Chapter 13 Ethics and Corporations

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Chapter 13Ethics and Corporations

• Corporations responsibilities to employees,
  suppliers, customers, and communities
• Corporate social responsibility
• Milton Friedmans arguments
• Shareholder control of corporations
• Stakeholder theory
• Institutionalize ethics by means of ethics
  program

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Corporate Social Responsibility

• The selection and evaluation of corporate goals
  based not only on profitability and
  organizational well-being, but also on ethical
  standards of social desirability
• Archie Carroll economic, legal, ethical conduct,
  and voluntarily accepted responsibilities

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Corporate Activities

• Operate the corporation on a level higher than
  the law requires
• Contributing to civic, charitable, and nonprofit
  institutions, providing benefit to employees and
  improving quality of workplace
• Address some major social problem

4
Responsiveness

• Socially responsive corporation is integrated
  into the strategic planning process instead of
  being handled as an ad hoc reaction to specific
  crises

5
The Classical View

• Economic behavior is separate and distinct from
  other types of behavior. Thus businesses do not
  have the same goals as other organizations in
  society
• The primary criteria of business performance are
  economic efficiency, growth in the production of
  goods and services, technological development,
  and innovation in goods and services
• The primary goal and motivation of business is
  profit

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Problems with the Classical View

• The Moral minimum of the market
• Power and responsibility
• Giving a helping hand to government

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Friedmans Arguments

• A corporate executive has no right to spend
  someone elses money the stockholders,
  customers or employees for a general social
  interest
• Rules of the game the job of society to
  establish a framework of law such that
  corporations will serve society by seeking profit
  within the rules of game.

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Three Functions of Government

• Business activity generates many externalities or
  social harms that governments may force business
  to internalize
• The operation of a free market results in
  considerable inequalities in the distribution of
  income and wealth, and it is the job of
  government to manage the equity/efficiency
  trade-off
• Free markets are prone to instability that
  manifests itself in inflation, recession, and
  unemployment, and government should use its power
  of taxation

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Corporate Governance

• The property rights and social institution
  theories private entity vs public entity
• The contractual theory firm is a nexus of
  contracts among all of its constituencies, in
  which groups deploy their economic assets for
  some return

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Objections to Contractual Theory

• Externalities
• Implicit contracts
• Residual risk
• Distribution and power

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The Stakeholder Theory

• Corporations ought to be operated for the benefit
  of all those who have a stake in the enterprise
• Groups such as investors, employees, customers,
  suppliers, and local community
• Descriptive, instrumental, and normative models

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Corporate Ethics Programs

• Include a code of ethics, ethics training,
  communication with employees, and some mechanism
  for reporting, investigating, and correcting
  wrongdoing
• Benefits reducing the risk of losses from
  wrongdoing, enabling organizational change,
  managing external relations, and fulfilling
  obligations to shareholders