MODULE 3&4 Chapter 3,4 & 7. THE SOCIAL RESPONSIBILITY OF BUSINESS; ETHICS IN ORGANISATIONS AND THEORIES OF THE MODERN CORPORATION. MODULE 3 Chapter 3 THE SOCIAL RESPONSIBILITY OF BUSINESS Figure 3.1 Dimensions of corporate responsibility Workplace Economy Corporate Responsibility Social Environment Natural Environment Economic responsibility • A company must be financially sustainable. • By being financially sustainable, a company can contribute in various ways to the well-being of society. • By being financially sustainable, a company continues to create value for a wide range of stakeholders. It provides employment in the community, business to suppliers, and goods and services for customers. • The community and society benefit from levies, taxes and other contributions paid to local or national governments, which in turn, can be invested in the development of local and national infrastructure. Mandatory responsibilities • A company must comply with formal obligations imposed by society so it does not engage in irresponsible behaviour that might harm the economy, employees, society or the environment. • Mandatory responsibilities include legislation (e.g. anticompetition, labour and environmental laws) and standards set by professional and regulatory bodies. Societal expectations • These can either be formalised in voluntary best practice codes, or be unwritten norms or standards that communities expect companies to uphold. • The three main reasons why companies need to respond to societal expectations: 1) To gain legitimacy 2) To enhance their strategic interests 3) To honour their ethical duties to society Discretionary contributions • Discretionary responsibilities - these take the form of philanthropy or social investment. Reasons for discretionary contributions: 1) Sympathy for less fortunate members of society; 2) Desire to give something back to the community; 3) Benefit to a company’s reputation; 4) Brand exposure; 5) Corporate social investment. Corporate citizenship • Companies are expected to be responsible members of the societies in which they operate “corporate citizenship”. • In the narrow sense, this refers specifically to the political responsibilities of corporations; in the broad sense, it refers to all the responsibilities of corporations in society. • Corporations are often called upon to step into areas where government has failed to deliver or to protect its citizens; however, in doing this, they are often accused of abusing their power to gain and exercise undue influence in society. CLASS DISCUSSION QUESTION – BP OIL SPILL Deepwater Horizon oil spill of 2010, which saw BP’s share price fall dramatically. The crisis started in April 2010 when the Deepwater Horizon oil rig exploded in the Gulf of Mexico, causing oil to gush into the sea. Unfortunately, initial efforts to stem the flow failed and it took months for BP to find a solution that worked. By the time the well was cut off in July, approximately 4.9 million barrels of oil had spilled into the ocean, making this the worst accidental oil spill of all time. The effects were devastating for the local ecosystem, wildlife and locals, and BP has been forced to pay billions of dollars in compensation since the crisis. REQUIRED • Based on the scenario above, which of the four areas of corporate social responsibility did BP violate due the oil spillage that transpired? CASE STUDY 3 - THE DEATH OF THE TOWN • Loriston is a small town (with approximately 7 000 inhabitants) on the Sishen Saldanha railway line in the Northern Cape. It is located in a sheep and game farming area. There is a local school (pre-primary to Grade 12) with 710 learners. The town is due for a R50 million development grant from the provincial government. The town square is built around the historic railway station and contains several stores, a co-op, a hotel and churches representing several denominations. CASE STUDY 3 - THE DEATH OF THE TOWN • NCIS is a highly profitable iron and steel works company (with 1 000 employees) that has been based in the town since 1963. It is in the process of considering a relocation of the plant to Kimberley, 300 km from Loriston. Should the relocation become reality, the company will merge its operations with the company’s other, much bigger, plant and head office in Kimberley. Initial projections indicate a turnover growth of 20% and an effective dividend growth (payable to shareholders) of 40% over the next three years. NCIS also intends listing on the AltEx of the JSE 18 months from now. The company is willing to pay employees a once-off relocation allowance of R75 000. Rumours of the possible move have recently reached the townfolk. In turn, the CEO, Kabamba Plaatjies, has heard that a delegation consisting of representatives from different interest groups has requested an urgent meeting with the Board of NCIS to discuss the relocation, which they perceive to be imminent. CASE STUDY 3 - THE DEATH OF THE TOWN Questions: 1. Are there key ethical issues that can be identified in this case, and if so, what are they? 2. Who are the stakeholders that will be affected by major decisions regarding relocation, and what are the organisation’s ethical obligations to these stakeholders? MODULE 4 Chapter 4 ETHICS IN ORGANISATIONS Business without ethics • Shareholder value dominance: This leads to business people being primarily concerned with making a profit, at the expense of ethical considerations. • Motives of ethical neutrality: Facts, profits and losses, and products and services, are simply easier to measure and evaluate. • Amoral managers: They have a lack of balance in their pursuit of organisational goals, which undermines organisational wholeness or integrity. They are often unaware of the ethical implications of decisions. • Amoral beliefs and business language: War-like words used in business circles provide leaders with focus and goal-oriented direction, but may also lead to myopia and short-termism, catalysing an exclusion of other legitimate stakeholder interests (besides those of shareholders). • Impact on stakeholders: The interests of employees, customers, suppliers and other stakeholders can easily be neglected unless those interests coincide with shareholder value. Ethical dimension of an organisation • The relational nature of business: • Business, and life in organisations, can never be solely based on cold, legalistic rules or policy requirements. This is because organisations consist of people. • As human beings, we operate as part of human systems which contain ethical standards that are required to create harmony, mitigate conflict, ensure fairness and evoke trust. Ethical standards give form and direction to human activity. • The cooperative nature of work: Ethics is the foundation of teamwork. Organisations have divisions, departments, sections and teams which are designed to function in specific ways. Groups such as these cannot function without norms. • Trust: Building relationships that rest on strong ethical foundations creates sustained trust. If one party makes a mistake, understanding will be more likely in this context. • Commitment and quality of work: • People who feel that they are respected, who receive recognition for good work, and who sense that their creative contributions are appreciated, tend to work with greater dedication and are much more likely to utilise their potential for the benefit of the business. • Ethical organisations are characterised by the respect they show to all their stakeholders. CASE STUDY: CASE 9 – Mike’s lunch Mike, a colleague, slips away from work to have an ‘extended lunch’ with an old friend who is in town for one day only. He asks you to ‘cover’ for him should your manager ask where he is. 1. What are the ethics challenges in this case? 2. What will be your course of action? Explain why. CASE STUDY: CASE 13 – Irate customers Substantial pressure was exerted by the directors in the organization to launch a new, potentially highly lucrative product before your competitors have the opportunity to develop and compete with a similar offering. The customer care agents had not been properly trained on the new product by the time it is launched. Soon after the launch the agents start receiving numerous phone calls from irate customers that claim that the company lied to them about the product’s capabilities. The agents do not really know what to tell the complainants. You are the call centre manager. 1. What are the ethics challenges in this case? 2. What will be your course of action? MODULE 4 Chapter 7 THEORIES OF THE MODERN CORPORATION. Corporate social responsibility Corporate moral agency • Peter French: • Corporations may be artificial legal persons, but that does not disqualify them from being moral persons as well. • When corporations choose specific courses of action, significant decisions are taken by the board of directors with input from various individuals. As these acts are intended by the corporation, the corporation becomes responsible and accountable for them. Stakeholder theory • Edward Freeman: Corporations have responsibilities towards stakeholders other than shareholders. • Legal argument: Employees, suppliers, customers and local communities have legally protected rights that have to be respected by corporations. • Economic argument: In pursuing their goals, corporations often pollute the environment or disrupt communities. Corporations therefore have to be regulated to prevent them imposing extravagant costs on societies. • Stakeholders: The following two principles provide the basis for stakeholder theory: 1. Principle of Corporate Rights: The corporation and its managers may not violate the legitimate rights of others to determine their own future. 2. Principle of Corporate Effects: The corporation and its managers are responsible for the effects of their actions on others. Refer to figure 7.1 Network of corporate stakeholders CORPORATION 1. Shareholders 2. Managers 3. Local community 4. Customers 5. Employees 6. Suppliers • Kenneth Goodpaster: • He describes Freeman’s version of stakeholder theory as multi-fiduciary, with managers having a fiduciary relationship towards all stakeholders. However, the demands of various stakeholder groups can be contradictory and irreconcilable, which can undermine the very nature of corporations as privately owned entities with specific economic missions. • He suggests instead that within the framework of fiduciary obligations towards shareholders, managers should find ways to respect their moral obligations to all other stakeholders.
