unit 3-4 300

Unit 3: Moral Judgments II

Objectivism

  • Developed by Ayn Rand, a Russian

    • Came when she was 18 and had to convince Americans that our values were very special

      • Relied heavily on maintaining and following our founding values 

  • Values capitalism, pushes American values to the limit 

  • Decision rule: to be rational and to be all that you can be 

    • Rand thinks we've become sloppy by believing people’s opinions/values and giving them reason/cause to change our gov 

    • Building yourself into the best human you can be

  • Pro: reinforces personal responsibility

    • Each individual had to use our productive energy to be responsible for the pros and cons in our lives and be the best we possibly can 

  • Con: individualistic and judgmental 

    • Want people to be more community-oriented

  • Ex: Motive Communications in Texas

    • Founded on Rand’s principles

    • Rational, competitive, not warm-fuzzy workplace

Integrative Social Contracts Theory

  • Social contract theory: formed by people who come together to form a moral agreement

  • Developed by Donaldson and Dunfee

  • Decision rule: action does not violate a global hypernorm or local authentic norm

    • Two key hypernorms:

  1. Respect the dignity of all human beings

  2. Respect human rights 

  • Pro: adapts to variations in local norms within some global limits

  • Con: local norms are vague and may give actors too much flexibility

    • Individual norms can get tricky when they clash with local norms 

  • Ex: Levi Strauss and underage workers in Bangladesh

Ethic of Care

  • Decision rule: focus on relationships and responsibilities

    • Taking care of your relationships is the ethical thing to do 

    • Ethic of care turns Nozick’s theory on its head → if you have a right from force and fraud, that means everyone around you has a responsibility not to use force or fraud on you 

      • Ex: I have a responsibility to make sure my employee has money to put food on the table for their family 

  • Pro: protects the weak and dependent

  • Con: neglects justice


Unit 4: Corporate Responsibility

Corporations: The Fundamentals

  • Definition: legal entity chartered by the state w/ rights and responsibilities apart from the persons running or working for the corporation

    • The owners have limited liability → you can lose everything you invest

    • Society would have more people willing to invest in businesses if they weren’t afraid of losing everything they own

    • Only related to SOME companies 

  • Separation of ownership and control

    • Doing a public offering, allowing for investors to swoop in → shareholders vs. you who controls the corporation

    • Creates flexibility in what the CEO does

  • Shareholder rights vs. managerial discretion

  • What are the roles and responsibilities of a corporation?


Two Perspectives

  • Shareholder value: maximizes profits within the law and morality

  • Stakeholder theory: advances the interests of all stakeholders (even at the expense of profit)


Shareholder Value Perspective

What do Shareholders Own?

  • At IPO, shareholders invest in the promise of maximum shareholder value within legal and moral constraints in exchange for taking on the firm’s residual risk

    • Residual risk: if you have a corporation w/shareholders and you have to go bankrupt, the shareholders pay off their debts, employees, legally-bound debts

      • The shareholders get the residuals that are left over after everyone else is paid off 

    • Ex: if you bought shares in IBM in 1984, the promise of IPO at IBM maximizing shareholder value is still in that share

      • If you bought a share in 2022, the promise is still there → the shareholder value perspective holds that it is the company’s responsibility to maximize shareholder value forever

  • That promise stays with shares as they change from hand to hand over time 


Shareholder Value Perspective

  • Maximize profits within the law and morality 

    • In order for a corporation to run smoothly in a capitalist market, people have to make sure they’re doing “good” things, not being sneaky 


Arguments for Shareholder Value

  • Legal argument

    • By law, corporations are obligated to maximize shareholder value 

  • Economic imperative

    • It’s fundamental to the economy that corporations do this

      • The economy stays healthy if corporations continue to do this

  • Ethical justifications

    • Efficiency- resources pulled to their most valued uses

      • Investors will go to companies that have what they want and will invest more if corporations do what the market wants 

    • Liberty- individuals are free to participate or not 

      • People are free to buy things from a corporation, and they’re also free to not do that 


Challenges to Shareholder Value

  • Difficult to rely on self-interested businesspeople to act on others’ behalf (including shareholders); market mechanisms are required to rein them in

  • Shareholder value proponents think that corporate responsibility lies in devising effective corporate governance mechanisms to protect the long-term interests of shareholders 


Corporate Social Responsibility

  • Definition: commitment to corporate actions beyond maximizing profits within the law and morality

  • Pulling back on the maximize shareholder value issue and asking a corporation to perform other actions 

  • Key distinction: Are you implementing a social responsibility program to maximize profits or at the expense of profits?


Instrumental vs. Normative CSR

  • Instrumental/strategic: how corporations should engage in CSR programs in order to maximize profits within legal and moral constraints

    • Ex: doing a fun run for breast cancer research as a t-shirt company → making t-shirts which increases visibility, money for themselves and breast cancer, and PR 

    • Shareholder value supporters are okay with this 

  • Normative: how corporations should engage in CSR programs b/c it’s the right or moral thing to do, even at the expense of profits 

    • Corporations should take on social programs themselves, even at the cost of shareholders’ money

    • Shareholder value supporters DISAGREE with this


Arguments Against Normative CSR

  • Violates owners’ property rights → CEO is using other people’s money without consent

  • Presumes that managers have better moral skills than shareholders

  • Weakens management’s accountability to shareholders

    • Ex: You can measure the CEO’s performance based on what happens both to the share price and dividend yield 

  • Distracts management from its primary purpose 

Impact of Normative CSR

  • Going concern: Shareholders’ expectations are undermined, and owners of record at announcement pay for entire CSR redirection

  • Startup: Investors purchase IPO shares with full knowledge of the potential for a lower market price 

    • Ex: Ben and Jerry’s, the shareholders understood that the firm wasn’t trying to maximize shareholder value 


Stakeholder Theory

  • Definition: advance the interests of all stakeholders (even at the expense of profit) 


What are Stakeholders?

  • Stakeholder: entities significantly affected by the firm's activity, such as employees, customers, shareholders, the community or broader society, the environment, and suppliers 

  • The debate is not whether management bears ethical responsibilities; it’s about the reach and scope of these responsibilities 

    • The debate is NOT whether or not CEOS are morally responsible, it’s about what is the CEO’s moral obligation is. 


Ethical Justifications

  1. Powerful corporations can help alleviate global inequalities

  2. Stakeholder approach leads to greater liberty for the vulnerable

    1. Vulnerable people don’t have as much liberty as those who have wealth

  3. Capitalism will only be efficient if the masses buy into it

    1. If customers say they are no longer going to buy from corporations, and I won’t work for corporations, then these are bad for corporations

  4. Shareholders don’t do the real “work.”

    1. The employee should get special consideration b/c they’re actually doing the day-to-day operations in the company

  5. Consider non-Western values: economic actors should pursue what is efficient 

    1. Goes against capitalist values

    2. Shareholders should be happy with a satisfactory level of shareholder value instead of maximized shareholder value 


The Power Argument

  • A corporation’s purpose is to “use its resources to advance the interests of all those who are most affected by its corporate activities”

  • With great power comes great responsibility 

    • “Can, imply, should”

  • The limited capacities of gov and the power and influence of corporations require that the corporations address these social problems 

    • Corporations are global, and they have a reach that governments can’t match, so they can have a huge impact on different economies and cultures. Corporations can do more than what a gov can

    • Corporations should take on stakeholder issues that localized institutions cannot 


A Key CSR Distinction

  • Repair externalities/”do not harm,” but are not responsible for general social problems

    • Ex: if we make a mess, you should clean up → take care of your own externalities 

  • Advance the common good, whether or not it’s directly related to their core business 

  • Distinction: cleaning up after yourself or going beyond and cleaning up other messes that may not be related to your business 


Evidence of CSR Popularity

  • Socially responsible investing

    • A lot of people invest in stocks that align with their social values

  • CSR-related shareholder proposals

    • Shareholders can file proposals about what companies can do differently. 

  • Nongovernmental orgs

    • Ex: such as the World Health Org

  • Benefit corporations: special legal status for for-profit business that includes social responsibility in their core mission 

    • The founding doc says the CEO will do well in profit but also expand social programs

    • The CEO is evaluated on how well they performs on both of those characteristics and can be sued 


Government Intervention

  • Limited intervention

    • Top-down process: international orgs specify norms endorsed by executives

    • Bottom-up processes: ethical norms are rewarded by the purchasing decisions of consumers and investors

  • Significant intervention: CSR as legal mandate


Whistleblowing

Whistleblowing Triggers

  • Truth

  • Employee or customer rights

  • Trust

  • Harm

  • Your personal reputation

  • Your org’s reputation

  • Breaking the law


What to Do When You Decide to Blow the Whistle

  • Make a memo to give to your boss

  • Check the company policies → if there is a certain procedure to whistleblow in the company, follow it to a T

  • Go home and talk to your family so they’re on board

  • Keep notes of the process in case you go to court or are in a lawsuit

  • If boss doesn’t do anything, then take the memo to your boss’s boss 

    • Approach this delicately

    • Talk to your supervisor and ask them to accompany you if you decide to bring this to your boss’s boss 

  • If you believe this doesn’t stay within the chain of command, you would go to HR or your legal departments, or auditers if it’s fraud

    • Call your lawyer