimate
partner, violence, disability, politics, racism,
torture, terrorism, sex or death. They are
usually complicated and are issues on which
people often hold strong opinions based on
their own experiences, interests and values.
There are no easy answers. The materials
presented herein are for educational discourse
only and meant for illustration purposes.
THE MARKET SYSTEM

The Market System is characterized by three main
features:
 Private
Ownership of Resources
 Voluntary Exchange
 The Profit Motive

The Market System is justified by the Utilitarian
Argument that it produces the highest level of
welfare for society and by the Rights-Based
Argument that it is the best protection for Liberty,
particularly with regard to rights to private
property ownership.
FREE MARKET THEORY (Against
CSR)



Free-market theory holds that the primary aim of
business is to make a profit.
As far as business obligations toward consumers,
this view assumes (reality? medicine?) an equal
balance of power, knowledge, and
sophistication of choice in the buying and selling
of products and services.
If businesses deliver what customers want, customers
buy. Customers - freedom and wisdom to select
what they want and to reject what they do not
FREE MARKET THEORY



Faulty or undesirable products should not sell. If
businesses do not sell their products or services, it is
their own fault.
The marketplace is an arena of arbitration.
Consumers and corporations are protected and
regulated—according to this view—by Adam
Smith’s (one of the modern founders of capitalism)
notion of the “invisible hand.”
ADAM SMITH’S “INVISIBLE HAND”
ARGUMENT




Adam Smith (1723-1790), explains how trading motivated by
Self-Interest rather than altruism (the belief in or practice of
disinterested and selfless concern for the well-being of others)
best promotes the welfare of society.
Each individual in pursuit of personal gain is “led by an
invisible hand to promote an end which was no part of his
intention.”
This argument does not prove that Free Markets Maximize
Utility, only that they are EFFICIENT.
Additionally, the argument that Free Markets are Efficient
presupposes that individuals are Rational Utility Maximizers
and that markets are characterized by Perfect Competition
and Freedom from Externalities.
PROBLEMS WITH THE FREE-MARKET
THEORY
1. Most businesses are not on an equal footing with
stakeholders and consumers at large. Large firms
spend sizable amounts on research aimed at
analysing, creating, and manipulating the demand
of certain targeted buyers and groups – e.g,
children are not aware of the effects of
advertising on their buying choices (eg McDonald's
Happy Meal?, Hello Kitty toys?)
PROBLEMS WITH THE FREE-MARKET
THEORY
2. Many firms’ advertising activities do not truthfully
inform consumers about product reliability,
possible product dangers, and proper product use
ie information asymetry (medicine side effect?)
3. The “invisible hand” is often non-existent for many
stakeholders and, in particular, for consumers in
need of protection against questionable, poorly
manufactured products (death after medicine?)
CORPORATE SOCIAL
RESPONSIBILITY (CSR)
What obligation do employers have in terms of
corporate social responsibility?
 What are the responsibilities of a corporation to
the society/ public?
 Have you been faced with the following situations?

 Air
pollution, noise, etc. caused by a factory at the housing
area?
 Food
poisoning after having certain food?
 Bought certain products and realised that the quality of the
products are not as promised by the manufacturer
CORPORATE SOCIAL
RESPONSIBILITY (CSR)


CSR means that firms are not only responsible
to their shareholders/owners but also
accountable for the effect of their actions on
various stakeholder groups
Firms have an obligation to take actions that
protect and enhance the well-being of their
stakeholders other than promoting their own
interests ie profit-maximizing
CORPORATE SOCIAL
RESPONSIBILITY (CSR)


Firms are expected to protect the welfare of
their stakeholders by avoiding negative
impacts that their actions can bring onto them
– e.g. ensure their products are of good quality
because defective products can cause injury or
even death
Firms can enhance the welfare of stakeholders
by generating positive benefits for society –
e.g. give financial support for social activities of
the local community
CORPORATE SOCIAL
RESPONSIBILITY (CSR)

A corporation should be held accountable for any
of its actions that affect people, their
communities, and their environment
CORPORATE SOCIAL
RESPONSIBILITY (CSR)



Although there are varying interpretations of social
responsibility, the standard view recognizes that
business firms have two main sets of
responsibilities.
Corporations have economic responsibilities to
produce goods and services, to provide jobs and
good wages to the workforce, to seek out supplies of
raw materials, to improve technology, and to develop
new products, all the while making a profit.
Corporations also have many legal responsibilities
that are set forth in the voluminous body of business
law.
CORPORATE SOCIAL
RESPONSIBILITY (CSR)
Social responsibility is the selection and
evaluation of corporate goals based not only on
profitability and organisational well-being, but
also on ethical standards of social desirability.
 Archie B. Carroll describes corporate social
responsibility as beyond economic and legal
responsibility, it is an ethical conduct that is
expected but not legally required of business.
 It can be explained as the discretionary
responsibilities of an organisation.

Carroll’s Four Part Definition
Understanding the Four Components
Responsibility
Societal
Examples
Expectation
Economic
Required
Be profitable.
Maximize sales,
minimize costs, etc.
Legal
Required
Obey laws and
regulations.
Ethical
Expected
Do what is right, fair
and just.
2-16
Discretionary Desired/
Be a good corporate
citizen.
(Philanthropic) Expected
Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved
Stakeholder Management
Approach
34
CORPORATE ACTIVITIES THAT EXHIBIT
CORPORATE RESPONSIBILITY



They include choosing to operate the corporation on a
level higher than the law requires.
For example, contributing to civic, charitable, and
nonprofit institutions, providing benefits to employees
and improving the quality of the workplace, taking
advantage of an economic opportunity that is less
profitable but more socially desirable, and using
corporate resources to address some major social
problem.
None of these activities is necessarily antithetical to
corporate interests or even the long term profitability
of a corporation, however some of the most successful
CORPORATE ETHICS
PROGRAMS (from lecture 2)


1.
2.
3.
4.
Many corporations have established
corporate ethics programs that are
intended to both guide individual conduct
and shape the corporate environment.
The components of ethics programs typically
include:
A code of ethics,
Ethics training,
Communication with employees, and
Some mechanism for reporting,
investigating, and correcting wrongdoing.
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