The case shows how Empire Pub Company deals with business situations in order to ensure that its business objectives are met and that its stakeholders are satisfied. The case presents an example of business ethics. Ethics is a philosophical term derived from the Greek word “ethos,” meaning character or custom. Ethics is a discipline that deals with what is good and bad and with moral duty and obligation. Ethics can also be regarded as a set of moral principles or values (Sims, 2003). Business ethics is concerned with good and bad or right and wrong behaviour and practices within a business context. Concepts of right and wrong are increasingly being interpreted to include the more difficult and subtle questions of fairness, justice, and right and wrong behaviour in business (Sims, 2003). According to Vernon (2002), ethics in business usually refers to the study of socially responsible and morally justifiable behaviour in managers nad companies (p.76). There are two key branches of ethics. These are normative and descriptive ethics. Normative ethics is concerned with supplying and justifying a coherent moral system of thinking and judging. Normative ethics seeks to uncover, develop and justify basic moral principles that are intended to guide behaviour, actions, and decisions. When applied in the business context, normative ethics seeks to propose some principle or principles for distinguishing ethical from unethical. It deals with “what ought to be” or “what ought not to be” in terms of business practices. Normative ethics is concerned with establishing norms or standards by which business might be guided or judged. Descriptive ethics by contrast, is concerned with describing, characterizing, and studying morality of a people, a culture, or a society. It also compares and contrasts different moral codes, systems, practices, beliefs, and values. In descriptive business ethics, the focus is on learning what is occurring in the real of behaviour, actions, decisions, policies, and practices of business organizations, managers, or specific industries (Sims, 2003).
From the case we can see that the company has different ethical duties to perform for its stakeholders. Stakeholders are the people who are affected by or can affect the activities of the firm. There are two types of stakeholders – primary and secondary. Primary stakeholders are those who have formal, official, or contractual relationship with the organization. External stakeholders include customers, suppliers, governments, unions, competitors, local communities, and the general public. In general,
stockholders claim appropriate returns on their investment:
Employees seek broadly defined job satisfactions
Customers want what they pay for
Suppliers seek dependable buyers
Governments want adherence to legislation
Unions seek benefit for their members
Competitors want fair competition; local communities want the company to be a responsible body
The general public expects the company’s existence to improve quality of life.
Every business has an ethical duty to its stakeholders. Stakeholders affect organization and are affected by it, with certain expectations as to what the organization should do and how it should do it.
A company’s duty to employees arises out of respect for the worth and dignity of individuals who devote their energies to the business and who depend on the business for their economic well-being. Principled strategy making requires that employee-related decisions be made equitably and compassionately, with concern for due process and for the impact that strategic change has on employees’ lives. At best, the chosen strategy should promote employee interests as concerns compensation, career opportunities, job security, and overall working conditions (Sims, 2003).
The duty to the customer arises out of expectations that attend the purchase of good and service (Sims, 2003).
An organization’s ethical duty to suppliers arises out of market relationship that exists between them. They are both partners and adversaries. They are partners in the sense that the quality of suppliers’ parts affects the quality of a company’s product in the sense that their businesses are connected. They are adversaries in the sense that the supplier wants the higher price and profit it can get while the buyer wants a cheaper price, better quality, and speedier service (Sims, 2003).
A company has a duty to shareholders who rightly expect a return on their investment. Even though investors may differ in their preferences for profits now versus profits later, their tolerance for greater risk, and their enthusiasm for exercising social responsibility, business executives have a moral duty to pursue profitable management of the owners’ investment (Sims, 2003).
An organization’s duty to the community at large stems from its status as a member of the community and as an institution of society. Communities and society are reasonable in expecting businesses to be good citizens – to pay their fair share of taxes for fire and police protection, streets and highways, waste removal, and so on, and to exercise care in the impact their activities have on the environment, society, and the communities in which they operate (Sims, 2003).
After reading the case, it is clear that the company adapts a Utilitarian Ethics model. According to Barry (1979) Utilitarianism has several features that appeal as a basis for business decisions. These include (1) it provides a basis for formulating and testing policies; (2) it provides an objective way of resolving conflicts of self-interests; (3) it recognizes the four primary claimant (groups in business activity, owners, employees, customers and society); (4) it provides.
Mr. Danny as the manager, must be aware that the company has different stakeholders who will be affected by the decision. Every business has an ethical duty to its stakeholders. Stakeholders affect organization and are affected by it, with certain expectations as to what the organization should do and how it should do it.
A company’s duty to employees arises out of respect for the worth and dignity of individuals who devote their energies to the business and who depend on the business for their economic well-being. Principled strategy making requires that employee-related decisions be made equitably and compassionately, with concern for due process and for the impact that strategic change has on employees’ lives. At best, the chosen strategy should promote employee interests as concerns compensation, career opportunities, job security, and overall working conditions (Sims, 2003).
The duty to the customer arises out of expectations that attend the purchase of good and service (Sims, 2003).
An organization’s ethical duty to suppliers arises out of market relationship that exists between them. They are both partners and adversaries. They are partners in the sense that the quality of suppliers’ parts affects the quality of a company’s product in the sense that their businesses are connected. They are adversaries in the sense that the supplier wants the higher price and profit it can get while the buyer wants a cheaper price, better quality, and speedier service (Sims, 2003).
A company has a duty to shareholders who rightly expect a return on their investment. Even though investors may differ in their preferences for profits now versus profits later, their tolerance for greater risk, and their enthusiasm for exercising social responsibility, business executives have a moral duty to pursue profitable management of the owners’ investment (Sims, 2003).
An organization’s duty to the community at large stems from its status as a member of the community and as an institution of society. Communities and society are reasonable in expecting businesses to be good citizens – to pay their fair share of taxes for fire and police protection, streets and highways, waste removal, and so on, and to exercise care in the impact their activities have on the environment, society, and the communities in which they operate (Sims, 2003).
Utilitarian ethics calls for cost-benefit analysis. Utilitarianism suggests that decision makers should only undertake those actions where the benefits exceed the costs. By doing so, the decision maker will be sure that the organization and its stakeholders will benefit. The decision procedure that the agent must follow in utilitarian ethics will be:
1. Identify all possible options for the action.
2. Identify the groups and individuals on which these possible options will have an impact.
3. Evaluate the benefits and negative consequences that each possible option will have on all of these groups and individuals.
4. Choose the possible option with the greatest net benefit.
Deontological ethics, according to Geisler and Moreland (1990), are sometimes associated with divine command theories of morality (what is right or wrong is a matter of what God commands) and with the moral theories of the philosopher Immanuel Kant (p.15). As Immanuel Kant argued, people should be treated as members of the kingdom of ends. People are objects of moral worth and should be treated as ends in themselves, never merely as a mean to some other end. We often treat each other as means to an end – for instance, a student may treat a teacher as a means to gaining knowledge – but we ought not to treat people merely as means. Such treatment dehumanizes persons by treating them as things. Persons are not bundles of pleasant and unpleasant mental states, nor are they merely valuable because of their social utility. A human being is a person with intrinsic value simply because that person is a member of the natural class “human being” (Geisler and Moreland 1990, p.16). Kantian moral theory is a deontological ethical theory. The word ‘deontological’ comes from the Greek word ‘deon’ meaning duty. Deontological theories see morality in terms of duties to do or to not do certain types of action – regardless of the likely consequences. These moral theories assert that the moral rightness or wrongness of an action is not determined by its likely consequences but the principle of the action.
Deontological theories maintain that the concept of duty is, in some respects, independent of the concept of good and that some actions are right or wrong for reasons other than their consequences. Kantian ethics fall into this category. Kant argues that what makes an action right or wrong is not the sum of its consequences but the fact that it conforms to moral law. Moral laws of duty demand that people act not only in accordance with duty but for the sake of duty. It not good enough to perform a morally correct action, because this could stem from self-interested motives that have nothing to do with morality. Rather an action is moral if it conforms to moral law that is based not in intuition, conscience or utility, but in pure reason (Mabey, et al 1998).
The case also emphasized the corporate social responsibilities of the company. Corporate social responsibility is the interaction between business and the social environment in which it exists. Corporate social responsibility according to Sims (2003) is an organization’s obligation to engage in activities that protect and contribute to the welfare of society. CSR refers to an organization’s moral obligation toward others who are affected by the organization’s actions (p. 44).
Responses to Social Demands
Corporate social responsiveness is the ability of an organization to respond to social demands. Corporate social responsiveness focuses on the individual and organizational processes for determining, implementing, and evaluating the firm’s capacity to anticipate, respond to, and manage the issues and problems arising from the diverse claims and expectations of internal and external stakeholders (Epstein 1987).
Proaction
Proaction is considered as the highest level of responsiveness to social issues where companies actively seek to improve and contribute to society. Companies with proactive philosophy will try to carry out discretionary responsibilities (Deresky 2003 cited in Harila and Petrini 2003). Proaction is an approach to corporate social responsibility that includes behaviors that improve society. Organizations that assume a proaction strategy subscribe to the notion of social responsiveness. Proaction according to Carroll (1979); Joyner and Payne (2002) involves actively addressing specific concerns of stakeholders and anticipating social problems before they arise or are officially recognized, and developing strategies to deal with these issues.
Accommodation
Accommodation is an approach to corporate social responsibility that adapts to public policy in doing more than the minimum required. Accommodation according to Joyner and Payne (2002) is doing the right thing because it is the right thing to do.
Defence
A company with a defensive philosophy will only fulfill its legal responsibilities in relation to the social issues that it faces (Deresky 2003 cited in Harila and Petrini 2003). Organizations that pursue a defence strategy respond to social challenges only when it is necessary to defend their current position. Defence according to Carroll (1979); Joyner and Payne (2002) involves doing only the minimum legally required to address stakeholder issue in order to avoid being forced to do so.
Reaction
Reaction is the philosophy with the lowest responsiveness, indicating that companies simply react to eventual crises that might occur (Deresky 2003 cited in Harila and Petrini 2003). Reaction according to Carroll (1979); Joyner and Payne (2002) involves either fighting against addressing stakeholder issues or completely withdrawing and ignoring the stakeholder.
Obstruction
There are firms that take an obstructionist approach to social responsibility. Obstructionist organizations choose to push socially responsible envelope as far as they can. They consciously engage in questionable and at times illegal acts, in the hope that they will not get caught, the fine imposed will be less than the benefits incurred. These firms often work to prevent knowledge of their behavior becoming visible (Sims 2003).
Social Responsibility
Corporate Social Responsibility according to Carroll (1979; 1991) encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time. The figure below presents the types of social responsibility as defined by Carroll (1979; 1991):
Economic Responsibility
An organization has to make a profit in order to survive. The organization is obliged to its shareholders to maximize earnings, and operate efficiently. This forms the foundation on which all else is built (Van Dongen 2006).
Legal Responsibility
Am organization is obliged to comply with the rules and regulations that the government imposes (Van Dongen 2006).
Ethical Responsibility
Ethical responsibilities are considered important. They consist of the expectations, demands, and needs stakeholders place on an organization. Ethical responsibility is often vague and under public debate regarding its legitimacy. In essence it is the obligation to do what is right, just and fair (Carroll 1991 cited in Van Dongen 2006).
Discretionary (Philanthropic) Responsibility
Philanthropic act is often labeled as being socially responsible, however, compared to ethical responsibility, it is not expected from the organization to commit to a philanthropic act, in the sense that they will be found unethical when they do not reach the desired level (Vamn Dongen 2006).
References
Carroll, A. B. (1979). A Three-Dimensional Conceptual Model of Corporate Performance. Academy of Management Review, 4, 497-505.
Carroll, A.B. (1991) The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Business Horizons, 34, 39-48.
Caroll, A. B. (1996). Business and Society: Ethics and Stakeholder Management. Thomson Learning.
Deresky, H. (2003). International Management (4th ed.). Upper Saddle River: Prentice Hall.
Epstein, E. M. (1987). The Corporate Social Policy Process: Beyond Business Ethics, Corporate Social Responsibility and Corporate Social Responsiveness. California Management Review, 29(3), 99-114.
Harila, H. and Petrini K. (2003). Incorporating Corporate Social Responsibility: Case Studies of Four MNCs. Lulea University of Technology. Retrieved May 9, 2008, from http://epubl.luth.se/1404-5508/2003/064/LTU-SHU-EX-03064-SE.pdf
Joyner, B. E. and Payne, D. (2002). Evolution and Implementation: A Study of Values, Business Ethics and Corporate Social Responsibility. Journal of Business Ethics, 41, 297-311.
Mabey, C. Skinner, D. and Clark, T. (1998). Experiencing human resource management, SAGE.
Sims, R. R. (2003). Ethics and Corporate Social Responsibility: Why Giants Fall. Westport CT: Praeger.
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