Business ethics

• Purpose of business ethics

  Make surplus = shareholders

  Sell goods to make profit growth
• Stakeholders- affected by business
• Main purpose of business

  Maximise profit for its owners/shareholders
• Milton Friedman's view that "the social responsibility of business is to increase its profits"


  1970
• Friedman thought business had no social responsibility beyond maximising profits
• Some thought business had a social responsibility to improve worker welfare
• Capitalism was seen as less effective at addressing social responsibilities
• Examples of business social responsibility

  • Paying higher wages than rivals

  Using sustainable materials despite higher cost

  Refusing sponsorship from fossil fuel companies

  Investing in local youth teams
• Shareholder primacy view


  It is unethical for a business to do anything other than maximise profits, as this would be "stealing money" from shareholders
• Stakeholder view argues businesses should consider the interests of all stakeholders, not just shareholders
• Trafigura eventually paid €30m in compensation
• Perspectives on business ethics and social responsibility

  • Shareholder primacy (Milton Friedman)

  Stakeholder view (social responsibility to all affected parties)

  Kantian ethics (businesses have ethical duties beyond just profits)

  Utilitarian ethics (businesses should maximise overall societal welfare, not just profits)
• There are clashing interests between different stakeholders that businesses must balance
• Whistleblowing policies are an important part of business ethics
• Globalisation has brought both benefits and challenges in terms of business ethics
• The legality of a business practice does not necessarily make it ethical
• Anti-globalisation movements have campaigned against the negative effects of globalisation on workers and the environment
• The Kuznets curve hypothesises that environmental degradation first worsens then improves with economic development
• Indicators of sustainable business include national accounts, aggregate welfare, ecosystem health, and human-environment interaction
• Corporate social responsibility (CSR)


  The environmental and social responsibilities businesses have beyond just profit maximisation
• Parts of CSR


  • Environmental responsibility (reducing environmental impact)

  Community responsibility (respecting human rights, supporting local communities)
• Kantian ethics


  Emphasises the inherent rights and dignity of individuals, businesses have ethical duties beyond just profits
• Utilitarian ethics


  Focuses on maximising overall societal welfare, not just profits
• Kantian and utilitarian ethics have different perspectives on whistleblowing
• Both Kantian and utilitarian ethics agree that unethical business practices that cause significant harm are wrong, even if they increase profits
• Globalisation has increased global inequality, which clashes with Kantian principles of equal freedom and autonomy
• Utilitarian arguments have been used to justify exploitative practices like sweatshops, while Kantian ethics would prohibit such exploitation
• Calculating the consequences required for utilitarian analysis is very complex and uncertain
• Kantian ethics focuses on the inherent rights of individuals, not just the overall consequences
• Ford Pinto case shows the tension between profit maximisation and protecting human life
• Utilitarianism requires knowledge of future consequences and complex calculations about a range of possible actions, whereas Kantian ethics does not require this
• Utilitarianism requires objective measuring of subjective mental states like pleasure and pain
• Kant's ethics


  Does not require knowledge of future consequences or complex calculations
• Categorical imperative


  Treating people as ends in themselves, not merely as means
• Ford Pinto had a fuel tank fault leading to fires if rear-ended, but Ford's cost/benefit analysis determined it would cost less to ignore than recall all Pintos
• Procter and Gamble went dumpster diving in 2001, spying on rivals Unilever, which went against their own code of ethics
• ENRON inflated profits, had inadequate disclosure, aggressive corporate culture, and insider trading
• Pacific Gas and Electric settled for $333 million for hexavalent chromium contaminating drinking water
• Nike had no minimum wages, proper working conditions, or adequate health and safety, and turned a blind eye to child labour and sexual harassment in its factories
• Businesses offset carbon emissions to become carbon neutral and remove their carbon footprint