Business Environment

1
Business Environment

• Lecture 9 The Ethical Aspect of Business
  Environment
• Milena Malinowska

2
Definitions

• Leading business companies engaged into serious
  malpractice during the 1980s-90s as well as late
  2000s
• After the 1970s the notion corporate social
  responsibility gained serious momentum, as
  governments, international organizations and
  societies raised their voices against corporate
  greed
• CSR involves the adoption of best business
  practices that respect human rights, the
  environment, labor and product standards and
  anti-corruption
• Can the business be ethical ?
• http//www.youtube.com/watch?vGggyVO21hw8

3
Top business malpractice environmental disasters
and human rights violation (1980-90s)

• Exxon Mobile oil spills in the Niger Delta
• Union Carbide factory explosion in Bhopal
• BP oil spills in Mexico Gulf
• Texaco Ecuadorian Chernobyl
• Caterpillar selling bulldozers to the Israeli
  army for Palestinian home demolition
• Coca-Cola worlds most abusive and
  discriminatory company
• Chevron owner of Texaco, devastating human
  rights violation in Burma
• Dow Chemicals outrageous environment pollution
• Ford Motors 10th largest world polluter

(Source http//www.globalexchange.org/corporateHR
violators)
4
Top business malpractice Financial fraud (2000s)

• Enron Americas most innovative company over
  reported revenues to 100 billion. The company
  went bankrupt in 2001, which led to net loss for
  its shareholders amounting to 60 billion
• Bernie Madoff sentenced to 150 years in jail
  for financial frauds amounting to 17 billion
• Bank bail-out by governments UKs Northern Rock

5
The emergence of CR

• Factors shaping the social role of business
• Increasing need to regulate the performance of
  MNCs
• IT used to control business more effectively
  (stringent rules on financial reporting and
  monitoring of activities in the 3rd world)
• Legal standards on environment and human rights
  protection, health and safety at work
• Awareness of society (increasing need to build
  good company image)
• Growth of third sector (NGOs)

6
Aspects of CR

• Corporate Responsibility is a concept whereby
  companies integrate social and environmental
  concerns in their business operations and in
  their interaction with their stakeholders on a
  voluntary basis (EU Commission, 2011)
• It is the commitment of business to contribute
  to sustainable economic development by working
  with employees, their families, the local
  community and society at large to improve their
  lives in ways that are good for business and for
  development (WB, 2011)
• The business is increasingly being expected to
  engage in activities that preserve the
  environment and human rights and to promote
  adequate corporate governance

7
(2) Aspects of CR

• Corporate citizenship refers to managing the
  companys wider influence on society and the
  benefit of company and society (WetherlyOtter,
  2011)
• Perceiving the business as a citizen, implies
  that it has moral obligations and civic
  responsibility to the other members of society
• http//www.corporate-citizenship.com/what-we-do

8
(3) Aspects of CR

• Business ethics is based upon the following
  principles
• Ethical values of business
• Application of values to business (codes of
  ethics)
• Ethical policies (corporate governance)
• Ethical theories deontological and utilitarian
• The application of ethical norms to business
  behavior leads to socially acceptable practices
• Adam Smith People of the same trade seldom meet
  together the conversation ends in a
  conspiracy against the public, or in some
  contrivance to raise prices (The Wealth of
  Nations, 1776)

9
Perspectives on CR

• Friedman and the free-market view
• What does it mean to say that business has
  responsibilities? Only people have
  responsibilities
• (The Social Responsibility of Business is to
  Increase Its Profits
• The New York Times Magazine, September 13, 1970)
• The primary goal of business is profit (no moral
  obligation)
• Social goals are governments obligation
• Social / community projects entails economic
  costs for the business
• Lower dividends and wages
• Outside the scope of managers duties

(to the article http//www.colorado.edu/studentg
roups/libertarians/issues/friedman-soc-resp-busine
ss.html)
10
(2) Perspectives on CR

• Stakeholder theory about CR
• Stakeholder is any individual who affects or is
  affected by the business actions, decisions,
  policies and practices
• Taking into account the complex interests of main
  stakeholder groups leads to effective CR
• The four main areas Pyramid of CR by Archie
  Carroll

11
The nature of CR

• Types of responsibility
• Agency business values and their effect on the
  environment
• Accountability to particular groups of
  stakeholders
• Liability moral responsibility to the wider
  community
• Motives for CR
• Self-interest bad image might lead to loss of
  clients
• Mutual interest business has both power and
  obligation solve problems it has/will create
• Shared responsibility sense for the common
  good, based on dialogue

12
Steps to successful CR

• CR should be applied to practical situations and
  problems. The comprehensive process includes
  several steps
• Data gathering being informed about
  shareholders
• Value clarification and management identifying
  and defending company values
• Responsibility negotiating when the major
  stakeholder groups are indentified,
  responsibility should be negotiated and shared
• Audit publishing social and environmental
  reports (in addition to financial ones)

13
UN Global Compact 10 Principles

• Human rights
• Principal 1 Businesses should support and
  respect the protection of internationally
  proclaimed human rights and
• Principal 2 make sure that they are not
  complicit in human rights abuses.  
• Labor
• Principle 3 Businesses should uphold the freedom
  of association and the effective recognition of
  the right to collective bargaining
• Principle 4 the elimination of all forms of
  forced and compulsory labor
• Principle 5 the effective abolition of child
  labor and
• Principle 6 the elimination of discrimination in
  respect of employment and occupation.   
• Environment
• Principle 7 Businesses should support a
  precautionary approach to environmental
  challenges
• Principle 8 undertake initiatives to promote
  greater environmental responsibility and
• Principle 9 encourage the development and
  diffusion of environmentally friendly
  technologies.   
• Anti-corruption
• Principle 10 Businesses should work against
  corruption in all its forms, including extortion
  and bribery. 

(Source http//www.unglobalcompact.org/AboutTheGC
/TheTenPrinciples/index.html)
14
OECD guidelines to MNCs

• Recommendations (to the 42 member governments of
  OECD) for responsible business conduct
• General policies (major should do)
• Extensive recommendations on
• Disclosure
• Human rights
• Employment and industrial relations
• Environment
• Combating bribery, bribe solicitation and
  extortion 
• Consumer interests
• Science and technology 
• Competition 
• Taxation  

(Source http//www.oecd.org/dataoecd/43/29/480043
23.pdf)
15
EU Commission

• The EU Commission has history of extensive CSR
  development and strong encouragement for MS to
  adopt relevant national policies
• EU strategy 2011-14 for CSR
• Enhancing the visibility of CSR and disseminating
  good practices
• Improving and tracking levels of trust in
  business
• Improving self- and co-regulation processes
• Enhancing market reward for CSR
• Improving company disclosure of social and
  environmental information
• Further integrating CSR into education, training
  and research
• Emphasizing the importance of national and
  sub-national CSR policies
• Better aligning European and global approaches to
  CSR

(Source EU Commission - A renewed EU strategy
2011-14 for CSR, 2011)
16
Examples

• In 2007, 78 US top companies donated 3.8
  billion in cash to social initiatives
• Wal-Mart Stores - 301 m
• Bank of America - 211 m
• Exxon Mobil - 173 m
• Citigroup - 146 m
• Johnson Johnson - 127 m

17
The BG context

• In 2006, the UNGC and Bulgarian Charities Aid
  Foundation ran a survey on CSR in BG
• 121 medium sized and big companies (100 employees
  or more) took part
• only 7 had a separate department for community
  work (the foreign ones follow practices from
  Western headquarters)
• overall CSR was not part of the long-tern company
  agenda (sporadic donations prevail)
• Cooperation with NGOs is very low

18
The empirics
(Source CSR within the BG context, 2007)
19
(2) The empirics
(Source CSR within the BG context, 2007)
20
Consolidated democracy

• Larry Diamonds explanation on developed
  democracy entails three developed and reinforcing
  arenas
• If one of them fails to function properly,
  obstacles to democracy are conveyed

21
BG context explained

• 2 out of 10 people were voluntary members in any
  kind of NGOs (2008)
• 9 of the NGOs in BG are actually functioning
  (2008)
• 75 of the state ministers and 90 of the mayors
  owned an NGO (2000-2007)
• The legal framework does little to incorporate
  NGOs in national legislation
• Since 2007 the EU has poured 24 million as aid
  to Bulgarian NGOs
• Bulgarians usually perceive NGOs as business
  organizations, cleaning corrupt activities, or
  quasi-state structures, which have pointless
  existence

22
The EU impact

• In 2003, President Parvanov officially launched
  the UN Global Compact in BG
• It links together 120 companies that voluntarily
  apply the 10 principles
• In 2010, the Association Global Compact Network
  Bulgaria was established by 20 leading companies
  
• www.unglobalcompact.bg