Key Words to be happy withInvisible handStakeholdersProfit motiveExternalitiesGlobalisationMultinational companiesSustainability

Some factsOf the 100 largest economies in the world, 52 are

multinational corporations (like BP).72% of world trade is controlled by 500 companies.Companies listed on the FTSE4good index of

companies meeting agreed ethical standards rose by 33% (2005-2010), whereas the FTSE100 index rose 35%.

“However you understand it, good ethics is not necessarily good business.”

Julian Baggini Dialogue Magazine Summer 2010

Some stakeholders

Will Hutton The State We’re In 1995Stakeholder theory comes to prominence.Hutton advocates all stakeholders should have share

of the business.Companies feel under pressure to take Corporate

Social responsibility seriously after Green revolution.

Adam Smith: invisible hand“A trader intends only his own security..and intends

only his own gain...led by an invisible hand ..he frequently promotes society’s interest more effectively than when he intends to promote it”. Wealth of Nations

The invisible hand is the price mechanism which raises prices where there are shortages, and drives them down where there is competition.

The most innovative and least cost producers win the most profit in this competitive environment.

Smith is not arguing that the market may not need regulation, but that a win-win situation emerges where consumer choice drives the market.

Adam Smith and ethical egoismSelf-interest is not the same as selfishness.Egoists argue that by pursuing self-interest, business

can also serve the common good.“Self-interest means we are concerned to promote

our own good, but not necessarily at any cost.” Louis Pojman (2004:296).

Milton Friedman argues that business pursues profit: this is what it’s good at, subject to limits set down by law. They serve their owners – the shareholders – and it is governments that should make social policy.

Adam Smith suggests that the market moderates personal selfishness, because consumers who are exploited will not come back.

Problem 1: exploitationConsumers may get exploited by monopolies who

charge higher prices in the absence of choice.Workers may get exploited by large companies where

they have no choice but to accept the wage.Adam Smith recognised that cartels conspire against

the consumer, and need regulating.In the Victorian era Christian entrepreneurs begin to

change exploitative practices like child labour.

Rowntrees, Fry’s and Cadbury were ethical because they were Quaker, and proved that good ethics could still pay.

Problem 2: externalitiesAn externality is an external cost or benefit, so

negative externalities are external costs, created by the company but borne by someone else.

Examples include pollution, noise, and congestion.In 1996 Trafigura dumped thousands of tonnes of

toxic waste in the Ivory Coast, causing burns, nausea and diarrhoea and the release of the killer gas sulphur dioxide. 31,000 Africans were awarded £30m in compensation in November 2009.

Problem 3: governments conniveIn 1984 the Union Carbide pesticide plant in Bhopal,

India, leaked a chemical that floated across Bhopal killing 8,000 people in three days.

Indian government encourages investment by weak health and safety regulations, which lower company costs.

In 1989 Union Carbide agreed to pay $470m in compensation as a final settlement.

Individuals only received $1,000 each, despite evidence of continuing birth defects, liver and kidney disease.

http://news.bbc.co.uk/1/hi/world/south_asia/8390156.stm

Problem 4: globalisationEconomies, markets and individuals are interconnected in

ways increasingly difficult to regulate (eg global banking crisis triggered by defaults on sub-prime mortgages in the US).

Crane and Matten define globalisation as “deterritorisation”: location is becoming irrelevant.

Ethics is becoming international in focus, with issues such as the environment or military intervention backed by debates in the UN or at the World Bank.

In an article linked below Peter Singer argues that governments can no longer argue “we need to do what is best in the national interest”. Ethics needs to address global issues.

http://www.cceia.org/resources/transcripts/164.html#

Top ten multinationals 2010 (value)Exxon MobilPetroChinaAppleBHP BillitonMicrosoftIndustrial Bank of ChinaPetrobrasChina Construction BankRoyal Dutch ShellNestle Source: http://en.wikipedia.org/wiki/List_of_corporations_by_market_capitalization

Two models of business practice

Example: bottled waterSince the Rio Earth Summit (1992) sustainability has

become a cornerstone of almost every business ethic.Bottled water is a $100bn global market, using 1.5m

tonnes of plastic per year, requiring 47m gallons of oil to produce.

80% of bottles are thrown away, polluting the environment.

A solution is “sustainable development”, where people recycle more, tap water quality is improved worldwide, and the “triple bottom line” of economic, social and environmental effects considered.

Business ethics and KantKant distinguishes between a “selfish duty” and a

duty that stems from a “good will”: one that wills a neighbour’s good for their own sake.

Kant talks of a merchant who does not overcharge, but “his own advantage required him to do it”. This is not “good” because the motive is impure, corrupted by self-interest.

A genuine duty arising from the categorical imperative is one that can be universalised so that what I would want from you is what I give you. For example I would want your word to be your unbreakable promise.

Evaluating KantKantian ethics creates unbreakable duties. But what

if two duties conflict? What if I have to choose between duties to different stakeholders, such as shareholders and employees?

People’s needs are often in conflict with profit, for example,with health and safety regulations. Is it better for the people of India to have no jobs, and good health and safety regulations, or jobs with a poor safety record?

Perhaps, as WD Ross suggests, we have a hierarchy of prima facie duties: but this is not Kantian deontology, but a form of deontological relativism.

Utilitarianism and business ethicsAdam Smith’s enlightened self-interest is developed

by Bentham and Mill, who suggest that unless I aim to maximise the greatest good then society will not flourish and I will not be happy.

Bentham’s hedonic calculus translates well to cost-benefit analysis, where an action is assessed according to costs and benefits. But what about the Ford Pinto example (next slide)?

Bentham implied pleasures cannot be evaluated, so my smoking is as good as your Mozart. Is it acceptable for the consumer to decide to self-harm?

The Ford PintoIn 1971 Ford introduced the Pinto and soon realised

that design fault would cause the fuel tank to rupture in the event of a rear end collision. A cost-benefit analysis revealed it would cost $11 per car to rectify the fault. Assuming 2,100 burnt vehicles , 180 deaths and 180 injuries over the model’s life, they would pay out $49.5m in compensation, whereas a recall would cost $137m. By doing nothing Ford calculated it saved $87m (but 180 people would be dead).

Ford decided to keep quiet.

Natural law and business ethicsHuman beings have intrinsic purpose and dignity

(natural rights).The idea of “rights” now informs employment law eg

right to a fair (minimum) wage, right to fair hearing after dismissal, right to a safe workplace.

Catholic natural law sees business ethics as part of a striving towards the flourishing of society.

“Unjustly taking and keeping the property of others is against the seventh commandment: business fraud, paying unjust wages and forcing up prices”.

Catechism para 2409

The telos of businessThe purpose of business is not just to make profit, but

maintain the social and natural order.Justice is important to natural law theory, but what

exactly is a “fair wage”? How do we justly decide between the interests of shareholders and those of employees (who may be made redundant in times of recession for example)?

Can a business afford to be absolutely honest? When Gerald Ratner described his jewelry as “crap” his business chain quickly went bankrupt.

Virtue Ethics and BusinessAristotle argues that both intellectual and moral

virtues can be developed, and this can be applied to modern management to achieve “total quality management” (TQM).

The goal of flourishing (eudaimonia) is best achieved by virtues of honesty, integrity, generosity.

As stakeholders experience these virtues, they will imitate them and value them.

The good manager is also the good citizen who builds the good society (the polis in Greek).

Management gurus like James Covey (link below)write about “the seven habits of highly effective people”.

http://www.quickmba.com/mgmt/7hab/

Evaluating virtue ethicsMachiavelli (1469-1527) questions the place of

Christian virtues (compassion, mercy, humility) in leaders.

Sometimes a leader needs to exercise deceit, cunning, or cruelty.

He praises Borgia’s skill (virtu) in using cruelty to achieve the common good.

Machiavelli argues that we need to judge virtues by some other standard eg in war we lie, kill, deceive for a given end.

MacIntyre: After VirtueMacIntyre attacks the bureaucratic model of

management.Bureaucrats don’t have values, they simply “follow the

regulations”.If the regulations are bad (as with Enron, the US

energy company that went bankrupt in 2001) the business will be unethical (lie, deceive, cut off electricity to California in order to raise prices, sack 15% of workforce every year).