What Is Corporate Ethics

LEADERSHIP AND ETHICS
MCOM 8007
PERSONAL ETHICS
AND
CORPORATE
GOVERNANCE
MODULE A: PERSONAL ETHICS v CORPORATE ETHICS
MODULE B: PROFESSIONAL ETHICS FOR BUSINESS-PEOPLE
MODULE C: CORPORATE AND INSTITUTIONAL ETHICS

MODULE C
CORPORATE
&
INSTITUTIONAL ETHICS
MODULE C01 CORPORATION’S PURPOSE
MODULE C02 WEALTH, PROFITS AND PRIVATE PROPERTY
MODULE C03 ETHICS, MORALITY AND LEGALITY
MODULE C04 GOVERNANCE, GOVERNMENT AND GLOBALIZATION

Is her’s a business or a corporation?
Definition
organization
involved in the provision
of goods
services,
or both to
consumers
Sullivan, Arthur; Steven M. Sheffrin (2003)
6
Goods Services
Middle Person
Producer Reseller
Consumers she has
She is organised…
but is her business an
organization?
TYPES Key: ownership
Sole ownership
Partnership
Corporation
Cooperative
What are the difference?
When a business becomes

a corporation?
What is the structure of an

organization?
What is an organization?
A social unit of people

that is structured
and managed to meet a need or
to pursue collective goals.
www.businessdictionary.com
What is an organization?
All organizations have a management structure
that determines relationships between the
different activities and the members, and
subdivides and assigns roles, responsibilities,
and authority to carry out different tasks.
Organizations are open systems— they affect
and are affected by their environment
www.businessdictionary.com
Dangers of Corporation?
List three to five

Dangers of Corporation?
Diffusion of authority
Abuse of authority
Loss of intent
Rat race
Blinded by profits
Blinded by success
Authority
Loss of Mission
Corporate mission?
The business of business is
business
GREED
Profit Maximization
Best professionals
Doing our job well
SHARE-HOLDER THEORY
FIDUCIARY CAPACITY
Acting on behalf of the owners.
What is the nature of that responsibility?
 To satisfy the will of the owners.
Only people with the appropriate capacities..
It is a service…
Utilitarian Defense of Classical Model
• The market guarantees maximization of good

(usually characterized as ‘satisfaction’).
• Managers have a responsibility to conform
closely with market expectations (maximize
satisfaction).
• Evidence is expressed preferences of
consumers and owners.
• It is a matter of justice: their money, their
decisions.
Criticisms of the Utilitarian Defense
• There are a range of instances in which
the pursuit of profits does not maximize
satisfaction.
– Market Failures
• Externalities (Pollution, resource depletion).
• Public Goods (Air, water, fisheries)-no pricing
mechanism.
• Prisoner’s Dilemma (cooperation more optimal
than competition).
• Complexity of markets and the contexts in
which they function make it unlikely that a
single-minded focus on profit will
guarantee good outcomes.
Corporate Social Responsibility
 A common assumption: corporations don’t
have any responsibilities.
 Officers of corporations do, but they are
narrowly defined according to perceived
interests of the owners.
 What becomes clear ultimately is that the
view does not deny that the agents of
corporations have moral obligations, just
that they are very specific (primarily
fiduciary).
BP Oil Spill 2010
STAKE-HOLDER THEORY
(Edward) Freeman
Narrow stakeholder definition
Those groups
vital to the survival
of the corporation.
Wide stakeholder definition
Any individual or group whose

interests can effect or are
affected by the corporation.
Balancing Stakeholder Interests:
The Mendelow Grid
LOW INTEREST HIGH

HIGH
Keep satisfied Key players

POWER
Least influential Keep informed

LOW
We Have a Better
Business
Way is about the creation
of value for stakeholders.
Value has economic, social,
political, technological, and other
aspects to it.
(source: E.R. Freeman, A. Wicks, J. Harrison, B. Parmar and S. de Colle, Stakeholder Theory: The State of The Art,
Cambridge University Press, 2010)
•We
Separating
Have a Better“business” from
Way
“social” is a mistake. It
marginalizes “social” and gives
business and capitalism a bad
name, as “anything goes”.
Criticisms of the Private Property Defense
Right to property is not absolute
Constrained by: rights of others;

zoning; eminent domain.
Corporate Property Rights are
different from personal property.
–Stockholder of a corporation
have limited liability for actions
of their corporations.
–They have no direct rights of
access/control.
Two Key Assumptions
1.The Integration Thesis:
Most business decisions have

some ethical content, or implicit
ethical view.
Two Key Assumptions
2. The Responsibility Principle
Most people, most of the time,

want to, actually do, and should
accept responsibility for the
defects of their actions on
others.
Criticisms of Stakeholder Theory
Stakeholder theory inadequately

addresses stockholder rights and
property rights.
Criticisms of Stakeholder Theory
• Another criticism focuses on

practical issues.
–Who are the stakeholders? How do
they count? How should managers
take them into account in their
decisions?
Corporate Stakeholder
• Corporate Stakeholder
Responsibility
Responsibility is practical, and
leads to a more robust idea of value
creation.
Responsibility
• Stakeholder is the essence of
capitalism as a system of social
cooperation and value
creation
•In other words,
Responsibility Managing for
stakeholders is about creating
as much value as possible for
stakeholders, without
resorting to tradeoffs.
The business of business is to
make a difference
SHARE-HOLDER THEORY
STAKE-HOLDER THEORY
Shareholder ≠ Stakeholder
(Milton) Friedman ≠ (Edward) Freeman

Milton Friedman Edward Freeman
The only group that Many groups have a

has a moral claim on moral claim on the
the corporation is the corporation because
people who own the corporation has
shares of the stock the potential to harm
(that is, the or benefit them (call
shareholders). these groups
stakeholders).
business

to make a difference
Friedman Freeman
MAXIMIZE PROFIT TAKE EVERYONE INTO ACCOUNT
• a) within the law and • a) identify stakeholder groups
• b) without violating social • b) make a decision that “takes them
standards. into account.”
– So, in looking at a business – So, in looking at a business
decision (or analyzing a case), decision (or analyzing a case),
identify relevant laws and identify all stakeholder groups.
regulations – and also identify – Identify available options and
current social standards and determine the effect they will have
opinions. on the stakeholders.
– Maximize profit without – Select and apply an ethical theory
breaking laws/regulations AND to these options to determine the
without “disturbing” society so best one.
much that it decreases profits.
SHAREHOLDER Claims support ?
RISK
PROPERTY BENEFITS DUE

No JOY RIDERS
WORK
JUSTICE commutative
Moral Principles PRIVATE PROPERTY
COMMON GOOD
STAKEHOLDER Claims support ?
COMMON SERVICES PROVIDED
COMMON RISKS SUFFERED BENEFITS DUE
No JOY RIDERS
INVOLVED IN TRANSACTIONS
COMMON GOOD
COMMON DESTINY OF EARTH’S GOODS

Moral Principles
JUSTICE Distributive - Legal
SUBSIDIARITY
PARTICIPATION
They are some bad fish around
DOES THE LIQUID
CORRUPT
THE CONTAINER
OR
THE CONTAINER
CORRUPTS
THE LIQUID?
DOES THE APPLE
CORRUPT
THE CONTAINER
OR
THE CONTAINER
CORRUPTS
THE APPLE?
DOES THE
STRUCTURE
CORRUPT
THE INDIVIDUAL
OR
IT IS THE
INDIVIDUAL WHO
CORRUPTS
THE STRUCTURE?
THREE LEGS
leadership
structure employees
CAN A CORPORATION BE ETHICAL
IF ONE ELEMENT IS NOT?
leadership
employees
structure
HOW DOES EACH CONTRIBUTES?
leadership
employees
structure
HOW DOES EACH DO GOOD?
leadership
employees
structure
STRUCTURE
Mission
Vision
Values
STRUCTURE
Mission To provide all round quality education in an
atmosphere of freedom and responsibility
excellence in teaching, research and
scholarship, ethical and social
development and service to the society.
To become a leading out- come driven

Vision entrepreneurial research University by
translating our excellence into major
contribution to culture, economic well-being
and quality of life.
Excellence through the sanctification of

Values work; freedom and responsibility; ethical
practice; personalized attention;
subsidiarity; collegiality; life-long learning;
service to society.
Create a sustainable ethical culture in
your organization
Bob Collymore Video Clip

IQ Logical Intelligence
EQ Emotional Intelligence
MQ Moral Intelligence
4 authority / leadership methods
DEMANDING NOT DEMANDING
AFFABLE AUTHORITATIVE PERMISSIVE
COLD AUTHORITARIAN INDIFERENT
How parents control their kids (Diane Baumrind 1966)

3 LEVELS OF MORAL BEHAVIOUR
AVOID PUNISHMENT
1. PRE-
SEEKING REWARDS
RESPONSE TO FAMILY, FRIENDS, NEIGHBOURS

2. CONVENTIONAL
GREAT GOOD OF SOCIETY AT LARGE
CLEAR MORAL VALUES

3. POST
BASED ON A SUPERIOR BEING
Kolberg’s Moral Development

INFORMAL ETHICAL GUIDELINES
Does it pass the Mom Test?
Does it pass the TV test?
Does it pass the Market test?
Does it pass the Smell Test?

Kantian duty deontology
• Paying attention to customer’s needs →

stable business processes (sales of
products and purchases of raw materials).
• But paying attention to customer’s needs
IS a Kantian treatment of the customer as
an end rather than exploiting them as a
means only.
Rawl’s approach
• View the mutual relationships among a
corporation’s stakeholders as a set of
contracts. Then ask, “What would assure
the fairness of these?”
– Basic equality among the stakeholders in
terms of their moral rights (each “contract” is
as morally important as the others).
– Inequalities in the amount of benefits to the
stakeholder groups demonstrably raise the
level of the least well-off stakeholder group.
What should corporations do?
• Corporations have to take all of the

stakeholder groups into account when
making a decision.
• But, there are many different ways to take
them into account – for example,
– Kantian ethics
– Utilitarian ethics
– Rawls’ theory about justice

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LEADERSHIP AND ETHICS

MODULE A: PERSONAL ETHICS v CORPORATE ETHICS

MODULE B: PROFESSIONAL ETHICS FOR BUSINESS-PEOPLE

MODULE C: CORPORATE AND INSTITUTIONAL ETHICS

MODULE C01 CORPORATION’S PURPOSE

MODULE C02 WEALTH, PROFITS AND PRIVATE PROPERTY

MODULE C03 ETHICS, MORALITY AND LEGALITY

MODULE C04 GOVERNANCE, GOVERNMENT AND GLOBALIZATION

When a business becomes

What is the structure of an

A social unit of people

List three to five

What is the nature of that responsibility?

 To satisfy the will of the owners.

Only people with the appropriate capacities..

• The market guarantees maximization of good

Any individual or group whose

LOW INTEREST HIGH

Keep satisfied Key players

Least influential Keep informed

Right to property is not absolute

Constrained by: rights of others;

1.The Integration Thesis:

Most business decisions have

2. The Responsibility Principle

Most people, most of the time,

Stakeholder theory inadequately

• Another criticism focuses on

(Milton) Friedman ≠ (Edward) Freeman

The only group that Many groups have a

The business of business is

PROPERTY BENEFITS DUE

COMMON RISKS SUFFERED BENEFITS DUE

COMMON DESTINY OF EARTH’S GOODS

To become a leading out- come driven

Excellence through the sanctification of

Bob Collymore Video Clip

DEMANDING NOT DEMANDING

AFFABLE AUTHORITATIVE PERMISSIVE

COLD AUTHORITARIAN INDIFERENT

How parents control their kids (Diane Baumrind 1966)

RESPONSE TO FAMILY, FRIENDS, NEIGHBOURS

CLEAR MORAL VALUES

Kolberg’s Moral Development

Does it pass the Mom Test?

Does it pass the TV test?

Does it pass the Market test?

Does it pass the Smell Test?

• Paying attention to customer’s needs →

• Corporations have to take all of the

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