Business concepts and ethics
2602171
3. Defining Business Ethics &
Stakeholder Relationships
Kwanrat Suanpong
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Learning Outcome: Defining Business
Ethics & Stakeholder Relationships
• Define business ethics
• Understand shareholder model and
legal foundation
• Identify an organization’s stakeholders
• Explain and propose a resolution for
ethical dilemma using stakeholder
model
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Business Ethics
• Business ethics: Application of
ethical standards to business behavior
• Descriptive
• Documentation of what is happening
• Normative (prescriptive)
• Recommendation of what should happen
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Shareholder Model
• Focuses solely on shareholders’ interest
• This model was favored for decades
• Dodge brothers, shareholders of the Ford
company, sued Henry Ford in 1919 because Ford
did not pay a dividend
• but used corporate profits to support humanitarian
and charitable works
• Michigan Supreme Court found in favor of the
shareholders
• Dodge brothers started their own car company
• This shareholder model was the legal standard
until the decade after World War II
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Development of Purpose of the
Corporation
• The shareholder model emphasizes
making money for the corporation
• Milton Friedman: Corporations have
two duties:
• Comply with the law
• Make as much money as possible for the
shareholders.
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Type of Business Organization
www.dbd.go.th
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Ford Motors
• Dodge v. Ford Motor
Co., 170 N.W. 668
(Mich. 1919)
• [The Ford Motor
Company (“FMC”) was
founded in 1903 by a
number of investors,
including Henry Ford
and brothers John F.
Dodge and Horace E.
Dodge (“the Dodge
brothers”).
www.law.illinois.edu/aviram/Dodge.pdf
https://corporate.ford.com/company/history.html
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Ford Motors
• FMC‟s business strategy was focused on mass-market
cars that were lower priced but appealed to a larger group
of potential customers.
• To afford to sell cars at a low price, FMC focused on mass
production of cars and vertical integration (owning the
businesses that produced the raw materials needed to
produce cars).
• These allowed it to continuously reduce the cost of its
cars, and the lower costs allowed selling the car at a
lower price, making its cars affordable to customers
who were previously priced-out.
• For example, according to Wikipedia, the standard Model T 4-seat
open tourer of 1909 cost $850 (equivalent to $20,513 today). The
price dropped to $550 in 1913 (equivalent to $12,067 today); to
$440 in 1915 (equivalent to $9,431 today); and to $290 (equivalent
to $3,258 today) in the 1920s.
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Ford Motors
• Beginning in 1911, regular annual dividends were $1.2M.
• In addition, between 1913 and 1915 the company paid
special dividends of $10-11M each year.
• Then, in 1916, Henry Ford announced that FMC would no
longer pay special dividends and that profits would be
retained to pay for
• For the new River Rouge plant, which will allow FMC to expand its
production capacity;
• To double employees‟ salaries; and
• To cut the price of cars.
• The Dodge brothers sued: (1) for a decree requiring FMC to
distribute to stockholders at least 75% of the accumulated
cash surplus, and to distribute in the future all of its
earnings “except such as may be reasonably required for
emergency purposes”; and (2) to enjoin the construction of
the River Rouge plant.]
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Civil Act : Limited Company
• CHAPTER IV LIMITED COMPANIES
• PART I NATURE AND FORMATION
OF LIMITED COMPANIES
• Section 1096. A limited company is
that kind of company which is formed
with a capital being divided into shares
of an equal value and with the liability
of the shareholders being limited to
the amount unpaid on the shares held
by them.
• Section 1110. When the statutory
meeting has been held, the promoters
shall hand over the business to the
directors.
• MANAGEMENT OF LIMITED
COMPANIES 1. GENERAL
PROVISIONS
• Section 1144. Every limited company
shall be managed by a director or
directors in accordance with the
regulations of the company and under
the control of the general meeting
of shareholders.
• Section 1163. The directors may elect one
amongst themselves as chairman of their
meetings and fix the period for which the
chairman is to hold office, but if no such
chairman is elected, or if at any meeting the
chairman is not present at the appointed
time, the directors present may elect one
amongst themselves as chairman of such
meeting.
• Section 1164. The directors may delegate
any of their powers to managers or to
committees consisting of members of their
body. Every manager or committee shall, in
the exercise of the power so delegated,
conform to any order or regulations that may
be imposed on them by the directors.
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PTT: Authorities and Responsibilities of the Board
• The Board is authorized to
supervise and oversee PTT’s
management to comply with
applicable laws, objectives,
Articles of Association, and
resolutions of shareholders’
meetings.
• The Board is authorized to select
one director to serve as the
Chairman and may select Vice
Chairman, if deemed appropriate.
• The Board is authorized to select
one director to serve as
President & CEO and Secretary
to the Board as appropriate.
• The Board is to:
• Define PTT’s vision, directions,
•
•
•
• Carry out its duties under PTT’s
Articles of Association and ensure
that the management complies with
applicable laws, objectives, Articles of
Association, and resolutions of
shareholders’ meetings.
•
strategies, policies and major plans as
well as consider potential risks so as to
ensure that the management can
effectively drive plans into practice.
Monitor and ensure plan implementation
is in line with PTT’s major strategies and
policies, including objectives, financial
targets and operating plans, and budget.
Oversee and supervise issues regarding
conflicts of interest and related
transactions.
Ensure suitable communicating channels
with each group of shareholders and
stakeholders.
Ensure accurate, clear, transparent,
reliable, and high-quality disclosure of
information.
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PTT: Duties and Responsibilities of the
President & CEO
• The Board authorizes the President to manage
• Under PTT’s Articles of Association, the
President is authorized and responsible for
managing Board-assigned and PTT’s overall
business. The business shall be strictly and
prudently managed with integrity under the
Board-approved plans or budget, for the
best interests of PTT and its shareholders.
• The President’s authority and
responsibilities include:
• Operating or managing day-to-day business,
or both.
• Hiring, appointing, removing, transferring,
promoting, demoting, reducing the salary or
wages of, taking disciplinary action against,
and dismissing any employees under the
Board’s regulations.
• Ensuring the preparation and submission of
business policies, including operating plans
and budget estimates, for the Board’s
approval, and reporting performance against
them to the Board every three months.
• Ensuring implementation of the Boardapproved policies, plans, and budget.
PTT’s business under the following scope of
authority
•
•
•
Manage overall business under all objectives, Articles
of Association, policies, rules and regulations,
specifications, directives, and resolutions of the Board
or shareholders’ meetings, or both.
Order, contact, command, implement, and sign juristic
acts, agreements, orders, announcements, or
correspondence with government agencies, state
enterprises, or other parties and engage in any
essential and suitable action to facilitate this duty
Command all employees, including hiring, appointing,
removing, promoting, demoting, cutting the salary or
wages of, taking disciplinary action against or
dismissing any employees under the rules,
regulations, and directives of the Board. For
employees serving as advisers, senior executive vice
presidents or equivalent upward, prior approval of the
Board is required.
• The authority and duties of the President
stated above are invalid in case of conflicts
of interest with PTT in any form resulting
from the President’s exercise of the
authority.
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Board of Directors
• Holds final responsibility for its firm’s
success, failure, and ethicality of actions
• Increased demands for accountability/
transparency
• Trend toward “outside directors” chosen
for expertise, competence, and strategic
decision making
• Executive compensation is a growing
concern
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Executive Compensation
• Many boards spend more time discussing
compensation than ensuring integrity of
financial reporting systems
• How closely linked is executive
compensation to company performance?
• Does performance-linked compensation
encourage executives to focus on shortterm performance at the expense of longterm growth?
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Shareholder Ethics and Milton Friedman
• What is the purpose of a corporation?
• Milton Friedman and the shareholder model say:
• Make money for the shareholders
• Shareholders risk their money by investing
• Corporate leaders have an ethical obligation to protect
shareholder wealth and generate a return
• Friedman views using corporate funds to advance
environmental goals as “pure and unadulterated
socialism”
• Friedman: “Businessmen who talk this way are
the unwitting puppets of the intellectual forces
that have been undermining the basis of a free
society these past decades.”
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Corporate Governance by Shareholder
• Capitalism and Freedom
• A book by Milton Friedman argues for economic
freedom as a precondition for political freedom.
• “There's no such thing as a free lunch”
• “A society that puts equality before freedom will get
neither. A society that puts freedom before equality
will get a high degree of both.”
• “There is no alternative way so far discovered of
improving the lot of the ordinary people that
can hold a candle to the productive activities
that are unleashed by the free-enterprise
system.”
• ― Milton Friedman
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Social Responsibility by Milton Friedman
• The Social Responsibility of Business is to Increase its Profits
• This is the basic reason why the doctrine of "social responsibility" involves
the acceptance of the socialist view that political mechanisms, not market
mechanisms, are the appropriate way to determine the allocation of scarce
resources to alternative uses.
• But the doctrine of "social responsibility" taken seriously would
extend the scope of the political mechanism to every human activity.
• It does not differ in philosophy from the most explicitly collectivist
doctrine. It differs only by professing to believe that collectivist ends can
้ สงั คมนิยม)
be attained without collectivist means. (Collectivist – ฝ่ ายซาย,
• That is why, in my book Capitalism and Freedom, I have called it a
"fundamentally subversive doctrine" in a free society, (Subversive –
บ่อนทาลาย)
• and have said that in such a society, "there is one and only one social
responsibility of business–to use it resources and engage in activities
designed to increase its profits so long as it stays within the rules of the
game, which is to say, engages in open and free competition without
deception or fraud."
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
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Stakeholder Ethics
• The stakeholder model emphasizes
corporations participating more fully in
society
• Ethical executives must take care of a
range of stakeholders
• This model became acceptable after
World War II
• Perception that American companies
contributed mightily to stopping the Nazis
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The Stakeholder Interaction Model
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Stakeholders Define Ethical Issues in
Business
• Stakeholders
• Those who have a stake or claim in some
aspect of a company’s products, operations,
markets, industry, and outcomes
• Customers
• Employees
• Government
•
Investors
Suppliers
Communities
Stakeholders can influence and are
influenced by businesses
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ี
STAKEHOLDERS ผู ้มีสว่ นได ้เสย
• Stakeholder
• Someone with a share or interest (in business enterprise)
• An effectual commitment is a means-oriented commitment
made by an instrumentally rational actor. A stakeholder
making an
• Causal commitment
• Ends-oriented commitment made by an instrumentally
rational actor. The stakeholder reasons that by making the
commitment, they will ultimately achieve some preconceived
end or goal on the basis of risk-adjusted expected return.
• Effectual commitment
• Starts from their means—their identity, knowledge, and
networks and makes a commitment in exchange for voice in
shaping some focal market in a way that will ultimately
benefit them via increased profit or reduced costs.
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ี
STAKEHOLDERS ผู ้มีสว่ นได ้เสย
• The decisions made within a business firm will affect
many more people than only an individual.
• Ethically responsible business decision-making must move
beyond a narrow concern with stockholders, and consider
the impact that decisions will have on a wide range of
stakeholders.
• A business stakeholder will be anyone who affects or is
affected by decisions made within the firm.
• Failure to consider these additional stakeholders will have a
detrimental impact on those stakeholders, stockholders, and
on the firm’s long-term sustainability.
• Concerns in terms of ethical operations
• Involvement of the stakeholders with the actions of the
organization
• Extent to which they would be impacted by unethical
behavior
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A Stakeholder Orientation
• The degree to which a firm understands
and addresses stakeholder demands
• Three activities
• Generation of data about stakeholder groups
• Distribution of the information throughout
the firm
• Organization’s responsiveness to this
intelligence
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• Redistribute benefit to stakeholders
• Redistribute key decision making
power to stakeholders
http://www.youtube.com/watch?feature=en
dscreen&v=Ih5IBe1cnQw&NR=1
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Stakeholder Decision Making Model
• Identifying stakeholder groups & interest
• Identifying stakeholder issues & dilemma
• Assessing the corporate culture & value
• Assessing organizational commitment to
social responsibility
• Identifying resources and determining
urgency
• Create options that balance, fair, just
• Evaluate impact of decision to
stakeholders
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Stakeholder Focus: Employees
• 1995, Malden Mills burned to the ground
• CEO Aaron Feuerstein decided:
• To rebuild the factory despite opportunities
to rebuild overseas for much less
• To pay his workers full wages during the
rebuilding period
• Feuerstein was celebrated for his
decisions
• Feuerstein was the owner of Malden Mills
– no shareholders to consider
https://www.youtube.com/watch?v=08rIzBPmNrA
http://polartec.com/about_us
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Maiden Mill,
Mr. Aaron Feuerstein
https://www.youtube.com/watch?v=08rIzBPmNrA
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http://polartec.com/about_us
Established in
1906 as Malden
Mills, Polartec is
the premium
provider of
innovative
textile
solutions,
inventing mode
rn synthetic
https://www.probikekit.com fleece in 1981
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Stakeholder Decision Making Model
•Identifying stakeholder groups
Employee
•Identifying stakeholder interest (after
fire, what do they have to concern)
Do I have salary
during rebuilding?
Salary
•Identifying stakeholder issues &
dilemma
Company to pay
employee, with
not working?
•Assessing the corporate culture &
value
Alen believe
that……
Customer
Community
•Assessing organizational commitment
to social responsibility
•Identifying resources and determining
urgency
•Create options that balance, fair, just
•Evaluate impact of decision to
stakeholders
Link to BBA colloboration slide
https://docs.google.com/presentation/d/1r1QJCe7e1BYWf1oA8YhxS9zUTJso0eYh67zMQV23KnM/edit?usp=sharing
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Factors Ensuring Ethical Conduct
• Corporate governance: System by
which business corporations are
directed and controlled
• Code of ethics: Written standards of
ethical behavior that are designed to
guide managers and employees in
making the decisions and choices they
face every day
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Corporate Governance by Stakeholders
• Demands for Accountability and
Transparency
• Stakeholders
• Demand that boards are answerable for their
actions and transparent
• Board of Director
• Directors chosen for expertise, competence, and
diverse perspectives
• Qualified, knowledgeable, unbiased boards can
prevent misconduct
• Interlocking directorate: Board members linked to
more than one company
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Dual Function of Code of Ethics
• Serves as:
• A message to the organization's
stakeholders
• Represents a commitment to the highest
standards of ethical behavior
• An internal document
• Represents a guide managers and employees
in making the decisions and choices
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Netflix Code of Ethics
• This Code has been reasonably designed to deter
wrongdoing and to promote:
• Honest and ethical conduct, including the ethical handling of
•
•
•
•
actual or apparent conflicts of interest between personal and
professional relationships;
Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits
to, the Securities and Exchange Commission and in other
public communications made by the Company;
Compliance with applicable governmental laws, rules and
regulations;
The prompt internal reporting to an appropriate person or
persons identified in this Code of violations of this Code; and
Accountability for adherence to this Code.
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https://jobs.netflix.com/culture
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Resolving Ethical Dilemmas
• Ethical dilemma: Situation in which there is
no obvious right or wrong decision, but
rather a right or right answer
• Type of conflicts: Stakeholder
•
•
•
•
Management <--> Shareholders
Shareholders <--> Debtor
Employee <--> Customer
Individual <--> Community
• Type of conflicts: Principles
• Truth <--> Loyalty
• Short term <--> Long term
• Justice <--> Mercy
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Resolution Principles for Ethical Dilemmas
• Ends-based
• Which decision would provide the greatest
good for the greatest number of people?
• Rules-based
• What would happen if everyone made the
same decision as you?
• The golden rule
• Do unto others as you would have them do
unto you
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Happiness and Positive Emotions
• Pleasant life
• Pleasure and ability to
amplify them. Getting it
more and more.
• Good life
Pamela Anderson,
www.lifeandstylemag.com
• Immerse in your work,
play. Time stop during
flow.
Forest Gump, Paramount
www.imdb.com
• Meaningful life
• Use your strength to
serve something larger
purpose.
Martin Seligman, Positive Psychology
www.honest.com https://www.inspirationboost.com/mother-teresa-giving-quotes/
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Example: Search Your Admired Company : APPLE
Company Actions
Stakeholders
• Design for
• Customer
easy to use
• Aluminum
• Environment
Impact/Benefit to
Stakeholder
• Higher
productivity
• Sustainable of
metal use
recycled
Ethical Principles
• Utilitarian: benefit to
customer
• Duty: to care for
environment and
resources for next
generations
Example: Search Your Admired Company : Malden Mill (Allen)
Company Actions
Stakeholders
• Stay at same place
• Employee/Family
• Do not close, and use
• Community
insurance money for
his retirement
• Pay salary during
rebuilding
• Customer
• Shareholders
• Debtors
Impact/Benefit to
Stakeholder
• Have jobs, not
become beggar
• Less unemployment.
Less crime
• Loss benefit of lower
cost, higher profit
• Risk losing debt
repayment
Ethical Principles
• Duty: responsibility of
management and
head of family to care
for wellbeing of
employee
• Duty: responsibility to
the city that provide
good employee for
many years.
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Exercise: Search Your Admired Company ________
Company Actions
Stakeholders
Impact to
Stakeholder
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
• ______________
Exercise: Value of Group & Company
https://miro.com/app/board/uXjVOgZjBVE=/?moveToWidget=3458764531764324622&cot=14
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Summary: Defining Business Ethics &
Stakeholder Relationships
• Business ethics
• Application of ethical principles to
business behaviours
• Shareholder model linked to legal
foundation
• Stakeholder model to solve dilemma
• Start with identify an organization’s
stakeholders
• Balance stakeholder interest