Business Ethics & CSR

Hope Enterprise University College

Addis Ababa
Management Department
Business Ethics & Corporate Responsibility
(MGMT 412)
MODULE (1)
CHAPTER ONE
Introduction to Business Ethics

1.1 Introduction to Ethics & CSR

The term "ethics" is derived from the Greek word "ethos" which refers to
character or customs or accepted behaviors. The Oxford Dictionary states
ethics as "the moral principle that governs a person's behavior or how an
activity is conducted"

Ethics refers to the moral principles and values that guide individuals and
organizations in their Decision-making processes

Ethics is as to principles or standards of human conduct that govern the

behavior of individuals or organizations. Using these ethical standards, a
person or a group of persons or an organization regulate their behavior to
distinguish between what is right and what is wrong as perceived by others.

Social responsibility is an ethical theory in which individuals are accountable

for fulfilling their civic duty, and the actions of an individual must benefit the
whole of society. In this way, there must be a balance between economic
growth, the welfare of people, and the environment, responsibility is
accomplished.

 Sources of Ethics

The various sources from where ethical values have been evolved.

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The main sources are

 Religion
 Genetic inheritance Culture
 Society
 Marketplace
 Legal Systems
 Nature

Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of
companies and at all levels within the company.

1. Ethics in Compliance: Compliance is about obeying and adhering to

rules and authority. A compliance and ethics program can help ensure
that an organization operates within the law and stays true to its own
ethical principles that are important to the company's business and
identity.
2. Ethics in Finance: Ethics in Finance talks about financial
behavior or activities that are ethically right or wrong. The ethics
in finance incorporate truthfulness, integrity, honesty, justice, and
fairness in all sorts of financial activities. Financial ethics or business
ethics are actually subsets of general ethics. It is crucial for
maintaining harmony and stability in financial services where people
interact with one another and do any sort of financial or
monetary transactions. The ethical issues in finance that companies
and employees are confronted with include:-
 In accounting window dressing, misleading financial analysis.
 Insider trading, securities fraud leading to manipulation of the financial
markets.
 Executive compensation.
 Bribery, kickbacks, over billing of expenses, facilitation payments.
 Fake reimbursement
3. Ethics in Human Resources: Paying attention to business ethics is
an important part of any business owner or manager's job. The human
resources function deals with a variety of ethical challenges; being
the department that deals directly with people employed by a
company, Human resource management (HRM) plays a decisive role in
introducing and implementing ethics. Ethics should be a pivotal
issue for HR specialists.

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The ethics of human resource management (HRM) covers those

ethical issues arising around the employer-employee relationship,
such as the rights and duties owed between employer and employee.
The issues of ethics faced by HRM include;-
 Discrimination issues i.e. discrimination on the bases of age,
gender, race, religion, disabilities, weight etc.
 Sexual harassment.
 Affirmative Action.
 Issues affecting the privacy of the employee: workplace
surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract
and the balance of power between employer and employee.
 Occupational safety and health. Companies tend to shift
economic risks onto the shoulders of their employees. The
boom of performance-related pay systems and flexible
employment contracts are indicators of these newly
established forms of shifting risks.
4. Ethics in Marketing: Marketing ethics is the area of applied ethics
which deals with the moral principles behind the operation and
regulation of marketing. The ethical issues confronted in this area
include:
 Pricing: price fixing, price discrimination, price skimming.
 Anti-competitive practices like manipulation of supply, exclusive
dealing arrangements, tying arrangements etc.
 Misleading advertisements
 Content of advertisements.
 Children and marketing.
 Black markets, grey markets
5. Ethical Production:- Some authors describe ethical products as
products that are concerned with social, environmental, animal
welfare, and fair trade issues throughout their life cycle (Annunziata
et al., 2011)
1.2 Definition of CSR
Corporate social responsibility (CSR) is a strategy undertaken by
companies to not just grow profits, but to take an active and positive
social role in the world around them.
CSR is based on the belief that businesses have a greater duty to
society than just providing jobs and making profits. It asks business

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leaders to consider their decisions' environmental and social impacts in

order to reduce harm where possible.
1.3 Corporate Citizenship
Corporate citizenship is how a company aligns its actions to support
positive social, economic, and environmental outcomes for the local
and global community. Corporate citizenship involves the social
responsibility of businesses and the extent to which they meet legal,
ethical, and economic responsibilities, as established by shareholders.

Corporate citizenship refers to a company’s responsibilities toward

society. Corporate citizenship is growing increasingly important as both
individual and institutional investors begin to seek out companies that
have socially responsible orientations such as their environmental,
social, and governance (ESG) practices.

The Development of Corporate Citizenship

 In the elementary stage, a company’s citizenship activities are basic
and undefined because there are scant corporate awareness and little
to no senior management involvement.
 In the engagement stage, companies will often develop policies that
promote the involvement of employees and managers in activities that
exceed rudimentary compliance to basic laws.
 In the innovative stage, Citizenship policies become more
comprehensive in the innovative stage, with increased meetings and
consultations with shareholders and through participation in forums
and other outlets that promote innovative corporate citizenship
policies.
 In the integrated stage, citizenship activities are formalized and
blend in fluidly with the company’s regular operations.
 In the transforming stage:- Once companies reach the transforming
stage, they are deeply aware that corporate citizenship is an integral
part of the company's strategy.
1.4 Social Responsiveness and Performance
In the broadest sense of the term, social responsiveness is a person or
institution's obligation to contribute to the welfare or environment of
their community or society.
Social responsibility is defined as activities that companies voluntarily
conduct for the benefit of society, not for legal purposes. Positive
relationship: Even when controlling for the age of tangible assets, there
is a positive link between companies' social and financial performance.
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Corporate Social Responsibility (CSR) influences the performance of

organizations.
Organizations are not only generate profits or results but the need of
socially responsible and accountable for actions that affect people,
their communities and the environment is equally important.

CHAPTER TWO
Management of stakeholders

2.1 Definition of Stakeholders

A stakeholder is a person, group or organization with a vested interest, or
stake, in the decision-making and activities of a business, organization or
project. Stakeholders can be members of the organization they have a stake
in, or they can have no official affiliation. Stakeholders can have a direct or
indirect influence on the activities or projects of an organization. Their
support is often required for business and project success.

Criteria for identifying stakeholders

 An organization is legally obligated to stakeholders.

 They might be positively or negatively impacted by an organization's
decisions.
 They are likely to express concerns and be involved in the activities of
an organization.

Based on these criteria, stakeholders often include customers, employees,

investors, suppliers, boards of directors, community members and
organizations, and government entities. Stakeholder capitalism is a system
in which an organization prioritizes stakeholders' interests.

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Understanding Stakeholders
 Internal stakeholders are people whose interest in a company
comes through a direct relationship, such as employment, ownership,
or investment.
 External stakeholders do not directly work for or with a company
but are affected by the actions and outcomes of the business.

Here's how each type of stakeholder can influence

business decisions:
1. Shareholders/Investors: Shareholders often have a significant
influence on strategic decisions due to their financial investment and
voting rights.

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2. Customers: Customer preferences, needs, and feedback can also

influence decision-making. These elements are critical in product
development, marketing strategies, and service delivery.
3. Employees: Employees can influence decisions through their
knowledge, expertise, and engagement with the company. On the
management level, leaders should consider employee feedback,
morale, and well-being in decisions related to workforce management,
organizational culture, and employee benefits.
4. Suppliers: Suppliers may influence decisions related to sourcing,
procurement, and supply chain management.
5. Government and Regulatory Bodies: Regulations and policies can
directly impact business decisions, particularly in taxation,
environmental compliance, and industry-specific regulations. These
laws and regulations are non-negotiable, meaning businesses must
ensure compliance with legal requirements, anticipate regulatory
changes, and engage with government stakeholders to influence policy
outcomes.
6. Community and Society: Businesses may consider the interests and
concerns of the local community and broader society in decision-
making, particularly for projects with potential social or environmental
impacts.

2.2 Stakeholders Management

Stakeholder management is defined as the process by which you organize,
monitor, and improve your relationships with your stakeholders. Usually this
involves identifying stakeholders, analyzing their needs and expectations,
and then planning and implementing various tasks to engage with them.
Most definitions of stakeholder management tend to focus around the idea
that you can “manage your stakeholders (in order to get them to do what
you want.

Who Does Stakeholder Management?

Stakeholder management is an important activity for most organizations and

projects. It’s a key part of many job descriptions, including leadership,
communication and project management roles.

But the bigger the project and the higher the stakes, the more critical this
function becomes. You’ll usually find dedicated stakeholder management
teams in energy, resources and mining, not for profit organizations, health,
infrastructure, and government organizations.

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Why Do Stakeholder Management?

Stakeholder management can help you understand how people are impacted
by a project, what influence they have, and what their sentiments and key
concerns or needs are towards it. This can help you identify potential risks
and opportunities ahead of time so that you can manage them and reduce
negative impacts.

Managing your stakeholders can help you:

 Build mutual understanding

 Strengthen relationships
 Get more input and insights
 Reduce risks, remove roadblocks and reduce delays
 Achieve more sustainable outcomes
 Improve your reputation
 Gain a social license to operate
 Fulfill legal obligations

Stakeholder Management Vs. Engagement, Consultation & Other

Terms

The field of stakeholder management is quite broad. You may also come
across some other terms that are used to describe different aspects of or
approaches to stakeholder management, including:-

 Stakeholder engagement – This focuses on building relationships

with stakeholders (which include individuals and organizations)
 Community engagement – This focuses on building stronger
relationships with communities (defined by location, affiliation,
interest or something else)
 Public participation – The goal is to get the public actively
involved in making decisions or finding solutions
 Public consultation – The goal is to get input from the public on
specific issues, at any stage of the project
 Citizen engagement – The focus here is on getting the public
engaged in decisions and activities of government.

Many of these terms are used interchangeably and may have slightly
different meanings in different parts of the world. However, they all fall
within stakeholder management.

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Five Steps to Managing Stakeholders

So, how do you actually do stakeholder management?

The steps you’ll need to follow will depend on the scale and complexity of
what you’re doing. But for most projects, you’ll need to work through the
following stakeholder management process.

1. Stakeholder Identification

Start by brainstorming who your stakeholders are. Prepare a list that

includes any groups or individuals who might be impacted by or have an
impact on the project; or who you have a statutory requirement to consult.

2. Stakeholder Analysis

You might analyze your stakeholders based on:

 Sentiment – How might each stakeholder or group might feel about

the project (positive, negative or neutral)?
 Influence – How much of an influence could each stakeholder or
group have on the project?
 Impact – How much of an impact could the project have on each
stakeholder or group?
 Interest – What is their level of interest in this project or work?
 Concerns – What are their top needs and priorities?
 Expectations – How involved would they expect to be? And what
kind of consultation or engagement process might they expect from
you?

Mapping this information to each stakeholder in your list will help you
identify themes and priority areas to address in your stakeholder
management plan.

3. Stakeholder Management Plan

Following your stakeholder analysis, you can determine what approach you’ll
need to take with each stakeholder or group. This may include:

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 How and when you plan to engage with them

 What you need their input on
 What messages you need to communicate with them

You’ll also need to outline any resources you need, what outcomes you’d like
to see, and how you’ll evaluate your plan’s success.

Use your written plan to guide your team and ensure that any decision-
makers understand the stakeholder management process and how it can
benefit the project.

4. Feedback, Participation & Communication

Now it’s time to put your plan into action, communicating with your
stakeholders and giving them opportunities to provide feedback and
participate.

Good administrative practices are critical here. Keep a history of each

stakeholder interaction (online and in-person) in one place so that you and
your team can build on conversations, strengthen relationships, and engage
with individuals in a more meaningful way.

5. Analyze & Reflect

As you receive input from stakeholders, you’ll need to collate the data and
present recommendations, ensuring that they form a key part of the decision
making process. You’ll also need to keep stakeholders informed about the
project and how their feedback is being used to influence decisions.

Throughout the project, reflect on whether your plan is working and whether
you’re achieving the outcomes you had in mind.

2.3 Implication for CSR

Extensive research proves that CSR and a strong sense of employee purpose
actively contribute to increased employee engagement. That's important
because when a company has engaged employees, they see a 17% increase
in productivity, are 21% more profitable and can have 41% lower
absenteeism.

Embracing CSR increases customer retention and loyalty, increases

employee engagement, improves brand imaging, attracts investment

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opportunities and top talent, and makes a difference for bottom-line

financials.

CHAPTER THREE
Theory of Ethics

3.1 Ethical egoism and subjectivism

Rachels (2014) claims that “Ethical Egoism is the doctrine that each person
ought to pursue his or her own self-interest exclusively” (James Rachels,
2014)

And He goes on to explain the moral ideas of ethical egoism by comparing it

to psychological egoism. He says that psychological egoism makes a claim
about human nature, or about the way things are, however, ethical egoism is
about morality, or about the way things should be. (James Rachels, 2014).

Ethical subjectivism: View that an act is morally right or wrong FOR ME if I

believe it is.

Ethical egoism: view that an act is morally right for me if it brings about the
best consequences for me.

Psychological egoism: ethical view that human beings can only act in their
own self-interest.

Ethical egoism contends each person has a duty to act in ways that promote
his or her self-interest above the interests of all others.

When a moral decision must be made, the person should exclusively

consider how the results will benefit him or her.

Ethical subjectivism argues that no ethical theory is objectively true.

Statements contained in those theories, such as the duty to act in one’s self
interest, are only true as long as they are believed by the person holding the
theory.

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CHAPTER FOUR
Ethics of Business:- Management & Leadership

4.1 Statement of Value

The values statement highlights an organization’s core principles and
philosophical ideals. It is used to both inform and guide the decisions and
behaviors of the people inside the organization and signal to external
stakeholders what’s important to the company. An organization’s core
values shape daily culture and establish standards of conduct against which
actions and decisions can be assessed.

A values statement should be memorable, actionable and timeless. The

format of the values statement depends on the organizations; some
organizations use one, two or three words to describe their core values while
others provide a short phrase. A values statement should be memorable,
actionable and timeless.

The format of the values statement depends on the organizations; some

organizations use one, two or three words to describe their core values while
others provide a short phrase.

When drafting a values statement, some questions to consider

include:

 What do we stand for?

 What behaviors do we value over all else?
 How will we conduct our activities to achieve our mission and vision?
 How do we treat members of our own organization and community?

4.2 Code of Conduct and Ethics

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The Company aims to be the industry leader by achieving excellence in

everything it does including standards of business conduct. This objective
shall be achieved by adopting a policy to conduct its business with
responsibility, integrity, fairness, transparency and honesty.

The purpose of this Code of Conduct and Ethics (“Code” or “Code of

Conduct”) is to promote conduct of business ethically in an efficient and
transparent manner and to meet its obligations to shareholders and all other
stakeholders. This Code is also a tool in carrying out the Company’s social
responsibility in a more effective manner. This Code sets out a broad policy
for one’s conduct in dealing with the Company, fellow directors and
employees and the external environment in which the Company operates.

A code of conduct is a set of values, rules, standards, and principles outlining

what employers expect from staff within an organization

Often codes of conduct take big picture ideas tied to the business’s overall
mission and core values and relate them to the behavior and practices they
desire from staff on a day-to-day basis.

Creating a code of conduct is a statement from leadership laying out their

expectations and communicating the ethical principles they feel are most
fundamental to success.

A code of ethics is broader, providing a set of principles that affect employee

mindset and decision-making.

A code of conduct offers principles defining the ethics of a business, but it

also contains specific rules for employee actions and behavior.

Your code of conduct should include information in some form regarding:-

 The values your organization believes in

 Guidelines for behavior Day-to-day business practices
 How employees should interact with outside parties.

Examples of the internal practices a code of conduct could contain

include:

 Dress code
 Annual leave/holiday time
 Break policy
 Onboarding process
 Job duties

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 Training guidelines
 Rules related to time off through illness/injury
 Attendance and punctuality
 Use of phone while at work
 Benefits
 Chain of command
 Legal compliance

Examples of external practices a code of conduct may define,

such as:

 Confidentiality
 Privacy
 Intellectual property policies
 Customer communication requirements
 Conflict of interests.

The code of ethics usually includes the six universal moral values that state
you expect employees to be trustworthy, respectful, responsible, fair, caring
and good citizens. You can also include values such as celebrating
diversity, using green standards in the workplace, or dress codes.

4.2.1 Ethics Training, Audit and Consulting

Ethics Training & Workshops

 Ethics are learnt in the practice.

 In ethics training employees have to understand how ethics impacts on
their roles and responsibilities.

Benefits of Ethics Training

 Improved morale
 Improved performance
 Better engagement with stakeholders
 Better returns on investment
 Encourages employees to speak up early about emerging cultural
challenges
 Reduces fraud and corruption
 protects employees by making the rules clear

Ethical Audit

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 An ethical audit is an investigation into how well, or poorly, a company

or organization conforms to the ethical standards of its' industry or
society in general.

Ethical Consulting

 Ethics consultants are trained to identify, analyze, and help resolve

difficult ethical issues.

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