Ethics and Corporate Social Responsibility

Nguyen Hong Hanh (PhD.)

Part 1: Business Ethics
Ethics and Responsibility are Embedded in
Commerce

• Business ethics and CSR are inherent in commerce. Commerce is about local
and global markets, and markets entail exchanges between people and
groups of people. So commerce is really about human relationships.

• How we should treat each other and our organizations is what business ethics
is about. And failing to treat people and their businesses wwith respect is
both a moral failure and market failure. So we cannot escape moral
obligations in commerce unless we escapte commerce together.
Bussiness Ethics is…
• The study of how ethics and business are connected and
• The analysis of ethical decision-making in commerce, at three levels:
Individuals
Organizations, and
Political/economic systems
• Business ethics is both normative and descriptive
It describes individual and corporate behavior and
Evaluates practices managers and corporations ought or ought not to engage in
Ethics creates the foundations for CSR
CSR and Corporate Citizenship
• Corporate Social Responsibility (CSR):
Often confused with business ethics and
corporate responsibility
Sometimes identified with philanthropy
Defines corporate and other business’s
responsibilities to the communities in which they
operate
• Corporate citizenship
A similar concept outlining corporate
relationships to their communities and to the
natural environment
 Business and the Law
• Business have responsibilities to obey the laws in the
communities where they do business. BUT
• Are there exceptions?
When a country condones slave or young child labor?
When human rights violations are tolerated?
• Ethics and legal compliance:
Companies usually have compliance officers to be sure
managers are operating within legal constraints.
Ethics, on the other hand, has to do with what an
organization OUGHT to do, in addition to legal madates.
Course Goals and Expectations

• Develop moral sensitivity to ethical

delemmas in global commerce
• Identify ethical issues in global business
• Apply stakeholder analysis
• Address issues from more than one point of
view
• Use a well-reasoned process by which to
arrive at ethically-defensible decisions
• Evaluate good and weak arguments
• Defend your conclusion
Course Materials and Assignments
• Case studies from global business
• Lectures
• Discussion board
• Quizzes and written assignment
 Take-away from the Course
A framework for moral decision-making that you can use in
whatever situation you find yourself or your organization
 Lesson 1
1.1. Case study: Merck and River Blindness
A scientist at Merck, one of the leading
pharmaceutical companies in the United
States, observed that Merck’s new drug for
deworming animals from parasites might
also be able to attack river blindness, a
disease thay strikes 40-100 million people
in very remote poverty-stricken places in
the world
1.1. Case study: River blindness is caused by worms transmitted to
humans through fly bites. These worms get under
Merck and River the skin, causing terrible itching. They multiply,
Blindness and by the time the victim is 40 years old, he/she
is blind.
1.1. Case study: Merck
and River Blindness
The cost of developing a
drug for human
consumption, even with the
previous development of
de-worming animals, would
cost between &10 and $100
million USD and would take
approximately 10 years to
develop.
1.1. Case study: Merck and
River Blindness
• The disease is virtually unknown in
industrialized countries and there is no
paying customers for this drugs, neither
individuals nor the countries where this
disease is prevalent.
• The world health organization has already
invested hundreds of millions of dollars in
fly eradication, a failed project, and they
are unwilling to invest anymore in river
blindness eradication.
• Should Merck invest in research to
develop and test this drug?
1.1. Case study: Merck
and River Blindness
• Or should it use it research funds to
help cure other diseases such as
cancer or HIV, for example, disease
for which there are paying
customers?
• And/or should it give rights to
develop the drug to a nonprofit or
government research firm?
Issues
Developing the drug:
• Expensive
• Might not work
• Might harm those who agree to a trial
• Bad publicity
 Not developing the drug

Issues - Bad publicity

- Low morale of researchers at Merck

- Missed opportunities

Give rights to develop the drug to

another organization:
- Merck would lose patent on deworming
drug – a very profitable product
 Right-based approach

• Do the rights of those with river blindness

trump shareholder rights to a return on
investment?

• “What is the most fair and to whom?”

Thought • Think and reflect on these questions and post
questions your thoughts in the link.
Merck’s Vision and Values
“We try never to forget that medicine is for
the people. It is not for the profits. The profits
follow and, if we have remembered that, they
have never failed to appear. The better we
have remembered, the larger they have
been.”

George Merck, grandson of the founder

MERCK
• What should Merck do?
• What kind of arguments can you
develop to defend your decision?
1.2. Ethical Theories and their Contributions to
Decicion-Making

Five Ethical Theories of Moral Reasoning

• Universalism (Deontology)
• Utilitarianism (Cost-benefit analysis)
• Rights thinking
• Fairness
• Virtue or character
“Do the Right Thing” – A Principled Approach

“It’s just what we should do.”

“I feel that this is the right thing to do.”
Eg., develop a drug for the blindness because of the huge benefits to millions
of sufferers despite costs and distribution difficulties.
THE ARGUMENT:
Ethics has its focus on what is uniquely human (i.e., human choice)
We can control out actions, but not the outcomes
Look at good, right intentions rather than consequences (do what is right, no
matter the cost)
“Do the Right Thing”

“Do the Right Thing”/Universalism or

Deontology
• Is this something that we would want other
individuals or companies to do?
• Could we imagine this decision becoming a
general principle?
• Does it pass the publicity test?
• Does this decision respect others as equal
beings with equal dignity?
Challenges for “Do the
Right Thing” Thinking:
• Principles such as “never tell a lie”
somethimes need to be overridden:
Should I tell the truth to terrorists?
• What if doing the right thing produces
harms rather than benefits?
E.g., what if developing the drug for
river blindness actually harms possible
patients and bankrupts Merck?
“Cost/Benefit Analysis”:
Utilitarianism or
Consequentialism
• We all are, at least in part,
utilitarian in our decision-making,
both personal and corporate
• We do cost/benefit analyses in
environmental impact studies,
majority votes, tax laws, welfare,
etc.
“Cost/Benefit Analysis”:
Utilitarianism or
Consequentialism
• Decision rule: Something is morally
good to the extent that it produces a
greater balance of benefits over
harms, satisfies the most interests, or
minimizes harms for the largest
number of people involved
• AND “The interest of each other and
all must count, and count equally.”
(Bentham, 1840/2004)
Should Merck invest in research that
will both benefit AND profitable?
Utilitarianism: Weaknesses

• If we overestimate the pain (costs) and

underestimate the benefits, then we
will make flawed decisions
• The majority is not always right; who
protects the minority?
Five Theories of Moral Reasoning
• “Do the Right Thing”/Universalism or Deontology
✔ Is this something that we would want other individuals
or companies to do?
✔ Could we imagine this decision becoming a general
principle?
✔ Does it pass the publicity test?
✔ Does this decision respect others as equal beings with
equal dignity?
• Costs and Benefits Analysis: Utilitarianism
✔ Will the decision create benefits, or more benefits than
harms?
✔ What are the value added?
✔ What is the overall long-term effect of this decision?
 Chapter 2
Rights Talk (From 17C • Human beings, just because they are human beings and can make
Philosopher John Locke) choice, have basic “inalienable” rights, rights one has no matter
Second Treatise on what one’s situation, culture, religion, status, or political affiliation
Government • Right to life and survival
• Right to liberty to pursue means to survive
• Rights to labor (to work)
 Rights Talk (From 17C Philosopher John Locke)
Second Treatise on Government
• Rights to be paid adequately for one’s
labor contributions
• Rights to unowned property one
improves with labor or purchase
• [Private] Property rights
• These form the foundation of the UN
Universal Declaration of Huma Rights
(see:
http://www.un.org/en/udhrbook/pdf/udh
r_booklet_en_web.pdf)
• What rights do those with river blindness
have? What rights does Merck have?
Rights-Based
• Are any human rights at
stake in this decision?
• Are any fundamental
freedoms or human welfare
issues being violated or
possibily threaten?
 Justice as Fairness
• Justice involves
Treating every person and every organization
as an equal
Giving every person their ”due”, that is
owned, earned or deserved
Fairness: making judgements that are free
from discrimination
• Distributive justice
Justice also involves distribution: how do we
distribute opportunities, goods, services, welfare,
voting, jobs, offices, and awards fairly?
Principles of Distributive
Justice
• Equal opportunity: Everyone given
opportunities withou discrimination
where positions are open to all
• Need: An equalizing principle:
bringing the worst off up to a level with
the rest – the basis for a welfare system
• Potentiality: “Most likely to succeed”
• Desert: To those who have earned or
deserved. For example, the best
employee or manager, the Olympic
award in sports, the bravest military
person, a political exemplar.
 Principles of
Distributive Justice
• Utility: Given to the person or organization
who is best ar producing positive benefits,
for example, the most promising researcher,
the finest soccer player
• Egalitarian: Certain things should be
distributed equally, such as voting, health
care access, and environmental protections
• Lottery, luck, or chance
• Libertarian principle: no form of distribution
is fair to everyone; all should be abandoned
On which of these principles should Merck
appeal to make its decision?
 • Does it treat each individual, each stakeholder,
and each organization involved as an equal?
Fairness and • Does it provide equal opportunity?
Justice • Does it offer any special advantages to some
parties and not to others?
 • Viture ethics recognizes that we often act in line with out habits and
characters
• Companies, too, usually operate from a dominant logic, an organizational
Virtual Ethics mindset – “The way we do things” – the governs corporate decision-making
and creates the character and culture of the organization
• Faced with a difficult dilemma, we might ask what would a person of virtue
do, what would a company acting with integrity do?
• If Merck is a good company, how should they approach river blindnesss?
1.3. Merck and Moral
Reasoning
• What are the facts?
What is/are the culture(s) and
the context(s)?
Issues
Developing the drug:
• Expensive
• Might not work
• Might harm those who agree to a trial
• Bad publicity
 Not developing the drug

- Bad publicity

- Low morale of researchers at Merck

Issues
- Missed opportunities

Give rights to develop the drug to

another organization:
- Merck would lose patent on deworming
drug – a very profitable product
Alternatives
• Should Merck invest its research time
and money into developing and
testing a drug for river blindness?
[Intuitively the “right thing to do”]
• Or should Merck use the same funds
for research of another equally needed
drug for paying customers” [A
cost/benefit alternative that will help ill
people as well]
• Or should Merck encourage another
nonprofit or government research firm
to develop this drug? [An approach
that increase the integrity of Merck]
• Whose rights are at stake?
• What is the most fair?
Applying Ethical
Theories to the
Alternatives
• Intuitively it would appear that
developing this drug to help 30
to 100 million people is the
“right thing to do”
• From a cost/benefit perspective,
using the same funds to develop
another drug could be equally
effective and profitable
• Issues of testing challenge the
development of this drug
Applying Ethical Theories
to the Alternatives
• Issue of negative publicity if Merck
does not developing this drug
• What about the morale of Merck’s
researchers?
• What kind of precedent does each
alternative set for the drug industry?
• What would a “virtous company” do?
Merck’s Vision and Values
“We try never to forget that medicine is for
the people. It is not for the profits. The profits
follow and, if we have remembered that, they
have never failed to appear. The better we
have remembered, the larger they have
been.”

George Merck, grandson of the founder

Merck
• What should Merck do?
• What kind of argurments can you
develop to defend your decision?
 Merck’s Decision and
Results
• Merck decides to go ahead with the
drug trials
• Vagelos think thay the U.S governemt,
World Health Organization (WHO), or
some other foundation will fund this
research
• However, no organization comes
forward to fund the research
• After 10 years, Merck succeeds in
developing a safe and effective drug,
Mectizan, for river blindness
• One pill stops the itching. If given to
childen, they do not contact the
disease
Merck’s Responsibilities
• What were Merck’s responsibilities once it
had developed the drug, based on the
various ethical theories we have just
discussed?
• Even IF they gave away the drug, how
could Merck distribute the drug, given the
remoteness of the afficted – different
cultures and dialects, few roads, and no
mail delivery – weak governments and the
black market for drugs in Africa.