Business Ethics #3

CSR: ethical responsibilities that a business has to the society in which it operates

Ethical Responsibility Levels:

  1. To do good (volunteering)

  2. Prevent harm (Good Samaritan)

  3. Do not cause harm to others (enforced by legal punishment)

Question:What is the strongest sense of responsibility

  • Answer: to not cause harm

Economic Model CSR: business is an institution and its sole social responsibility to fulfill the economic functions they were designed to serve (managerial capitalism)

  • places shareholders at center of business, managers have primary responsibility to pursue profit within the law

Milton Friedman: managers fulfill their ethical responsibility by increasing shareholder wealth and pursuing profits

Stakeholder Model of CSR: recognizes that every business decision affects a wide variety of people and benefits some while imposing costs on others, balance the interests of all affected parties

  • similar to utilitarianism, consider the consequences of its decisions

Integrative Model of CSR: orgs that pursue social ends as the very core of their mission (integrate social and economic goals)

Sustainability: financial goals must be balance against/overridden by environmental considerations

Corporate sustainability report: all stakeholders provided with financial and other information regarding a firm’s economic, environmental, & social performance

Corporate governance: structure by which corporations are managed, directed, and controlled by the objectives of fairness, accountability, and transparency

Gatekeepers: act as watchdogs to ensure those in the marketplace play by the rules & confirm to the market functions as it should (auditors, lawyers, accountants, financial analysts)

Conflict on interest: when a person holds a position of trust that requires they exercise judgement on behalf of others, but where their personal interest conflict with the proper exercise of that judgement

Fiduciary duties: legal duty to act on behalf of the interest of others

SOX 2002: applies to publicly held companies, intended to provide protection where oversight did not exist (accountability & responsibility)

European 8th directive of 2005: same as SOX, but does not have the whistleblower protection that SOX provides

Internal control: mechanisms established internally to comply with financial reporting laws and regulations

COSO: private sector initiative established in 1986 with the intent of improving the quality of financial reporting through a focus on corporate governance, ethical practices, and internal controls

Elements of internal control structure: control environment, risk assessment, control activities, information & communication, and ongoing monitoring

Control environment: tone of the firm such as integrity, ethical values, competence, philosophy, & operating style

Control activities: policies/procedures that support control environment

Legal duties of board members:

  1. Duty of care: ensuring that executives carry out responsibilities & comply with law

  2. Duty of good faith: faithfulness to the organization’s mission

  3. Duty of loyalty: undivided allegiance when making decisions affecting the organization (COI in favor the organization)

Insider trading: trading of securities by those who hold private inside information that would materially impact the value of the stock and allows them to benefit by buying/selling stock

Private information: privileged information that has not yet been released to the public

Marketing: organizational functions and a set of processes for creating, communicating, and delivering value to customers & for managing customer relationships in ways that benefit the org and its stakeholders

4Ps: Price, product, place, promotion

Prima Facie: market exchange involves respect for autonomy & mutual benefit

Contract Law: can either be caveat emptor or implied warranty

Tort law: central principle is negligence

Negligence: failure to exercise reasonable care not to harm others

One end of the continuum: producers owe only those things promised to the consumer in the sales agreement

Strict Liability: producers owe compensation to consumers for any and all harms caused by their products