Week 3

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Week 3

• Ethics, stakeholders and the social contract

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There are few circumstances among those which
make up the present condition of human knowledge,
more unlike what might have been expected, or
more significant of the backward state in which
speculation on the most important subjects still
lingers, than the little progress which has been
made in the decision of the controversy
respecting the criterion of right and wrong.

• John Stuart Mill (1863) - Utilitarianism

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Licensed to Kill Inc.incorporated and licensed
in Virginia, March 2003

• Purpose, as written in articles of incorporation
• the manufacture and marketing of tobacco in a
  way that each year kills over 400,000 Americans
  and 4.5million other persons worldwide

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What is a stakeholder?

• those groups without whose support the
  organization would cease to exist
• any group or individual who can affect or is
  affected by the achievement of the organization's
  objectives

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Stakeholder categories

• Voluntary involuntary
• Internal - external

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Stakeholder groups 1

• Managers
• Employees
• Customers
• Investors
• Shareholders
• Suppliers
• Government

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Stakeholder groups 2

• Society
• The local community
• The environment
• The future

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Multiple stakeholding

• Customer
• Employee
• Shareholder
• Member of society
• Member of local community

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Stakeholder objectives

• Return on investment
• Low price
• Quality
• Security
• A pleasant environment

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Stakeholder ownership

• legal v actual ownership
• composition of the firm
• power and influence
• quasi-ownership of stakeholders
• power of internal stakeholders
• power of external stakeholders

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Why a concern with stakeholders?

• Ownership of the firm
• accountability
• improved performance
• natural justice
• the future

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Stakeholder Theory

• All stakeholders considered in decision making
• Why
• Morally ethically correct
• Benefits shareholders
• What actually happens

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Stakeholder importance for companies
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Rationale for Stakeholder Theory

• Maximising wealth for shareholders fails to
  maximise wealth for society and all its members
• Only a concern with managing all stakeholder
  interests achieves this

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Effects of an organisations activities

• the utilisation of natural resources as a part of
  its production processes
• the effects of competition between itself and
  other organisations in the same market
• the enrichment of a local community through the
  creation of employment opportunities
• transformation of the landscape due to raw
  material extraction or waste product storage
• the distribution of wealth created within the
  firm to the owners of that firm (via dividends)
  and the workers of that firm (through wages) and
  the effect of this upon the welfare of individuals

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Spatial externalisation

• environmental degradation though spoil heaps or
  through increased traffic imposes costs upon the
  local community through reduced quality of life
• causing pollution imposes costs upon society at
  large
• waste disposal problems impose costs upon whoever
  is tasked with such disposal
• removing staff from shops imposes costs upon
  customers who must queue for service
• just in time manufacturing imposes costs upon
  suppliers by transferring stockholding costs to
  them

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Temporal externalisation 1

• deferring investment to a future time period and
  so increasing reported value in the present
• failing to provide for asset disposal costs in
  capital investment appraisal and leaving such
  costs for future owners to incur
• failure to dispose of waste material as it
  originates and leaving this as a problem for the
  future
• causing pollution which must then be cleaned up
  in the future

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Temporal externalisation 2

• depletion of finite natural resources or failure
  to provide renewable sources of raw material will
  cause problem for the future viability of the
  organisation
• lack of research and development and product
  development will also cause problem for the
  future viability of the organisation
• eliminating staff training may save costs in the
  present at the expense of future competitiveness

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The Social Contract

• obligations to individuals
• obligations to groups and organisations
• obligations to government
• obligations to society
• obligations to self

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(No Transcript)
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Organisational ideologies

• dominant ideology shapes activities
• operational foundation
• ethical foundation
• external relations
• relationship with stakeholders
• social contract
• standards of fair trading

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Ethical foundation 2

• internal relations
• corporate culture
• contractual obligations
• standards of employment

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Social responsibility and organisational values

• business ethics
• agency theory
• stakeholder theory
• corporate governance
• Combined Code of Corporate Governance

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Ethics and control systems

• the nature of control systems
• organisations v individuals
• facilitating goal congruence
• organisational and individual goals
• reward structures
• coercion and manipulation
• behaviour modification

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Arguments against business ethics

• added cost
• legal and regulatory framework
• collective responsibility
• decisions taken by groups
• groupthink / risky shift
• individual ethics
• conflict between individual freedom and corporate
  needs

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Ethical standpoint and the individual

• loyalty to employers
• reciprocation?
• loyalty to profession
• codes of conduct
• future career
• loyalty to self
• core values
• self actualisation

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Determinants of ethical stance

• social constraint
• obedience to the law
• social expectations
• obedience to social norms and values
• social concern
• long term perspective

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Reasons for unethical behaviour

• lapses in individual ethics
• legitimating decisions through public acceptance
• ruthless pursuit of self interest
• outside pressure
• the bottom line
• responsibility shifting
• organisations are externalising machines

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No hiding place

• the veil of incorporation
• ultra vires
• collective v individual responsibility
• ignorance is no defense
• professional codes of conduct
• the Panopticon