Corporate Ethics and Governance: Friends of the Earth


 


The organization in question is Friends of the Earth, an international network of environmental organizations, which was founded by David Bower in 1969 (‘Friends of the Earth’ 2007). It was launched in 1971, and since then it has been considered one of the most active environmental organizations in the world. It has various campaigns, including getting a grip on climate change, encouraging laws in recycling, campaigning for energy efficient homes, protecting countryside, keeping genetically modified or genetically engineered food off the menu, and persuading big companies to behave better (‘Friends of the Earth Background’ 2007). Because of such campaigns, the organization has been criticizing the various actions and programs of different corporations, bombarding them with various accusations. As such, issues have also been thrown back to Friends of the Earth. This is why the concept of corporate social responsibility has been the most relevant concept to discuss.


 


PART A – Ethical Concepts in Corporate Actions


 


The issue being faced by the organization involves its words against the words of the large corporations, which operate internationally and renowned to be the corporations that hold large shares in the economy. The organization posted and somehow “accused” large corporations with three major charges that would lead to public scandal. These three major accusations emphasize the democracy is being eroded, as multinational corporations threaten governments to get what they want; that environments are being destroyed, as rainforests are cleared to grow products, to be sold in supermarkets; and that human rights are being abused, as some communities are thrown off their lands or forced to live in desolated areas. Such accusations lead to conclusion that economic growth of a nations comes before the welfare of the people and the planet (‘Corporates’ 2007). In this regard, with such actions and accusations, two major ethical concepts in relation to corporate social responsibility must be emphasized, namely teleological ethics and deontological ethics.


The first major ethical concept is teleological ethics or the ‘ethics of ends’ (Finnis 1983), which defines ethics as an action that is judged not by its intrinsic value but by the extent of which the action has instrumental value in providing advancement toward a desirable end. If an action is instrumental in producing a desirable end, then generally the action itself is ethical. Hence, the ethical focus of teleological ethics is on goals rather than on actions. However, to avoid the obvious criticism that under teleological ethics, “the end justifies the means”, Aristotle argued that one must instead look at each individual action and justify it in terms of its own goal (Hackett 2001). Thus, the most relevant concepts for teleological ethics include utilitarianism and egoism. It has been reported that the moral standard of utilitarianism is those actions are right that produce the greatest total amount of human well-being. This concept has a great intuitive appeal to many people because human well-being seems to be such a natural goal of human behavior (‘Essay’ 2007). It has two underlying theories, namely, Act Utilitarianism and Rule Utilitarianism. Act utilitarianism theory promotes moral conduct that produces the greatest balance of good over evil, thus, a balance of good and evil is applied to every action. On the other hand, rule utilitarianism theory uses rules to assess the balance of good and evil, thus, there is conformity of actions to valuable rules. In addition, from the utilitarian perspective, what is considered ethical can be summarised in the basic tenet ‘the greatest good for the greatest number’ (Cassens 1992). The second ethical concept related for that matter is egoism, which is the view that each person ought only to be concerned with and pursue his or her “own” good (Hutchinson 2001). It has two versions, namely, rational and ethical egoism, which both hold that promoting one’s own greatest good is always in accordance with reason and morality. However, so far as egoism is used as a means for the common is concerned, the essential point is that the pursuit of individual good does not necessarily promote, and may in fact be disastrous for, the common good (Singer 1993).


The second major ethical concept considered involves deontological ethics. From a deontological perspective, there is no need to justify duties by showing that they are productive of good; the philosophy focuses on universal statements of right and wrong. The principle is always to act so that everyone faced with the same situation, should take the same actions. The moral system of thinking is based on the view that particular types of action and/or behavior are intrinsically ethical or unethical, within rights and justice principles. For example, cheating is always dishonest and hence, always unethical; the behavior or action being wrong is not mitigated by how good is the motive behind it or the consequences following from it (Partington 2002). In this sense, it involves the ethics of duties and rights and justice. It has been reported that there are six ethical principles that support moral philosophy, namely, autonomy, beneficence, non-maleficence, justice, veracity, and confidentiality. In discussion, autonomy is the principle that addresses independence, and allows the individual the freedom of choice and action. Beneficence is the principle that emphasizes one’s responsibility to contribute to others’ welfare. Non-maleficence is the concept of not causing any harm or danger to others, and means not inflicting intentional harm, and not engaging in actions that risk harming other individuals. Justice, contrary to its common definition, is treating equals equally and treating unequals unequally in proportion to their relevant differences, which is based on the necessity and appropriateness of the situation (Forester-Miller and Davis 1996). Veracity is exhibiting truthfulness and honesty, and fundamental to the development of trust in building a good relationship. Confidentiality is not divulging information regarding a person without his or her consent or knowledge (‘Ethical Decision Making’ 2001). Thus, in this sense, actions that do not yield morally good consequences are considered unethical; what is good is good, and what is bad is bad.


Based on these two major ethical principles, it can be perceived that such ethical principles can be deemed as relevant to the actions done by both the organization in question and the organizations being accused. As emphasized from a teleological perspective, an individual action that produces a desirable end is considered ethical, while on a deontological perspective, wrong actions are unethical actions and right actions are ethical actions. From such theories, accusing the organizations serves to be an ethical action for both teleological and deontological perspectives, because the action of the organization would be for the common good of people in the society. In this sense, accusing the organizations would serve as a good means for a good end, which involves awareness of the large corporations and improvement of their operations that would not be as harmful to the people and the environment. On the other hand, the accusations of the organization would serve to be a good means for justice, for equality in the society and the environment.


In addition, from the utilitarian and egoism point of view, the greatest good refers to the action that may serve to produce a significant balance between good and evil. In this sense, making statements regarding the actions and strategies of corporations with regards to how they exploit people and the environment would be ethical. This is ethical in the sense that the organization in question produced proofs of their accusations, such as through figures, surveys, and other relevant data. Through such proofs, the strategies and actions of large corporations would be questioned, thus, enabling them to assess and evaluate its efficacy and impacts to the environment, people, and the society. For this, such accusations serve to produce the greatest good, which is emphasizing on the welfare of the environment and people at large. On the other hand, from the deontological point of view, several ethical principles can be recognized, which would serve to guide the actions of individuals. In relation to the ethical principles, the principle of beneficence and non-maleficence serve to influence the actions of the organization. This is because with beneficence, the organization aims to make large corporations aware of their actions, thus, contributing to the welfare of the people and the environment at large. However, despite the influence of beneficence, non-maleficence somehow opposes this principle, as the accusations of the organization may have inflicted damage or pain on the part of the members of the large corporations.


 


PART B – Critical Analysis of Stakeholder Theory and Virtue Ethics


 


            It has been reported that the foundation of the stakeholder theory or the shareholder perspective is that the sole obligation of the corporation is to provide shareholder value and more specifically to maximize financial profits for shareholders. This theory or perspective is linked to Friedman’s phrase, which states that “the social responsibility of business is to increase profits”. The essential point to notice about this theory is that it allows or actually demands managers to make investments in ethical actions if it helps the company to maximize its long-term profitability. In addition, it claims the positive view that ethical and profitable actions go hand in hand. However, the shareholder theory also implies that the ethical behavior of organizations should cease as soon as these behaviors become unprofitable regardless of the impact on the rest of the society. Moreover, the theory also states that each firm should strive to maximize its profits, and by doing so, shareholder perspective runs the risk of leading to sub-optimal results in terms of financial returns for the entire set of current and potential companies. In this sense, such companies serve to be the organizations in our current generation, which try to maximize their own consumption with no regards taken to potential future generations’ consumption. For this reason, it can be observed and perceived that the shareholder perspective or the stakeholder theory does not address the issue of total societal profit maximization anymore than it addresses ethical issues other than maximizing profits. Instead, the theory simply states that existing companies should maximize financial profits (Egels 2005). In this sense, it can be perceived that the only concern of the stakeholder theory or the shareholder perspective is the profit and the welfare of the organization in terms of maximizing its potential in gaining revenue.


            Another concept related to this is the virtue ethics. It has been reported that virtue ethics if often described as the ethics of character, and the central question that it seeks to answer is “who should I aspire to be as a person?” or “what should we aspire to be as an organization?”. In addition, it has also been emphasized in virtue ethics that each individual is born or socialized for the pursuit of a specific goal or telos, which holds the key to deciphering the relevant set of virtues an actor must possess. Specifically, desirable virtues are those allowing an actor or an individual to excel in “any coherent and complex form of socially established cooperative human activity”, to which it is called by tradition, duty, or ambition. Relevant virtues are therefore determined by the goals an actor or individual means to pursue. This leads one to ask, “what does it take to be a good company?”. A contextualized ethics like virtue theory cannot produce a universal answer to this question, since the relevant set of virtues for a given organization is determined by its telos. However, one ought not to commit to ethical relativism, which holds that there can be no normative common ground across organizations at all, since virtues are always specific to individual cases (Heugens et al. 2007). From this, it can be understood that the virtue ethics theory serves to influence the decision of stakeholders individually, as each person has his or her own set of virtues, which depend on the type of family, social, and cultural values that one was able to acquire. However, in order to analyze the environmental responsibility and ethics of the organization in question in relation to its actions, three approaches of the stakeholder theory must be briefly provided.


            The three aspects or the ‘alternative aspects of stakeholder theory’ are the descriptive or the empirical approach, the instrumental approach, and the normative approach. In discussion, as a descriptive or empirical approach, stakeholder theory was used to describe and sometimes explain specific corporate characteristics and behaviors. This approach was used to understand the way managers think about managing, it was used to analyze how board members think about the interests of corporate constituencies, and it used to understand how some corporations are actually managed. The second approach is the instrumental approach, wherein the stakeholder theory was used to establish a framework for examining the connections, if any, between the practice of stakeholder management and the achievement of corporate performance, through conventional statistical methodologies, direct observations, and interviews. In this sense, the instrumental researchers observed that highly successful companies, although very diverse, in other ways shared a stakeholder perspective. Lastly, the third approach is the normative approach, wherein the stakeholder theory was used to interpret the function of the corporation, including the identification of moral or philosophical guidelines for the operation and management of corporations. As a normative theory, the stakeholder theory attempted to interpret the function of, and offer guidance about, the investor-owned corporation on the basis of some underlying moral or philosophical principles. As such, it can be deduced that the three aspects of the stakeholder theory are nested within each other. The external shell of the theory is its descriptive aspect, as the theory presents and explains relationships that are observed in the external world. The theory’s descriptive accuracy is supported, at the second level, by its instrumental and predictive value, and if certain practices are carried out, then results will be obtained. The central core of the theory is normative. The descriptive accuracy of the theory presumes the truth of the core normative conception, in so far as that managers and other agents act as if all stakeholders’ interests have intrinsic value (Elias 2000).


            From this, it can be perceived that the actions made by the organization in question, which involves its accusations with the strategies and operations of large corporations can be deemed as based on the normative approach of the stakeholder theory, in relevance to environmental responsibility. This is because the organization in question fulfilled its role in terms of its environmental responsibility based on moral and philosophical guidelines. As mentioned earlier, the organization in question raises three major issues or accusations in relation to the operations of larger corporations. Such major accusations emphasize the democracy is being eroded, that environments are being destroyed, and that human rights are being abused. Because of such accusations, the organization in question presents an image that it is overtly concerned with the overall welfare of the environment and the people in the society in general. Through such accusations, the organization in question has expressed its concern with the environment, through stating the different “violations” said to be done by the larger corporations. This can be recognized by the fact that stakeholders in the company decided to publish and directly accuse the large corporations. In this sense, it can be perceived that the members of the organization in question did not do such actions in order to say things against them, but for the corporations to be able to assess their strategies in order to function better in the society without putting the environment or the people in the society at risk. From this, it can be seen that the organization in question still prioritized the ethical and moral judgment despite the fact that it was able to somehow ruing the reputation of larger companies. This was done by presenting the issue as means of making such organizations aware of how they execute and implement their strategies. Anyway, through such actions, everybody would benefit, thus, demonstrating and achieving the common good for the society.


            In addition, in essence, it can also be observed that the action of the organization somehow prioritized their self-interest. It has been emphasized that stakeholders are of course seen as the counter-force to business self-interest, but presuming this proposition as fact tends to blind one to the obvious self-interest stakeholders themselves have, starting with business managers as influential stakeholders (Collins et al 2006). However, it can also be perceived that large corporations also have their significant power in the industry. It can be argued that businesses, particularly large corporations, may exercise significant power. Some routinely manage stakeholders in ways that yield the business continued license to operate, appeasing stakeholders while not achieving sustainability. Thus, stakeholders become financially compensated where environmental outcomes are less than optimum. In addition, some stakeholders lose significant time and money from their investment in the engagement process, and still not achieve favorable sustainability outcomes. It is not just businesses engaging stakeholders. Exercising one’s stakeholding responsibilities can be ardous. In order to participate meaningfully, stakeholders must be knowledgeable or have the means by which to become knowledgeable about particular issues. Business purposes can be at odds with anything beyond weak sustainability. A preoccupation with sustaining the business may well privilege instrumentality above all else. Using stakeholder engagement as a means of mining ideas for future competitive advantage from stakeholders might well run counter the ideals for strong sustainability where excessive consumption is at issue. The check-book management of stakeholders alluded to earlier points to high self-interest in continuing ‘business as usual’. Stakeholder engagement can be refined to an even higher art (Collins et al 2006). 


 


PART C – Effectiveness of Regulation


 


            From the definition of virtue ethics, it can be understood that this theory expresses that it serves to influence the decision of stakeholders individually, as each person has his or her own set of virtues, which depend on the type of family, social, and cultural values that one was able to acquire. This cannot be used in the business or corporate world, most especially in addressing issues on corporate social responsibility because this enables the whole organization base its actions and decisions on laws and regulations, and ultimately with the benefit of all employees in the organization. In this sense, the virtue ethics approach to business must not be done, as it enables members of organizations to do what they want to do, regardless of the negative consequences involved in their actions. In this regard, additional and more relevant regulations on the protection of the environment are needed in order to govern all the activities of large corporations, with respect to the environment and all the people in the society at large. In addition, legal systems must be incorporated in the management of a corporation, to control, direct and assist in its aim to sustain and maintain its production and operation. It is also evident that these laws are necessary to be adopted in a business organization to enable directors and employees work efficiently and effectively together and enhance communication and interrelations. However, these laws and rules must be evaluated and assessed carefully so that corporations will not be limited in its actions and decisions that would hamper its development and improvement.     



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