Business Ethics and Corporate Social Responsibility (MBA 611)

By Semeneh Bessie (PhD)

Associated Prof. Economics

September,2023
 Chapter One
Introductory Concepts: Ethics and the “good life”
Chapter Objective: At the end of this chapter you could be able to:
– Be able to interpret the meaning of ethics, moral and
business ethics and its levels;

– Be able to analyze the meaning of CSR; and

– Define what life is and justify its implication for business

ethics.
 Brainstorming Questions

• What do you think is ethics?

• What does life mean for you?

• What do you understand with corporate

social responsibility?
 What is ethics
• Most writers do not make a clear distinction between ethics and
morality.

• These groups use ethics and morality as equivalent terms.

• Some see morality as something personal but view ethics as having

wider social implications.

• Ethics is the study of right action and wrong action in human decisions.

• Ethics would be morality as applied to any number of subjects,

including journalistic ethics, business ethics, or the ethics of
professionals such as doctors, attorneys, and accountants.
Meaning and Concepts of Ethics
 Originally the term Ethics is derived from Greek terms
‘ethika’, ‘ ethos’ refers to, character, custom, principles or
standards of human conduct.
 These ideals of the ethos demand immediate and unquestionable
obedience because they are respected values of society.
 In fact, ethics is defined as the systematic reflection on what is
moral.
 In this definition, morality is the whole of opinions, decisions and
actions with which people express what they think as good or
right.
 This implies that, the field of Ethics or Moral Philosophy
involves systematizing, defending, and recommending
concepts of right and wrong behaviors.
 Meaning and Concepts of Ethics…
 Ethics or moral philosophy asks basic questions about the good life,
about what is better and worse, about whether there is any objective
right and wrong,
 Ethics as a moral philosophy raises various questions including:
 What is good/bad?
 What is right/wrong?
 Is it the Right Principle or the Good End that makes human action/conduct
moral?
 Is an action right because of its good end, or it is good because of its right
principle?
 What is the ultimate foundation of moral principles? The supernatural God?
Human reason? Mutual social contract? Social custom?
 Why we honor and obey moral rules? For the sake of our own individual
benefits? or for the sake of others
 Are moral principles universal, objective, and unconditional, or relative,
subjective and conditional?
 Reflection

• While an intentional murdering is immoral, why

lawyer/ attorney defends for the killer?
 Morality vs ethics: example

• A lawyer's morals may tell her that murder is

Guilty and that murderers should be punished,

• But her ethics as a professional lawyer, require

her to defend her client to the best of her
abilities, even if she knows that the
client/killer is guilty.
 Ethics and Morality…
• Ethics are a formal system of beliefs that guide our behavior, while morality
is more personal and can vary from individual to individual.

• Ethics are usually based on logical reasoning and a shared set of values,
while morality is often based on gut instinct or religious beliefs.

• Ethics focuses on the decision-making process for determining right and

wrong, which sometimes is a matter of weighing the pros and cons or the
competing values and interest.

• Morality is a code of behavior usually based on religious tenets, which

often inform our ethical decisions.

• Moral development focuses on the emergence, change, and understanding

of morality from infancy through adulthood.
 Ethics…
Examples Ethics and Moral
• Morals can include things such as not lying,
being generous, being patient, and being loyal.

• Ethics can include the ideals of honesty,

integrity, respect, and loyalty.
 What does it mean business and society?

• Business- the collection of private, commercially

oriented (profit-oriented) organizations, ranging
in size from sole proprietorships to corporate
giants (such as Coca-Cola, Dell Inc.).

• Society may be defined as a community, a

nation, or a broad grouping of people having
common traditions, values, institutions, and
collective activities and interests.
• think of society as being composed of numerous
 What is business ethics
• It is concerned with good and bad or right and wrong behavior
and practices within a business context.

• A good example business ethics among Somali community in

Ethiopia.
• Business ethics refers to the standards for morally right and
wrong conduct in business.
• Business ethics is also defined as “the rules, principles, and
standards of deciding what is morally right or wrong when
working.”
• So, business ethics refers to the implementation of appropriate
business practices and policies in the workplace.
• The term business ethics refers to a set of morals standards and
practices that guides business organizations based on principles
 Operational Levels of Business Ethics
• Individual Level
• We all experience ethical challenges at the individual or personal
level.
– These include situations we face in our personal lives that are generally
outside the work context.
• Examples
– Should I tell the cashier that he gave me change for a $50 bill when I
gave him a $10 bill?
– Should I notify my bank that it credited someone else's $100 to my
checking account?
– Should I cheat on my income tax return by inflating my charitable
contributions?
– Should I return the extra merchandise that a store accidentally sent me?
– Should I ask commission during quotation collection.
 Operational…
• Organizational Level
– People also confront ethical issues at the organizational level in their roles as
managers or employees.
– these issues may carry consequences for the company's reputation and success
in the community.
• Examples
– Should I overlook the wrongdoings of my peers and direct reports in the interest
of company harmony?
– Should I make this product safer than required by law, because I know the legal
standard is grossly inadequate?
• Industry Level
– An organization or manager also might influence business ethics at the industry
level.
– The industry might be insurance, stock brokerage, manufactured homes, real
estate, automobiles, or a host of others.
• Example
– Is this practice that we stockbrokers have been using for years with prospective
clients really fair and in their best interests?
– Is this standard contract we condominium sellers have adopted really in keeping
 Principles of Business Ethics

There are seven principles of business ethics:

• Accountability
• Care and respect
• Honesty
• Healthy competition
• Loyalty
• Transparency
• Respect for the rule of law.
 Examples of business ethics:

• Diversity in the workplace

• Prioritizing customer needs

• Customer data protection

• Community empowerment
 The importance of business
• Ethics is apparent in business operations because
business ethics guide an organization in these
operations and keep them in line with laws and
regulations.

• This guidance helps the business maintain a positive

public image and reputation of respectability.
 What is corporate social responsibility (CSR)?
• The r/ship b/n a corporation and the local society in which it
resides or operates.
• EU commission (2002) defines it as
– a concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis
• CSR simply refers to
– strategies corporations or firms conduct their business in a way that is
ethical and society friendly.
– CSR can involve a range of activities such as working in partnership with
local communities, socially sensitive investment, developing
relationships with employees, customers and their families, and involving
in activities for environmental conservation and sustainability.
• CSR is also called corporate responsibility, corporate citizenship,
responsible business and corporate social opportunity.
 What is a life?
How its definition is linked to ethics?
• Life in a category along with
– experiences,
– actions,
– memories, dreams, stories, and the like.
• Life is a web of experiences,
– thoughts, plans,
– actions, memories, anticipations,
– social relationships,
– projects, presuppositions, assumptions,
– and the like, all tied together and governed by a self-concept that embraces
a normative constitution that is grounded in one’s nature as a human
knower-agent, plus an individually authored life plan.
• The whole complex is grounded in and energized by a particular
human body.
 Life …
• We would generate a humanistic civilization in contrast with
our modern materialistic culture that has been generated by
our preoccupation with the acquisition of wealth, power, and
possessions.
• If one’s life loses its meaning, all the acts and project that are
part of it lose their meaning and one suffers what Leo Tolstoy
called a “life arrest”.
• History- a wonderful lady who had a good life. When her life
was disrupted by the sudden death of her husband, she lost all
interest in things.
– The primary mission of religion is to affirm and to cultivate a
sense of the meaningfulness of life, especially in the face of
situations that threaten it, such as death.
 A Life …

• human beings are dependent not only on an ecological

environment but also on a socio/cultural environment.

– “I have heard it argued that persons are those recognized as

persons in a community” Adams.

– Adams disagree with that as a definition, for it would follow

that if a society had a class of human beings not recognized as
persons they would not be persons with all the rights and
privileges.
• Persons have to be recognized as persons in a community
in order to be persons, for one has to have a concept of
oneself as a person in order to be and to act as a person.
 What is the good life?
• People have different ideas of what constitutes
the good life.
• Different philosophers have different views
– read more about these philosophers.
• The way we define life has an implication on
our business ethics.
– A person who defines good life interms of having
much money has higher liklihood of comiting
unethical business.
 Good life…
• Possible ingredients of a good life
• Keeping healthy
• Enjoying bodily pleasures like food and drink
• Making money and gathering possessions
• Being good to yourself
• Helping others
• Personnel freedom
• Forming good relationships with others
• Being part of a community
• Appreciating beauty and wonder
• Using and developing your talents
• Contributing to human knowledge about human beings and the world
• Working to create and build things that will benefit humankind
• Taking care of the natural world and other living things
• Following god’s will or religious texts.
 Good life…
• Some mention- An increase in personal freedom and gross domestic product (GDP).

• However-Money does not always buy happiness.

 Chapter Two
Theories of moral development and ethics

Objective
• At the end of this chapter you could be able to
understand:
– Theories of Moral Development

– Theories of ethics
 Moral identity and its development

• Moral identity is the degree to which being a moral

person is important to a person's identity.

• Moral development is the process throught which

persons*children* develop proper attitudes and
behaviors toward other people in society, based on
social and cultural norms, rules, and laws.
 2.1 Theories of Moral Development

• Kohlberg’s Theory of Moral Development

• Gilligan’s Theory of Women’s Moral

Development, and

• Rest’s Neo-Kohlbergian Approach

 Kohlberg ’s Theory of Moral Development

• Dominant theory for over forty years.

• Lawrence Kohlberg's theory of moral development is a theory that

focuses on how children develop from infancy to adulthood morality
and moral reasoning.

• His theory, based on both psychology (Jean piaget) and moral

philosophy (Rawls), is cognitive-developmental in nature.

• Cognitive development means how children think, explore and figure

things out. It is the development of knowledge, skills, problem solving
and dispositions, which help children to think about and understand
the world around them.

• The empirical tie between moral and cognitive development is strong

(Pascarella Terenzini, 2005);
 Kohlberg...

• Kohlberg was one of the first to study the

moral development of adolescents and, later,
college students.

• He examined the moral reasoning of

adolescent boys.
• He found the boys reasoning proceeded
through invariant and qualitatively different
stages.
 Kohlberg...
• Three criteria frame Kohlberg ’s stage theory (Walker,
1988).
– The structure criterion is the most fundamental of the three
characteristics.
• At a given stage, individuals exhibit a similar reasoning pattern
regardless of the content or situation.
– The sequence criterion indicates that stages appear in a
specific order, regardless of setting or experience (stages fixed).
• not all will move through the stages at the same rate.
• The final stage characteristic is the hierarchy criterion .
– It states that each successive stage is more highly developed
than the previous one because it incorporates aspects of all
earlier stages.
 Kohlberg...
Kohlberg ’s Stages of Moral Reasoning
• Moral reasoning develops through a six-stage sequence grouped into
three levels (Kohlberg, 1976)
• At level 1 (preconventional), individuals have not yet come to understand
societal rules and expectations;
– their perspective is actual and individually focused.

• Level 2 (conventional) is called the “ member - of - society ” perspective:

– individuals identify with the rules and expectations of others, especially
authorities.

• Level 3 (postconventional or principled) is labeled the “prior -to -society

” perspective.
– Individuals separate themselves from the rules and expectations of others and
base their decisions on self -chosen principles.
• Each level of Kohlberg ’ s theory has two stages, defined as follows.
 Kohlberg...
• Stage 1: Avoiding punishment (Heteronomous
Morality).
– In the first stage of the preconventional level, what is
right is defined as obeying rules to avoid punishment
and refraining from physical harm to others and their
property.
– Individuals justify actions based on avoidance of
punishment and the superior power of authorities.
– They do not consider the rights or concerns of others.
• Eg Mr X believes that as long as he is not caught making a
deceptive video, he can move forward with a free integrity.
 Kohlberg...
• Stage 2: Self Interest Morality. Individualistic,
Instrumental Morality.
– Individuals at the second stage in the preconvention
level follow rules if it is in their interest to do so.
– They understand that other people have needs and
interests that may conflict with their own, so right is
defined by what is fair, an equal exchange, or an
agreement.
– Ensuring satisfaction of their own needs and wants,
while minimizing the possibility of negative
consequences to themselves.
 Kohlberg...
Stage 3: Good Boy or A nice Girl Attitude (Interpersonally Normative Morality).
• Good boy-good girl is stage of moral development that focused on living up
to social expectations and roles.

• Conventional morality is a stage of morality in which: children make

decisions to please others.

• Moral behavior of child during this stage is 'gaining acceptance and avoiding
criticism by others'.

• Finds peer approval very important.

• Stage 4: Law and Order Morality. Social System Morality .

– Individuals behave in a way that maintains the system and fulfills societal
obligations.
 Kohlberg...
• Stage 5: Social Contract (Human Rights and Social Welfare Morality).
– laws and social systems are evaluated based on the extent to which they
promote fundamental human rights and values.

– The social system is understood as a freely entered social contract to

protect members ’ rights and ensure the welfare of all.

• Stage 6: The Principle Morality (Morality of Universal, Reversible,

and Prescriptive General Ethical Principles).

– Principled stage morality involves equal consideration of the points of

view of all involved in a moral situation.

– Decisions are based on universal generalizable principles that apply in all

situations, for example, the equality of human rights.
Kohlberg...
 Gilligan ’s Theory of Women ’s Moral Development

• Prior to the popular and scholarly success of Gilligan’s In

a Different Voice (1982/1993), human development
theorists for the most part did not see women as a group
worthy of psychological study.

• Freud’s (1905/1965) research had begun a snowball

“portrayal of women as deviants ” (Kuk, 1992, p. 26)
and set men as the standard by which to judge what was
normal.
• Findings about the moral development of women and
disputed the previous models of human growth that did
not fit women ’s experience.
 Gilligan ’s Theory…
• Gilligan (1977, 1982/1993) proposed that women
come to prioritize an "ethics of care" as their sense
of morality evolves along with their sense of
self while men prioritize an "ethics of justice.“.
• Gilligan's theory primary focus came to be moral
development in girls.
• She proposed that women’s moral development
proceeds through a sequence of three levels and
two transition periods, with each level identifying a
more complex relationship between self and others.
Gilligans’s three stages of moral development

• Selfish morality,

• Social or conventional morality,

• Post conventional or principled morality.

Gilligan Three levels/stages of Moral care Development
• Level 1: Orientation to Individual Survival . The individual is self -
centered, preoccupied with survival, and unable to distinguish
between necessity and desire.
– The goal at this level is to fulfill individual desires and needs for the
purpose of preserving the self.
– First Transition: From Selfishness to Responsibility
• The criterion used for judging moral dilemmas shifts from Independence and
selfishness to connection and responsibility.

• Level 2: Goodness as Self -Sacrifice . As the individual moves from a

self – centered, independent view of the world to one of richer
engagement with and reliance on others, survival becomes social
acceptance.
– Seeking the paradox of self-definition and care for others, individuals at
this level reflect conventional feminine values.
– In fact, an individual may give up her own judgment in order to achieve
consensus and remain in connection with others.
 Gilligan...
• Second Transition: From Goodness to Truth. Individuals question
why they continue to put others first at their own expense in the
second transition.
– During this time of doubt, individuals examine their own needs to
determine if they can be included within the realm of responsibility.
– However, the struggle “ to reconcile the disparity between hurt and
care ” continues.
– At this time, individuals make moral judgment shifts from deciding in
accordance with those around them to deciding by inclusion of their
own needs on a par/balance with others.
– For the first time, the individual views examination of her needs as
truth, not selfishness.
– As with the first transition, the second one is linked to self concept.
– Taking responsibility or decisions comes as a result of being honest with
herself.
 Gilligan...
• Level 3: The Morality of Nonviolence .
– The individual raises nonviolence, a moral mandate to
avoid hurt, to the overriding principle that governs moral
judgment and action.

– She is elevated to the principle of care by a “

transformed understanding of self and a corresponding
redefinition of morality ” (Gilligan, 1977).

– Through this second transformation, which now includes

respect for the self, the dichotomization of selfishness
and responsibility disappears.
 Rest’s Neo-Kohlbergian Approach

• Rest’s work mainly builds off of Kohlberg’s, similar to Gilligan, but takes
a different position.

• Rest viewed moral development as more fluid and more broadly than
Kohlberg did (Evans, 2010).

• Where Kohlberg and Gilligan have set stages to move through and build
on each other, Rest felt that the stages of moral development were
more fluid, that one may use more than one stage at a time and may
even show forward movement in more than one stage at a time.

• Like Kohlberg, it is assumed that Rest mainly studied white men, again
limiting the range of applicability of these moral development theories.
 Rest...

• Overall, Rest contributed to our understanding of moral

development by asserting that individuals do not necessarily
develop in neat and tidy stages, but rather can make progress
in multiple areas at the same time.

• Rest also looked more closely at how society affects and is

involved in an individual’s moral development, whereas
Kohlberg and Gilligan focused more on the individual.

• Lastly, Rest is known for being one of the first to create an

objective measure of moral development, called the Defining
Issues Test (DIT).
Rest...
 Reflection Question
• Which stage of Kohlberg moral development is
convenient for running a healthy and ethical
business in Ethiopia Why?

• Do you think that there is a difference in morality

between women and men in business environment,
justify it?
 Part II
Theories of Ethics

• At the end of this secession, students could be

able to understand the major theories of
ethics.
Philosophers today usually divide ethical theories
into the following general subject areas:
• Meta-ethics theory

• Normative ethics theory

• Descriptive Ethics theory; and

• Applied ethics
 Meta ethics Theory
• Metaethics is a branch of analytic philosophy that explores the
status, foundations, and scope of moral values, properties, and
words.
• It investigates where our ethical principles come from, and
what they mean.
It will answer questions like :-
• Are they merely social inventions?
• Do they involve more than expressions of our individual
emotions?
• Meta-ethical answers to these questions focus on the issues of
universal truths, the will of God, the nature of creation , the
role of reason in ethical judgments, and the meaning of ethical
terms themselves.
E.g “Christian/muslims belief that God/Alah created human
being”.
 Normative Ethics Theory
• Normative ethics, that branch of moral
philosophy, or ethics, concerned with criteria of
what is morally right and wrong.

• Normative ethics is the study of how we ought

to act, morally speaking. It deals with questions
about what is right and wrong, good and bad.

• Normative ethics is also sometimes called

moral philosophy.
 Normative Ethics…
 Normative ethics takes on a more practical
task, which is to arrive at moral standards that
regulate right and wrong conduct.
 There are three main types of normative
ethical theories:
1. Virtue Ethics,
2. Consequentialism,
3. Deontology or “Duty” Theories
 Descriptive ethics

• In descriptive ethics, we consider the actual

conduct of individuals—or personal
morality— and of groups—or social
morality.
e.g “In Christian Ethiopian morality; Abortion
–killing the embryonic child in the name of
saving the life of the mother is a sin”.
 Applied Ethics

• Applied ethics involves examining specific

controversial issues, such as abortion, animal rights,
environmental concerns, homosexuality, or nuclear
war.
– e.g “Shall abortion be legitimate enough or not by
Ethiopian constitution”.
 Generally speaking, two features are necessary for
an issue to be considered an “applied ethical issue.”
– First, the issue needs to be controversial in the sense that there are
significant groups of people both for and against the issue at hand.
– The second requirement for an issue to be an applied ethical issue is that
it must be a clearly moral issue.
 Further Theories
 Consequentialism has three forms.
1. Universal hedonism- utilitarianism
2. Classical hedonism,
3. Egoism,
• Other theories:
(2) deontology,
(3) social justice and social contract theory
(4) virtue theory.
(5) Divine Command Theory
• Throughout history, people have pondered what it means “to
do what is right.”
• Some of the main answers have come from the differing
perspectives of utilitarian thought; duty-based, or
deontological, thought; social contract theory; and virtue
ethics.
 1. Utilitarianism
• States “right” moral act is the one that produces the greatest good for
society.
• The central concern of utilitarianism is to ask something like "what should I
do to bring about the most happiness to the most people?"

• An action (or set of actions) is generally deemed good or right if it

maximizes happiness or pleasure throughout society.

• Is well aligned with economics and the free-market outlook & come to
dominate much current thinking about business, management, and
economics.

• Jeremy Bentham is often considered the founder, though John Stuart Mill
and others promoted it as a guide to what is good.

• Utilitarianism emphasizes not rules but results.

 Utilitarianism…
• Utilitarian outlook may also practiced individually & by corporations.

• Bentham believed that the most promising way to obtain agreement

on the best policies for a society would be to look at the various
policies a legislature could pass and compare the good and bad
consequences of each.

• The right course of action from an ethical point of view would be to

choose the policy that would produce the greatest utility, or
usefulness.

• Generally, an action is right if the sum of utilities produced by that

action is greater than the sum of utilities from any other possible act.
 Utilitarianism…
• Some frequent mistakes that people make in applying
utilitarian principles:
– subjectively run own interests. : Failing to come up with lots of
options that seem reasonable and then choosing the one that
has the greatest benefit.
– Assuming that the greatest good for you or your company is in
fact the greatest good for
– Underestimating the cost or harm of a certain decision to
someone else or some other group of people.
– Favoring short-term benefits, even though the long-term costs
are greater.
– Assuming that all values can be reduced to money. Eg.
comparing the risks to human health or safety against, say, the
risks of job or profit.
 Consequentialism

• Consequentialism is an ethical theory

that judges whether or not something is right
by what its consequences are.

• For instance, most people would agree that

lying is wrong. But if telling a lie would help
save a person's life, consequentialism says it's
the right thing to do.
 Hedonism

• Hedonism is derived from the Greek word

‘integral’ meaning 'pleasure.'
• Hedonism states that all and only pleasure is
intrinsically valuable and all and only pain is
intrinsically not valuable.
• Hedonism is ethical doctrine that pleasure is
the highest goal, and production of pleasure is
the criterion of right.
• It views pleasure as the ultimate goal.
 Egoism
• Egoism comes from the Greek word ego "I" and is
therefore, literally "I-ism”.

• Consequently, egoistic hedonism is the doctrine that

the pursuit and production of one's own pleasure is
the highest good and criterion of right action.

• It is the doctrine that each individual should pursue

primarily his or her own pleasure.
 2. Rules and Duty: Deontology- Immanuel Kant

• In contrast to the utilitarian and consequentialism perspective,

the deontological view purports that having a moral intent and
right rules is a better path to ethical conduct than achieving the
right results.

• Believe that ethical action arises from doing one’s duty and that
duties are defined by rational thought.

• Duties are not specific to particular kinds of human beings but

are owed universally to all human beings.

• Kant therefore uses “universalizing“ as a form of rational thought

that assumes the inherent equality of all human beings.
 Deontology….
• It considers all humans as equal, not in the physical,
social, or economic sense, but equal on the face of God,
whether they are male, female, Pygmy, Eskimoan,
Islamic, Christian, poor, rich, healthy, beauty, sick, young,
or old.

• For Kantian thinkers, this basic principle of equality

means that we should be able to universalize any
particular law or action to determine whether it is
ethical.
– a course of action that would be good for all persons at all
times: consistency and reversibility.
3. Social Justice Theory and Social Contract Theory
• Social Justice Theory
• Theory of Justice was introduced by John Rawls in (197).
• Focuses on the concept of fairness in relations between
individuals in society and equal access to wealth,
opportunities, and social privileges in a society.
• Social justice theorists worry about “distributive justice”—that
is, what is the fair way to distribute goods among a group of
people?
– Marxist thought emphasizes that members of society should be
given goods to according to their needs.
– But this redistribution would require a governing power to decide
who gets what and when.
 Public Goods Theory

• Public Goods- goods that are useful to society

(parks, education, national defense, highways)
that ordinarily not be produced by private
enterprise.
• Public goods require public revenues (taxes)
and political support to be adequately
maintained.
 Social Contract Theory
• Thomas Hobbes
– people in a “state of nature” rationally choose to have govt.
– He called this the social contract, where people give up certain
rights to govt in exchange for security and common benefits.
• Some commentators also see a kind of social contract
between corporations and society;
– the corporation has some corresponding duties toward society.
• Thomas Donaldson and Thomas Dunfee,
– observe that various communities, not just nations, make rules
for the common good.
• Your college or school is a community, and there are communities
within the school (the sports teams, the faculty, the students etc)
 Social Contract…

• Integrate rules of smaller communities along with the larger social

contracts made in states.
– eg- Colorado or California) and nation-states (such as USA). The
Constitution can be seen as a fundamental social contract.

• a social contract can be changed by the participants in a

community, just as the US Constitution can be amended.

• Social contract theory is thus dynamic—it allows for structural and

organic changes.

• Another important movement in ethics and society is the

communitarian outlook.
– Communitarians emphasize that rights carry with them corresponding
duties; i.e., there cannot be a right without a duty.
 4. Aristotle and Virtue Theory
Quality of being morally good
• Aristotle is often recognized as the first philosopher to advocate the ethical value of certain
qualities, or virtues, in a person’s character.

• Virtue theory/virtue ethics, has received increasing attention over the past 20 years, in
contrast to utilitarian and deontological.

• Virtue is defined as the quality of being morally good.

• Virtuous means doing the right thing at the right time, in the right way, in the right
amount, toward the right people.

• Virtue ethics is an approach to ethics that treats virtue as central.

• Virtue theory emphasizes the value of virtuous qualities rather than formal rules or useful
results.

• Aristotle saw the goal of human existence as the active, rational search for excellence,
– and excellence requires the personal virtues of honesty, truthfulness, courage, temperance,
generosity, and high-mindedness.
 Virtue…
• Aristotle believed that all activity was aimed at some goal; there
must be some ranking that we do among those goals or goods.

– Aristotle rejected wealth, pleasure, and fame and embraced reason as

the distinguishing feature of humans, as opposed to other species.
– And since a human is a reasoning animal, happiness must be
associated with reason.

• Thus happiness is living according to the active (rather than

passive) use of reason.

• The use of reason leads to excellence, and so happiness can be

defined as the active, rational pursuit of personal excellence, or
virtue.
 Virtue…
• Aristotle named fourteen virtues: Examples of virtue.
– (1) courage, particularly in battle;
– (2) temperance, or moderation in eating and drinking;
– (3) liberality, or spending money well;
– (4) magnificence, or living well;
– (5) pride, or taking pleasure in accomplishments and stature;
– (6) high-mindedness, or concern with the noble rather than the petty;
– (7) unnamed virtue, which is halfway between ambition and total lack of
effort;
– (8) gentleness, or concern for others;
– (9) truthfulness;
– (10) wit, or pleasure in group discussions;
– (11) friendliness, or pleasure in personal conduct;
– (12) modesty, or pleasure in personal conduct;
– (13) righteous indignation, or getting angry at the right things and in the right
amounts; and
– (14) justice.
 Virtue…
• From a modern perspective, some of these virtues
seem old-fashioned or even odd.

• Whether corporations can “have” virtues or values is

a matter of lively debate.

• A corporation is obviously not the same as an

individual.
• But there seems to be growing agreement that
organizations do differ in their practices and that
these practices are value driven (London: Routledge,
2010).
 Virtue…
• Josephson’s Core Values Analysis and Decision Process, a noted
American ethicist,
– believes that a current set of core values has been identified and that the
values can be meaningfully applied to a variety of personal and corporate
decisions.
– To simplify, there are ethical and nonethical qualities among people in the US.
• When you ask people what kinds of qualities they admire in others or in themselves,
they may say wealth, power, fitness, sense of humor, good looks, intelligence, musical
ability, or some other quality.
• They may also value honesty, caring, fairness, courage, perseverance, diligence,
trustworthiness, or integrity.
– unlike the qualities on the first list- they are commonly seen as moral or ethical
qualities
– Just because Harold is rich, brilliance or good-looking or has a good sense of
humor does not mean that he is ethical.

– But if Harold is honest and caring (whether he is rich or poor, humorous or

humorless), people are likely to see him as ethical.
 Virtue…
• Studies from the Josephson institute of Ethics in Marina del Rey,
California, have identified six core values in American society, values that
almost everyone agrees are important to them.
– (1) trustworthiness,
– (2) respect,
– (3) responsibility,
– (4) fairness,
– (5) caring, and
– (6)citizenship.
• While many of us may value wealth, good looks, and intelligence, having
wealth, good looks, and intelligence does not automatically make us
virtuous in our character and habits.

• But being more trustworthy (by being honest and by keeping promises)
does make us more virtuous, as does staying true to the other five core
values.
 Virtue…
• Often we remember the last bad thing a person did far more than
any or all previous good acts.
– For eg., Eliot Spitzer and Bill Clinton are more readily
remembered by people for their last, worst acts than for any
good they accomplished as public servants.

• As for a company, its good reputation also has an incalculable

value that when lost takes a great deal of time and work to
recover.

• Shell, Nike, and other companies have discovered that there is a

market for morality, however difficult to measure, and that not
paying attention to business ethics often comes at a serious price.
 5. Divine Command Theory
• Good actions: those aligned with Gods will.
• Bad actions: those contrary to Gods will
• Holy books reveal Gods will.
• Use holy books as moral decision-making guides.
• Pros:
– We owe obedience to our Creator.
– God is all-good and all-knowing.
– God is the ultimate authority.
• Cons:
– Different holy books disagree
– Society is multicultural, secular
– Some moral problems not addressed in scripture/bible text
 Chapter Three
The economic, legal and ethical dimensions of business ethics and corporate social
responsibility

Learning objectives
After studying this chapter, you should be able to:

• Identify and explain the various dimensions of corporate

social responsibility

• Understand the basic ways of business giving/ Philanthropy

• Understand the principles of social responsibility

• Understand the theories of social responsibility

 Milton Friedman Stockholder Theory

• States that the only social responsibility of businesses is to

make a profit, nothing more or less.

• Managers of firms should, thus, be concerned with and work

for only maximizing shareholder value.
 Edward Freeman CSR Theory
• Business has responsibilities to society beyond its obligations
to its owners.
• Asserts that as businesses’ operations impact many
stakeholders other than its stockholders.

• They have responsibilities towards all stakeholders, including

their owners, employees, the environment, local communities,
suppliers and financiers are some of the stakeholders.

• The idea of the “triple bottom line” that denotes businesses’

responsibility to their Economic, Social and the environmental
is based mainly on this theory.
 3.1 Dimensions and Challenges of Social Responsibility
• Social responsibility is the assumed obligation of business to
society.
• Being socially responsible means to maximize the positive effects
and minimize the negative effects on society (customers,
owners, employees, community, suppliers, and government).

• Archie Carroll (1979) created a four dimensional model to help

define corporate social responsibility.
– Legal,
– Ethical,
– Economic, and
– Philanthropic.
Carroll's CSR pyramid.
 Economic Dimension…
• Carroll-The Pyramid of CSR emphasize that
economic aims are indeed a major part of CSR.
• Economic responsibility demands businesses to
make a profit to survive in the market.
• Economic dimension of CSR refers to how resources
for the production of goods and services are
distributed within the social system.
– By producing goods and services and meeting the needs
of society they will also be able to make a profit.
– Milton Friedman said that “the basic mission of any
business is to produce, with profit, goods and services,
making the business to achieve its maximum
contribution to society.
 Legal Dimension…

– Legal obligation refers to do their duties as required by laws, such as complying

with environmental standards and paying taxes.

– Legal dimension of CSR relates to compliance with laws and regulations

established by the authorities, which set standards for responsible behavior.

– In order to stay in business and to have a high performance companies are

expected to abide to the laws and regulations.

– Legal regulation of businesses leadership are made because the society, including
consumers, interest groups, competitors and legislators, cannot be confident that
businesses do what is right in a particular field, such as consumer or environment
protection.

– Many ethical and economic issues go to court or legislative debates.

 Dimension..
• In other words, the laws set rules for responsible
businesses activities. They can be divided into laws
that regulate.
– competition,

– consumer protection laws,

– environmental laws; and

– laws that promote safety and fairness etc.

 Ethical Dimension…
• Ethical responsibilities are what businesses are
ethically expected to do even though they are not
legally required to do as such.
• Ethical CSR refers to behaviors and activities that are
permitted or prohibited by organization members,
community, society, even if they are not codified by
law.
– The ethical component – companies should conduct their
business ethically and follow society’s moral rules.
– They can go beyond the minimum legal requirements and
simply want to conduct businesses ethically and morally.
 Philanthropic Dimension…
– Lastly companies should be benevolent/kind and philanthropic
in nature – doing good causes, serving and helping communities
and the society, etc.
– It is at their own discretion and completely voluntary for
companies to contribute and engage in social activities.
• In philanthropic business, a corporation aims, goals
improving society as a whole.
• One huge aspect of corporate philanthropy is donating
money from company earnings to worthy causes within
the local community-often in the form of a trust or
foundation. The Social Impact Show.
• Philanthropic obligations are those that companies carry
out because of their self-sacrifice.
 Dimension…
• On the other hand, Schwartz and Carroll (2003) built CSR as
actually being composed of three domains.
• Economic,
• Ethical and
• Legal.
– They overlap with each other and can best be represented as
Figure below.

– Schwartz and Carroll argued that the best business strategy is

to focus on the part of the diagram where all three domains
overlap.
Dimension…
 Dimension…
• CSR has also been described as a tool to build good corporate
reputation.
• Lewis (2003) found that public perception on the role of
companies’ in society has changed significantly, across period.

– In late 1970s, two-to-one of the British public agreed that the profits
generated by large companies make things better for their customers.

• Lewis argued that companies have a new basis to regain public

trust—through exercising their CSR.

• Also (Porter, 2003) when he stated that ‘today’s companies ought

to invest in CSR as part of their business strategy to become more
competitive’.
 Exploring further:
Corporate Philanthropy or Business Giving

• The word philanthropy comes from the Greek

– philien, which means “to love,” and anthropos, which means “mankind.”
• Thus, the dictionary defines philanthropy as “a desire to help
mankind as indicated by acts of charity; love of mankind.”

• It is the desire to promote the welfare of others, expressed

especially by the generous donation of money to good causes.

• One more restricted contemporary usage of the word

“philanthropy” is “business giving.”

• Business philanthropy of one kind or another can be traced back to

the 1920s.
 Philanthropy…
• People value the philanthropy of the business
sector and have positive performance
consequences. For example,

– employees remain with the company longer,

– customers continue to make purchases from the

company, and

– community leaders value the company as a neighbor.

 Philanthropy…

A CALL FOR TRANSPARENCY IN CORPORATE

PHILANTHROPY
• A major debate: to disclose which charities they
support and how much money they give.
– Although companies are required to disclose the money
they give through foundations because of the tax
benefits -tax-exempt status, companies need not
disclose direct donations.

– Proponents of disclosure contend that the money

belongs to the shareholders, and they alone have the
right to determine where it will go.
 Philanthropy…
To Whom Do Companies Give?
• The majority of business giving is distributed among
four major categories of recipients in the following
order of emphasis:
(1) Health and human services,
(2) Education, - universities
(3) Civic and community in support of community improvement
activities, environment and ecology
(4) Culture and the arts.
3.2. Theories of Social Responsibility
• Maximizing profits

• Corporate citizenship

• Moral minimum

• Stakeholder interest
 Theories….
Maximizing Profits
• A theory of social responsibility that says a corporation
are obliged a duty to take actions that maximize profits
for shareholders.

• The interests of other constituencies/communities are

not important in and of themselves.
 Theories….
Moral Minimum
• A theory of social responsibility that says a corporation’s
duty is to make a profit while avoiding harm to others.

• As long as business avoids or corrects the social injury it

causes, it has met its duty of social responsibility.

• The legislative and judicial branches of government have

established laws that enforce the moral minimum of social
responsibility on corporations.
– e.g., Occupational safety laws
– e.g., Consumer protection laws for product safety
 Theories...
Stakeholder Interest
• A theory of social responsibility that says a corporation
must consider the effects its actions have on persons other
than its stakeholders.

• However, CSR also involves balancing the interests and

expectations of various stakeholders, such as shareholders,
customers, employees, suppliers, communities, regulators,
and civil society.

• This theory is criticized because it is difficult to harmonize

the conflicting interests of stakeholders.
 Theories...
Corporate Citizenship
• A theory of responsibility that says a business has a
responsibility to do good.
• Business is responsible for helping to solve social
problems.
• This theory argues that corporations owe a debt to
society to make it a better place. Environmentally
friendly business.
– This duty arises because of the social power bestowed
on corporations.
• A major criticism of this theory is that the duty of a
corporation to “do good” cannot be expanded beyond
certain limits.
 3.3 The basic Principles of CSR

• Sustainability;

• Accountability; and

• Transparency.
 Principles ….
Sustainability
• Sustainability therefore implies that society must use no more
of a resource than can be regenerated.

• Measures of sustainability would consider the rate at which

resources are consumed by the organisation in relation to the
rate at which resources can be regenerated.

• Unsustainable operations can be accommodated for either by

developing sustainable operations or by planning for a future
lacking in resources currently required.
 Principles of CSR ...
Accountability
• The organisation is part of a wider societal network
and
– has responsibilities to all of that network rather than just
to the owners of the organisation.

• Understanding to all parties concerned;

 Principles of CSR…
Transparency
– The external impact of the actions of the organisation can
be ascertained from that organisation’s reporting and
pertinent facts are not disguised within that reporting.

– Transparency is of particular importance to external users

of such information as these users lack the background
details and knowledge available to internal users of such
information.
– Recognition of responsibility on the part of the organisation
for the external effects of its actions and equally part of the
process of transferring power to external stakeholders.
 3.4 Government Laws and Regulation Vs CSR

• CSR requires to ensure that corporate goals don’t harm or

disadvantage anyone or environment.

• Friedman demonstrates that governments themselves

should set the agenda for social responsibility by laws and
regulation.
• Government regulations poses some problems;
– first, regulation in itself is unable to cover every aspect of detail
in a corporation’s process.

– The second issue is the financial burden this places on an

economy if such a corporation contributed significantly to the
nation’s economy.
4.5 Authority of Responsibility: Stakeholder approach

• The Authority of Responsibility: By whom are Corporations held

responsible?

– The Stakeholder (by Freeman), is still offers a helpful empirical to

categorize, sort and analyze multiple interests concerned by an
organization.

• By definition, a stakeholder is “any group or individual who can

affect or is affected by the achievement of the organization’s
objectives.”
• Examples of stakeholders include
– employees, customers, shareholders,
– suppliers & subcontractors, the community in which the company
operates,
– Government and non-governmental organizations (NGOs)
 Stakeholder…

• This shows that companies face various

different stakeholders’ interests.
• Therefore, one can describe CSR as the
challenge of “managing a multiplicity of
interests.”
• The stakeholder concept helps to put the
concept of CSR into concrete terms.
 Stakeholder….
Organizations Need to Satisfy Multiple Stakeholders
 Reflections

• Do you believe that philanthropy dimension of CSR is

in place in Ethiopia? Justify your answer.

• If so, considering the specific organization/firm, share

your experience to your group mates.

• At the end you will be given a minute to reflect your

group discussion
 Chapter Four
Issues in Business Ethics and corporate social responsibility
The role of CSR on economic performance
• Objective
– Understand the link of CSR and economic
performance.
– Understand the employ right and duties:
standards in working conditions and benefits.
– Examine whistle blowing Vs employ loyalty
– Understand production, marketing and advertizing
ethics ( detail will be seen in chapter 6)
– Environmental stewardship (will be seen in
chapter 7)
 CSR in economic performance
• CSR in economic performance have been an increasingly
debated topic in academic research, business practice,
politics and media.

• Especially within the scientific discussion, two contradicting

positions can be distinguished:

– One, there is the argument that resources spent on other than

economic goals are an illegitimate waste of resources, because
they are contradictory to a firm’s responsibility to its shareholders.
– Others argue that CSR can come along with certain benefits that
might outweigh its costs, they see CSR engagement as a necessity
for business.
 Economic…
• Given the importance of this question, a significant
amount of research has been conducted on the empirical
link between a firm’s social and its financial performance.

• In spite of its long-lasting tradition, however, this

empirical research has not conclusively proven the
aspiration that engagement in CSR unconditionally
results in a win–win situation.

• In contrast, results of empirical studies have been very

mixed so far.
 Benefits Engaging in CSR
• Companies that engage in CSR activities can reap a number of
benefits.
• Improved reputation: CSR can help to improve a company's
reputation and make it more attractive to
consumers, investors, and employees.

• Reduced risk: CSR can help to reduce a company's risk by

identifying and mitigating social and environmental risks.

• Increased innovation: CSR can help to increase a company's

innovation by encouraging employees to think outside the box.
• Improved employee engagement: CSR can help to improve
employee engagement by making employees feel more proud of
the company they work for.
 Empirical examples: Determinants of CSP

• Oekom research’s business model=in Germany

• The sample evaluation included 300

corporations from 13 industries and 24
different countries; in 2005 and 2006.

• oekom data were grouped according to

stakeholders and used to construct respective
components.
 Determinates CSR
• Internal factors
• Company size: Larger companies are more likely to
engage in CSR activities, as they have more
resources to do so.
• Company industry: Companies in industries that are
more likely to have a social or environmental
impact, such as oil and gas or mining, are more
likely to engage in CSR activities.
• Company ownership: Companies that are owned by
shareholders who are interested in CSR are more
likely to engage in CSR activities.
 Determinants of CSR

• External factors
• Government regulation: Governments can encourage or discourage CSR
through regulation. For example, a government could require companies
to disclose their CSR activities or to meet certain environmental
standards.
• Investor pressure: Investors are increasingly looking for companies that
engage in CSR activities. This is because investors believe that CSR can
improve a company's financial performance in the long run.
• Consumer pressure: Consumers are also increasingly looking for
companies that engage in CSR activities. This is because consumers are
willing to pay more for products from companies that are socially and
environmentally responsible.
• Other Factors: Company's culture, the company's leadership, and the
company's stakeholders.
• Note: Companies that are considering engaging in CSR activities should
carefully consider all of the factors involved in order to make the best
decision for their company.
Determinants…
 Determinants of CSR

•dimension Staff and

Socio-cultural
Suppliers and envtal
•Society and Community CSR
ratings
•Corporate Governance and =High/low
Business Ethics
•customer-related
responsibility
•Environmental Management
and Eco-efficiency
Determinants
•financial performance
•ownership structure
•risk
•cultural and legal background
•size
 Determinants…
• Staff: The dimension Staff and Suppliers includes
– all social aspects regarding employees of the firm itself and
those of its suppliers.
• The criteria according to which companies are rated
include
– freedom of association,
– safeguarding jobs, payment,
– health and safety,
– equal opportunities,
– work-life balance,
– training and education,
– forced and child labour and measures taken by the firm to
ensure similar standards at suppliers.
 Determinants…
• Soc: Society and Community (soc) refers to the company’s
external relations with those communities that they are operating
in.
– charitable contributions,
– political donations,
– stakeholder dialogue or human rights issues in the community not
regarding the production process itself.
• corpgov : Corporate Governance and Business Ethics comprises
shareholder-related aspects such as
– the independence of the board,
– shareholder democracy and the transparency of compensation schemes.
– moral aspects of management, for example :
• the existence and quality of codes of conducts, measures to ensure fair business
conduct (corruption, price fixing, antitrust).
 Determinants…

• Cust: All social and environmental customer-

related responsibility.
– customer service (transparency and information),
– responsible marketing,
– the involvement of genetically modified food,
– the use of human stem cells,
– product safety and the environmental ‘quality’ of
both the production process as well as the
materials in use.
 Determinants…
• enman : Environmental Management and Eco-efficiency
refers to the general quality of the company’s
environmental management,
– its environmental policy, management systems,
– the monitoring of suppliers and reporting to external
stakeholders.
– eco-efficiency, which concerns the reduction of energy
consumption, polluting emissions, etc.

• The original values of these dimensions (ranging from 1.0

to 4.0), are aggregated scores composed of up to 130
single items that are rated on a 13 points scale.
 Determinants…
• Therefore, original scores were transformed into
dummy variables taking value one if a given firm
performs above the industry mean along single
dimensions, and zero otherwise.

• This way, the dummies indicate low/high performance

per industry, and can be included into OLS regression
analyses.

• To analyse interdependencies, simple correlation

analyses were conducted.
Determinants…
 Model Specification and Hypotheses

• What factors actually determine whether a

given company performs high on a CSP
dimension?

• two broad categories that either concern a

company’s ability or its necessity to address
CSR issues.
 hypothesis…
• NB- the red fonts in the ff discussion are variables codes.
• roe205=The first category mainly refers to a
company’s financial performance.
– a company can only afford if it is financially successful.
– In this view, past financial performance is a necessary
condition for the company’s ability to belonging to the
high or low performing group in CSP.
– measuring financial performance by accounting
numbers such as return on assets (ROA), sales (ROS) or
equity (ROE-measure of profitability).
 hypothesis …
• Lev=some authors suggest that the company’s
ownership structure has an influence on CSP.
– Therefore, the debt-to-equity ratio (lev) is included in
the analysis to control for differences in the capital
structure and their influence on CSP.

• Past CSP is another factor that influences the

company’s current ability to receive high scores
at the oekom ratings.
– past performance should explain a significant part of
current social and environmental performance.
 hypothesis …
• A second category of CSP drivers concerns the
company’s need, rather than its ability, to foster its
relations to various stakeholders.
• Firm visibility for instance can be expected to determine a
company’s likelihood to be targeted by the media and pressure
groups lobbying for labour rights or environmental protection.
• In 2003, sportswear-producer Puma was pressed by a NGO to
help one of its Mexican supplying manufacturers prevent
bankruptcy and ensure the payment of the workers’ full wages
• size: In the following, firm visibility is proxied by a
company’s size (measured by sales)
• However, only a few of these studies revealed significant
relations between firm size and CSP.
 hypothesis …

• risk: Another factor that might determine a company’s

necessity to invest into its CSP is its market risk.
– lower risk leads to higher CSP because reduced risk leaves
more resources to be spent for CSR.

• Finally, the firm’s cultural and legal background can be

assumed to have an influence on the company’s CSP
level.
– The region of the firm is therefore captured by dummy
variables:
• Cont: European companies are the reference group, takes value 1 if
the firm is from the US or Australia
 hypothesis …
• To warrant a differentiated analysis, three models are tested
– The first model uses the overall Corporate Responsibility Rating
(crr) upon which oekom gives its investment recommendations.

• To see whether results change when the environmental and

social components of the over-all grade are separately
analyzed for
– the social-cultural (scr)
– and the environmental rating (er)

• Since these three CSP components are binary dependent

variables (takes value 1 ), one such function is the probit
regression
Multivariate regression
The first model =overall corporate responsibility rating (crr)
Models 2 and 3 use the two sub-categories social-cultural rating
(scr) and environmental rating (er) as the dependent variable,
 Legal aspects and ethics issues in employ rights
and duties
• EMPLOYEE RIGHTS
– Does drug testing violate an employee’s right to privacy?
– Should companies be able to fire employees without cause?
– Is there a right to a safe workplace?
• All of these questions revolve around the notion of
employee rights, one of the most important in business
ethics.
– There has been so much regulation and so many assertions of
rights, recently, that some critics -see as an unwarranted
proliferation of rights.
– Rights are secured either by nature, human laws or societal
conventions, including UN declaration of human rights.
 The Rights of the Employee

Once hired, an employee certainly can claim rights such as:

• The right to a safe and healthy work environment
• The right to job security and due process in firing and promoting
• The right to privacy
• The right to compensation for injury
• The right to participation or voice in matters affecting workers
• The right to equal treatment without regard to race or gender
• The right to pension protection
• The rights to collective bargaining such as those established by the
National Labor Relations Board
• The right to be free from harassment
• The right to a living wage.
• What do you think are the duties?.
• NB- download and read the labor proclamation of Ethiopia.
 Whistle Blowing and Employ Loyalty

• Dictionary meaning: - informant- somebody who

exposes wrongdoing, especially within an
organization.
• Norman Bowie defines whistle blowing as “the act by
an employee of informing the public on the immoral
or illegal behavior of an employer or supervisor.”
– Is it right to report the shady or suspect practices of the
organization one works for?
– Does a person have an obligation to the public that
overrides his obligation to his employer or does he simply
betray a loyalty and become a traitor if he reports his
company?
 Whistle Blowing and Employ Loyalty…

• There are proponents on both sides of the issue––

those who praise whistle-blowers as civic heroes
and those who condemn them as “finks.”

• When a person, often an employee, reveals

information about activity within a private or
public organization that is deemed illegal,
immoral, illicit, unsafe or fraudulent.
 Whistle Blowing…
• Whistle blowing” as an instance of disloyalty.
– Norman Bowie,
– Sisela Bok-ethicist
• In whistle blowing can prevent harm then it is required under certain
conditions.
• Simon, Power and Gunnemann set forth four conditions: need, proximity,
capability, and last resort.
(1) There must be a clear harm to society the can be avoided by whistle
blowing.
- We don’t blow the whistle over everything.
(2) It is the “proximity” of the whistleblower that puts him in the position to
report his company in the first place.
(3) “Capability” means that he needs to have some chance of success.
– No one has an obligation to jeopardize himself to perform pointless gestures.
– the whistleblower needs to have access to the press, be believable, etc.
(4) “Last resort” means just that.
• If there are others more capable of reporting, more proximate and they
 Reflection

What common areas could be whistle-blowerd

in Ethiopian corporates?
 Chapter Five
Business Ethics in Production and Competition
• Chapter objectives
• Understand the ethical issues in various areas of business
management: HR, finance, research, production…

• Understand the theories of Ethical Duties of business

firms;

• Understand the social, economic and ethical concern of

promotion
 Organizational and Managerial Ethics

• Ethical Managerial
– Principles that guide the actions and decisions of
managers, and determine if they are good or bad, or
right or wrong.
• Managers face ethical issues at the
– personal,
– organizational,
– trade/professional,
– societal and global levels.
137
ETHICAL ISSUES IN VARIOUS AREAS OF MANAGEMENT
A. Ethical issues in Finance
1. In accounting – window dressing, misleading financial analysis.

2. Insider trading, securities fraud leading to manipulation of the

financial markets.

4. Bribery, over billing of expenses, facilitation payments.

5. Fake reimbursements.

6. Misappropriation of assets - the use of company assets for any

other purpose than company interests in the practice of the
profession.
 B. Ethical issues in HRM

1. Employment Issues;
2. Issues related to Cash and Incentive Plans;
3. Issues related to Discriminations of the employees;
4. Issues related to Performance Appraisal;
5. Issues related to Privacy;
6. Issues related to Safety and Health;
7. Other issues like using forced labour, child labour,
Longer working hours, Increasing work stress,
Sexual harassment.
 C. Ethical issues in Marketing

1. Issues related to Market research

2. Issues related to Target Customers and
Market
3. Issues related to Pricing
4. Issues related to Advertising and Promotion
5. Issues related to data Collection and Privacy
6. Issues related to Distribution
 D. Ethical issues in Production

1. Ethical problems arising out of use of new

technologies that are harmful to health, safety and
environment. Eg GMO.

2. Animal testing and their rights or use of economically

or socially deprived people for testing or
experimentation is another area of production ethics.

3. Ethics on the environment that lead to pollution, global

warming, increase in water toxicity and diminishing
natural resources.
 E. Ethical issues in Research

1. People should not be coerced or forced into

participating in research.

2. Researchers should not put participants at risk of

harm as a result of their participation.

3. Protect the privacy of research participants.

4. Increasingly, researchers have to deal with the

ethical issue of a person's right to service.
 Reflection

• Have you ever faced Unethical Requests From

your Boss?
– If so, mention
 Most Common Unethical Requests From the Boss

• Supporting Incorrect Viewpoints

• Signing False Documents

• Overlooking Boss’s Wrongdoing

• Doing Business with Boss’s Friend.

.
 Factors Affecting Managerial Ethics
• The Manager as a Person
– Family influences
– Religious values
– Personal standards, and needs
• The Employing Organization
– Policies, codes of conduct
– Behavior of supervisors
– Behavior of peers
• The External Environment
– Government regulations
– Norms and values of society
– Ethical climate of the industry
145
Factors Affecting the Morality of Managers

Society’s Moral Climate

Business’s Moral Climate
Industry’s Moral Climate
Organization’s Moral Climate

Superiors
Superiors

Individual
Individual
One’s
One’sPersonal
Personal Policies
Policies
Situation
Situation

Peers
Peers

146
 
Servant Leadership
Servant leadership focuses on serving others
first, such as employees, customers, and community

Characteristics of Servant Leaders

• Listening
• Empathy- understanding of Bridges
another's feelings Business Ethics
• and
Healing
Leadership
• Persuasion
• Awareness
• Foresight
• Conceptualization
• Commitment to the growth of
people
• Stewardship
• Building community
147
 Ethical management Programs
Board
Boardof
ofDirectors’
Directors’ Ethics
EthicsAudits
Auditsand
and
Oversight
Oversight Risk
RiskAssessments
Assessments
Ethics
EthicsPrograms
Programs
and Officers
and Officers
Effective
Effective
Communication
Communication
Realistic
Realistic Top
Objectives
Top
Objectives Management
Management
Leadership
Leadership Ethics
EthicsTraining
Training
Ethical Moral
Moral
EthicalDecision-
Decision-
Making Processes
Making Processes
Management
Management
Corporate
Corporate
Transparency
Transparency
Codes
Codesof
of
Conduct
Conduct Discipline
Disciplineof
of Whistle-Blowing
Whistle-Blowing
Violators
Violators Mechanisms
Mechanisms
148
 Benefits of Ethical Business Management

1. Legal protection for the company

2. Increased company pride and loyalty
3. Increased consumer / public goodwill
4. Improved loss prevention
5. Reduced bribery and kickbacks
6. Improved product quality
7. Increased productivity

149
 Business Ethics in Operations

• How far the business firms make safe their

product and secure their customers from
injury or harm?

• What are the rights of buyers?

• What are the common ethical duty theories

of business firms? What did they argue?
 Markets and Consumer Protection
• Ethical firms may face challenges as compared with firms
that make unsafe products and sell these products at cheap
prices; when?
– when consumers do not accurately process information about
safety and risk.

• Market ensures that producers respond sufficiently

to consumer’s desires for safety.

• Thousands of injuries are reported per year related to

product safety
• Consumer unions appear- “shemach mahber”
Theories of Ethical Duties of Manufacturers

1. Contract Theory

2. Due Care Theory

3. Social Costs Theory

 1. Contract Theory

• Contract View of Firm’s Duties to Customer:

• the relationship between a business firm and
its customers is essentially a contractual
relationship, and the firm’s moral duties to the
customer are those created by this contractual
relationship.
 Moral Duties to Consumers Under Contractual Theory

1. Complying with the terms of the sales contract (Duty to

comply) and implied claims of:
– Reliability.- the product should function as expected
– Service life-period of life of the product.
– Maintainability- can it be repaired and be in operation
– Safety-degree of risk associated with using the product .
2. Disclosing the nature of the product (Duty of Disclosure).
3. Avoiding misrepresentation (Duty Not to Misrepresent).
4. Avoiding the use of force and unwanted influence (Duty
not to Coerce).
 Moral Duties to Consumers…
• Duty to comply: Example
– Eg. Heran Pharmacy- marketed a painkiller that
it advertised as non-addictive. A patient using
the painkiller became addicted to it and died of
overdose.
– Court found Heran responsible for the patient’s
death because although it had expressly stated
that the drug as non addictive Heran Pharmacy
had failed to respect its duty to comply with this
express contractual claim.
2. The Duty Of Disclosure:
– both parties to the agreement knows what they
are doing and freely choose to do it.
– The seller has a duty to inform the buyer of any
characteristics of the product that could affect the
customer’s decision to purchase the product.
– For Example:-
– if the product the consumer is buying
possesses a fault that causes a risk to the
user’s health or safety, the consumer should
be so informed.
3. The Duty Not To Misrepresent:
– Means giving us true, complete and accurate
answers to our questions, including where you
provide information on someone else's behalf.
– Misrepresentation makes freedom of choice
impossible.
– Misrepresentation is coercive.
– Example: Before you enter into an insurance
contract, you have a duty to not
misrepresent under the Insurance Contracts Act .
– A person who purposely misled, acts as the liar wants
the person to act and not as the person would freely
have chosen to act if the person had known the truth.
4. Duty Not To Coerce:
– Do not force somebody: to make somebody do
something against his or her will by using force or
threats.
– People act irrationally when under the influence of
fear or emotional stress.
– When a seller takes advantage of a buyer’s fear or
emotional stress to get authority to an agreement
that the buyer would not make if the buyer was
thinking rationally, the seller is using pressure or
unwanted influence to coerce.
– Have you ever observed the business ethics in
Mercato retailers?.
 2. Due Care Theory
• Sellers have a duty to due care to prevent others from being
injured by the product.
• In designing product:
– Research its risks in conditions of use.
– Design it so risks are minimized.
– Take capacities of users into account.
• In production:
– Use strict quality control to eliminate defects.
– Ensure materials and manufacturing do not add faults or risk.
• In marketing:
– Provide users with information about using product safely.
– Warn of all dangers.
– Do not market to those unable to avoid risk.
 3. Social Costs Theory

• The third theory of the duties of the manufacturer

extends beyond what the other two theories
impose.

• The view that a manufacturer should pay the costs

of any injuries caused by defects in the product,
even if the manufacturer exercised all due care in
designing, making, and marketing it, and the injury
could not have been foreseen.(expected).
 Reflection

• Can you brainstorm event of boing 737 max with

reference to social costs and due care theories?
• Considering the over all culture of business in
Ethiopia, describe the most common:

– Unethical request of bosses on employees?

– Unethical actions in HRM and finance?

 Chapter six: session II
Ethics in Marketing
- Production
- Distribution
- Pricing
- Promotion /Advertisement
 Marketing Ethics

• that define acceptable conduct in the market place.

• unethical activities usually develop from the pressure

to meet performance objectives.
 Marketing Ethics & Consumer Rights
• The law and regulations are
generally designed to protect the
consumers from unethical
practices by businesses.

• Consumers have certain basic

rights in the market place.
ETHICAL ISSUES IN MARKETING

• Many companies create ethics programs to train

employees to act ethically.

• Employees’ personal values sometimes conflict

with employers’ ethical standards.
ETHICS IN PRODUCT/PACKAGE STRATEGY
• Example: Package strategy.
• Larger packages are more noticeable on the shelf.
• Oddly sized packages make price comparison
difficult.
• Actual versus apparent size
• Example: Product strategy.
• Misleading or inadequate information
• Excessive or environmentally-unfriendly packaging
• Product testing: on animals or insufficient testing to
reveal safety concerns
• Marketing socially controversial products eg can u
correlate donkey abattoir in Bishoftu?
• Marketing unsafe products
ETHICS IN DISTRIBUTION
• Should a company distribute its products in marginally
profitable outlets that have no alternative source of supply?
ETHICS IN PROMOTION
• Truth in advertising is the bedrock of ethics in promotion.
• Marketing to children has come under increased inquiry.
•Marketing beer to college students, including through
providing promotional items such as shirts and hats, raises ethical
questions.
ETHICS IN PRICING
• Most regulated aspect of a firm’s marketing activities.
FOUR AREAS OF PRICING ARE CONSIDERED UNETHICAL AND ILLEGAL:

• Deceptive Pricing: salesperson influence customers

into a store.
– eg, a salesperson tries to influence to buy a higher-
priced item.
• Unfair Pricing: When competitors are driven out by
low prices the company raises price back to their
former level.
 FOUR AREAS OF PRICING ARE CONSIDERED UNETHICAL AND ILLEGAL:

• Price Discrimination: It can be unethical if similar

buyers are charged different prices for the same
based on their ability to pay.
• Price fixing: It is an agreement among firms in an
industry to set up prices at certain levels. Two types
of price fixing:
• Horizontal price fixing, any agreement between
business competitors.
• Vertical price fixing, any agreement between
manufacturers, wholesalers, and retailers to raise,
fix, or otherwise maintain prices.
 Marketing Ethics & Consumer Rights
• American Marketing Association (AMA) has
established a codes of ethics to provide guidelines
for ethical conduct. It says, in part, that,
“Marketers shall uphold and advance the integrity,
honor and dignity of the marketing profession, by
being honest in serving consumers, clients,
employees, suppliers, distributors, and the public.”
 Seller’s Versus Consumers’ Rights
Consumers’/buyers rights:
– To choose
Sellers’ rights:
– To introduce products of – To be informed about the product
different styles and sizes, – To safety
provided they are not – To be heard
hazardous – Be protected against questionable
– To set its own prices, products and marketing practices
provided no – To compensation
discrimination occurs – To consumer education
– To spend to promote the – Expect the product to perform as
product claimed.
– To use any product – To have access to basic services
message, provided it is – To a sustainable environment
not misleading
– Influence products and marketing
– To use buying incentives
practices in ways that will improve
their “quality of life.”
 Basic Ethical Values in Marketing
• Honesty: to be truthful with customers and stakeholders.
• Responsibility: to accept the consequences of our marketing
decisions and strategies.
• Fairness: to try to balance justly the needs of the buyer with
the interests of the seller.
• Respect: to acknowledge the basic human dignity of all
stakeholders.
• Openness: to create transparency in our marketing operations.
• Citizenship: to fulfill the economic, legal and societal
responsibilities that serve stakeholders in a strategic manner.
 Business Ethics in competition
 Ethics of Competition- illegal if
• Espionage: is the an ethical act of watching a person, company,
government, etc. for the purpose of gathering secret information or
detecting wrongdoing, and to transfer such information to another
organization
• or state.
•Economic Espionage – stealing trade secrets
• Includes trespassing, wiretapping, dumpster diving

• Bribes -payment before service

• Kickbacks-payment after service

All are illegal in U.S.,

…but very common in developing nations. How about in Ethiopia
 Reflection
• You are interviewing a capable woman applicant for a job as
a salesperson. She is better qualified than the men just
interviewed. Nevertheless, you know that some of your
important customers prefer dealing with men, and you will
lose some sales if you hire her. What do you do?

• You are considering hiring a product manager who just left a

competitor’s company. She would be more than happy to
tell you all the competitor’s plans for the coming year. What
do you do?
Ethical Aspects of Advertising and Promotion
 Ethics in Advertising and Promotion

Ethics:
Ethics: Moral
Moral principles
principles and
and values
values that
that govern
govern the
the
actions
actions and
and decisions
decisions of
of an
an individual
individual or
or group.
group.

AAmarketing
marketingoror Marketers
Marketersmust
mustdecide
decide
Not
Notall
allissues
issuescan
canbe
be promotion
promotionaction
actionmay
may the
theappropriateness
appropriatenessof
of
regulated
regulated be
belegal
legalbut
butnot
notethical
ethical their
theiractions
actions
 Advertising and Ethics

Provides
Providesinformation
information

Encourages
Encourageshigher
higherstandard
standardof
ofliving
living
Proponent
Proponent
arguments Promotes
Promotescompetition
competition
arguments
Helps
Helpsnew
newfirms
firmsenter
enteraamarket
market

Creates
Createsjobs
jobs

More
Morepropaganda
propagandathan
thaninformation
information

Creates
Createsconsumer
consumerneeds,
needs,wants
wants
Critic
Criticarguments
arguments
Promotes
Promotesmaterialism,
materialism,insecurity,
insecurity,
and greed
and greed
Social and Ethical Criticisms of Promotion
• Advertising as untruthful or deceptive;

• Advertising as offensive or in bad taste;

• Advertising of personal products–Sexual appeals;

• Advertising and Children;

• Social and Cultural Consequences–Making people buy things they don’t

need–Encouraging materialism–Stereotyping–Advertisings’ influence
on the media
 Children and Promotion
• Children's TV Watching Behavior
– Children between ages 2-11 watch on average
21.5 hours of TV per week and may see 22,000
commercials per year;

– Television is an important source of information

for children about products.
 Perspectives on Ads for Children

Advocates
AdvocatesArgue
ArgueThat
ThatChildren:
Children:

Cannot
Cannotdifferentiate
differentiate
Lack
Lackthe
theknowledge
knowledgeandandskills
skillsto
to between
betweenprograms
programsandand
evaluate
evaluateadvertising
advertisingclaims
claims commercials
commercials

Marketers
MarketersArgue
ArgueChildren:
Children:

Must
Mustlearn
learn Must
Mustacquire
acquireskills
skillsneeded
neededto
to
through
throughsocialization
socialization function
functionin
inthe
themarketplace
marketplace
 Reflection
• Consider a specific industry and evaluate the
ethical aspect of advertizing in Ethiopia?
• Distinguish between advertisement and promotion;

• What sort of things should be improved?

 Chapter Seven
Environmental Responsibility
• Chapter objectives
– Understand how business affects the envt,
– Explain the different types of pollution and
resource depletions; and
– Understand the various theories that explain how
business should function to the environment.
 What is sustainable development in business context?

• Economic development maintained within acceptable

levels of global resource depletion and environmental
pollution.

• Development that "meets the needs of the present

without compromising the ability of future generations
to meet their own needs.” Brundtland Commission.

• What does sustainable development for business means?

“adopting business strategies and activities that meet the
needs of the enterprise and its stakeholders today while
protecting, sustaining, and enhancing the human and natural
resources that will be needed in the future” (International
 Factors affecting the Environment

– Population growth
– Global warning
• Ozone layer depletion
– Habitat destruction
– Air pollution
– Water pollution
 Environmental Sustainability

– Not depleting renewable resources faster than

their replacement.

– Not creating more pollution than environment can

absorb.

– Not depleting non-renewable resources faster

than we find replacements.
Therefore,what are the envtal responsibilities of business?

Eg. Run businesses that are “Green”,

Sustainable Entrepreneurship
– Reduce pollution---use Solar, Wind,
Hydro, Geo-Thermal Power
– Recycling/Reprocessing
– Eco-Friendly Products
– Organic Agriculture
•Conserve resources
•Preserve natural areas
•Support biological diversity
 Environmental Sustainability…
• Firms must make decisions on how to utilize
resources and discard waste while maximizing profits.

• Environmental ethical questions for businesses and

for society
– how should firms balance the demand for goods and
services with prolonging the health and life of the earth?
– our obligations to future generations for a healthy earth
environmental versus the need for continued economic
growth
• Managers are faced with short term needs and long
term implications regarding resources.
 A. Pollution
• Environmental damage is damage or harm
done to the environment that threatens the
welfare of all living beings.
• Threats to environment come from two
sources:
– pollution and
– resource depletion.
 Pollution and Resource Depletion

• Pollution is the undesirable contamination of

the environment by the manufacture or use of
commodities.
• Resource depletion refers to the consumption
of finite or scarce resources.

• Pollution is a type of resource depletion as

contamination of air, water and land
diminishes their beneficial qualities.
 Air Pollution

• Air pollution is a mixture of solid particles and

gases in the air.
– Car emissions, chemicals from factories, dust, pollen
and mold spores may be suspended as particles.
– Ozone, a gas, is a major part of air pollution in cities.
When ozone forms air pollution, it‘s also called smog.
• The two main sources of air pollution are
– automobiles and
– manufacturing plants.
 Water Pollution

• Water pollution occurs when a body of water is adversely

affected due to the addition of large amounts of materials
to the water.
• Two types of water pollutants exist:
– Point sources of pollution occur when harmful substances are
emitted directly into a body of water.
– A nonpoint source delivers pollutants indirectly through
environmental changes.
• An example of this type of water pollution is when fertilizer from a
field is carried into a stream by rain, in the form of run-off which in
turn affects aquatic life.
• The major sources of water pollution: municipal,
industrial, and agricultural.
 Noise Pollution

• Noise is among the most pervasive pollutants today.

– Noise from road traffic, jet planes, garbage trucks, construction
equipment, manufacturing processes, lawn mowers, leaf
blowers, etc
• Noise negatively affects human health
– hearing loss, Stress, high blood pressure, sleep loss, distraction
and lost productivity, and a general reduction In the quality of
life
Toxic Substances
• Hazardous and toxic substances are defined as those
chemicals present in the workplace which are capable of
causing harm.
– chemicals includes dusts, mixtures, and common materials
such as paints, fuels, and solvents.
Large amount of waste (known for very bad smell) to the Little Akaki River, the downstream
community
calls the river as “Leather River”–associated with the leather industries (Fig. 1).
Source (Amare 2019)
Garment Area in Addis
Pollution accumulates at each stage of the food chain
 Lung: This can happen by Tobacco and or
Indoor air pollution

Pathology slides - Courtesy Prof. Saldiva, São Paulo, Brazil

Industrial Pollution from Business
 Water pollution
It affects ecosystems-Pollution can put entire
freshwater ecosystems at risk.
 Acid Rain
• Acid rain is caused by fossil fuel emissions.
– produced when pollutants in the water cycle cause rain pH to drop
– can lower the pH of a lake or stream
– can harm trees
What is in a Landfill?

• 22 billion disposal diapers in

landfill/year
• 100 million cell phone put out of
service/year
• 2 million tons of e-products
disposed/year
• 63 million computers in the U. S.
became obsolete in 2005
• Circuit boards - lead & cadmium
• Flat screen & switches - mercury
 B. Resource Depletion-Depletion of species

• Depletion of species is the destruction or non

renewal of plants and animal species to the
point of extinction.
• Major causes of species depletion:
– habitat loss and degradation,
– exotic species, and
– over exploitation.
 Resource Depletion-Depletion of Fossil Fuels

• There are three main types of fossil fuels: coal, oil and natural gas.
• All three were formed many hundreds of millions of years ago.
• They are called "fossil fuels" because they have been formed from
the fossilized remains of prehistoric plants and animals.

• Fossil fuels provide around 66% of the world‘s electrical power,

and 95% of the world's total energy demands (including
heating, transport, electricity generation and other uses).
• A concern is that the fossil fuels are being used up at an
increasing rate, and that they will soon run out.
• If these fossil fuels were to run out now there would not be a
suitable replacement for them that is equally as efficient at
producing the same amount of energy.
 Resource Depletion-Depletion of Fossil Fuels…

Resource Depletion-Depletion of Minerals

• Nutrients such as vitamins, proteins, enzymes and amino
acids, are required for our bodies to function properly.

• These nutrients are dependent upon minerals.

• Minerals are predominantly obtained from the food we
eat, and the mineral content of that food is dependent
upon the mineral content of the soil it grows in.

• Therefore, depleted soils create mineral deficient food.

 Reflection
• What environmental problems do you observe
on the envt emanated from business? Suggest
the Way-outs?

• What are the policy instruments or techniques

of controlling pollution? You could read more
about it.
 Chapter Seven
Session II

Environmental Ethics Related Theories

How business should function to the environment?
Ecological Ethics
• Ecological ethics, also known as green ethics, is currently at the
forefront of government and business interests.

• Because the parts of the ecology depend on one another, a disruption

in any part of the system causes problems in the other parts.
• For example, suppose there were no larger fish because fisherman
harvested the fish before more could be spawned.
– Then there would be no fish to provide fish waste for the organisms that
depended on the fish waste.
– Nor would there be no larger fish to control the population of the smaller
fish.
– The lake would then have an overabundance of smaller organisms which
could lead to a contamination of the lake.
 Ethical Approaches to Environmental Protection

• Environmental rights approach

– humans have a right to a livable environment

• Market approach
– external costs violate utility, rights, and justice;
– therefore, they should be internalized.
– The rationale for market-based approaches, is to
try to put the powerful advantages of markets to
work in service to the environment.
 Optimal Level of Pollution Removal

• Utilitarian Approach
– Costs of removing pollutants rise as benefits of
removal fall.
– Optimal level of removal is point where its costs
equal its benefits.
– But when costs and benefits are not measurable,
utilitarian approach fails.
 Optimal Level of Pollution Removal…
• Precautionary Principle
– The principle that if a practice carries and unknown risk of catastrophic and
irreversible consequences, but it is uncertain how large that risk is, then the
practice should be rejected until it is certain the risk is nonexistent or
insignificant.

• Maximin Rule
– When risks cannot be measured, the most rational procedure is to first assume
that the worst will happen and then choose the option that leaves us best off
when the worst happens.

Alternative Approaches to Pollution

• Ecofeminism - Change male pattern of dominating nature and women
• Ecofeminism is an activist and academic movement that sees critical
connections between the domination of nature and the exploitation of
women.
 Conservation Based on Ethics

• Rawls:
– Leave the world no worse than we found it.
• Care Ethic:
– Leave our children a world no worse than we
received.
• Attfield:
– Leave the world as productive as we found it.
 Chapter Eight
Corporate social responsibility for transnational
business
• Chapter objectives : at the end of this chapter
you could be able to understand:
– cosmopolitanism and its importance
– The global value chain and competition
– the extractive nature of unethical MNCs
 COSMOPOLITANISM –
A DEFINITION
• Cosmopolitanism, in political theory, is the belief that all people are
entitled to equal respect and consideration, no matter what their
citizenship status or other affiliations happen to be.
• In the broadest sense possible, cosmopolitanism is about the
extension of the moral and political horizons of people, societies,
organizations, and institutions.

• It implies and attitude of openness as opposed to closure. (Delanty

2012)
• Cosmopolitanism presupposes a positive attitude towards difference,
a desire to construct broad allegiances and equal and peaceful global
communities of citizens who should be able to communicate across
cultural and social boundaries forming a universalist solidarity.
 Why is cosmopolitanism important?
Postcolonial
• environmental degradation; and critical
cosmopolitanism has a
• global warming; clear agenda - to fuel
• world hunger; globalization from below.
• arms proliferation;
These issues are examples of
• terrorism. how and why people
come together and work
together towards a
common goal.
• Think of other examples of problems that are global
in scope and in which cosmopolitanism is effective.
 WHAT COSMOPOLITANISM IS NOT?

• a quest for a single global culture, language, or

religion;
• following international fashion trends in urban café
society;
• consumer interest in exotic products, clothes, world
music, and so on;
• Western liberalism with a global agenda;
• the imposition of Western morality in the form of
moral universalism.
(van Hooft, 2009, qtd in Cultivating Cosmopolitanism for
Intercultural Communication)
 What is Globalization?
• The integration of all national economies into one global market,
with one set of rules
• Global market takes precedence over national autonomy
• Supporting institutions are IMF, World Bank, World Trade
Organization (WTO), NAFTA, etc.
What are it’s defining characteristics?
• Economic growth (increasing material consumption) as sole
desirable end
• Privatization and commodification of public services, national and
global commons
• Corporate deregulation and unrestricted movement of capital
across borders
• Increased corporate concentration
• Cultural and economic homogenization
Globalisation

Globalisation
could involve
all these
things!
 The Global Competitiveness

 The three determinants of competitiveness are:

1. Technology
2. Quality of Public Institutions
3. Macroeconomic Environment

 The Growth Competitiveness Index measures the current

condition of these three determinants
 What are the theories behind international trade? Read more on
 Comparative advantage
 Absolute advantage
The Global Competitiveness Report of World Economic Forum

Growth Competitiveness Index

Macroeconomic Public Institutions

Technology Index
Environment Index Index

Innovation Sub-Index Macroeconomic Contracts and

stability Sub-Index law Sub-Index

Technology Country Credit Corruption Sub-

Transfer Sub-Index Rating Index

Information & Government

Communications Waste
Technology
Subindex 218
Multicultural Perspectives and Diversity issues in
business
• Business has an ethical responsibility to
provide services that demonstrate respect for
the cultural worldviews, values, ethnicities,
minorities, traditions of culturally diverse
clients.
– To the extent that business are focused on values
of the dominant culture and insensitive to
variations among groups and individuals, they are
at risk for practicing unethically.
 Race to the bottom
• The race to the bottom refers to a competitive
state where a company, state or nation attempts
to undercut the competition's prices by sacrificing
quality standards or worker safety, defying
regulations, or paying low wages.
• A race to the bottom can also occur among
regions.
– For example, a jurisdiction may relax regulation and
compromise the public good in an attempt to attract
investment, for example, the building of a new factory
or corporate office.
 Race….
• The debate on “Race to the Bottom” emerged in United State
of America in 19th century.
• It points to a situation where government deregulates the local
business and it results:
– Lowering of the labor wages
– Worsening of work environments
– MNCs not caring for the environmental degradation.
• Race to bottom has been intensified by globalization and free
trade.
• There is an intense pressure on governments to deregulate its
markets and open them to trade (e.g. due to WTO
agreements).
– This however, makes developing countries and small economies open
to exploitation by the private sector and developed nations.
 Exploitation by unethical MNCs

• Multinational Companies from developed

world step in under the name of investment
and exploit the underdeveloped countries that
are
– rich in cheap labor and
– natural resources which form the raw materials for
production.
 MNC…
• Increased activity of global multinational
corporations (MNCs) often leads to a decrease in
the effectiveness and implementation of
environmental policy.

• In several underdeveloped countries, MNCs do not

adhere to the labor or environmental regulations.
– For example,McDonalds pays wages to its sales staff
which is almost half the minimum wage set by the
government.
 MNC…

• Environmental Damages: MNCs are criticized

for irresponsible handling of chemical wastes
and dumping them in natural water sources or
underground, which contaminates the water
table and causes soil deterioration.
MNC…
MNC…
 Global value chain
• VALUE CHAIN=“Full range of activities that are
required to bring a product from its conception,
through its design, its sourced raw materials and
intermediate inputs, its marketing, its distribution and
its support to the final consumer”

• GLOBAL VALUE CHAIN

– A value chain that is divided among different firms and
spread over the globe.
– global value chain can be simply understood as the
sequence of all functional activities required in the process
of value creation involving more than one country.”
Global…
Global…
Global…
Global…
 Reflection

• Do you think that Ethiopia is being benefited

from the global value chain?

• Do you think that “the race to the bottom” is

in place in Ethiopia? Hint: consider industrial
parks
 Chapter Nine
Corruption
• Chapter objective
• At the end of this chapter, you could be able to
– Define corruption
– Understand the challenges and good practices in
combating corruption
– Contextualize corruption in local business as well as
footloose MNC
– Understand Transfer Pricing and its importance
 What is corruption?
• Klitgaard’s formula:
Corruption = Monopoly + Discretion – Accountability (Exclusive power, limited
information, no way to complain).

• it has been defined as an inducement/bribe by persons, public or private to show favour

or act dishonestly or unfaithfully in the discharge of their duties.

• Corruption is usually associated with public officials and the performance of public
duties influenced by bribery.

• However, it is now increasingly accepted that the act of corruption may be applicable to
both public and private individuals and may extend beyond bribery.

• Transparency International defines corruption as the misuse of public power for private
profit or the misuse of entrusted/Assigned power for private gain.

• The Hong Kong Independent Commission against Corruption defines it simply as an

individual’s abuse of his authority for personal gain at the expense of other people.
 Corruption…
• Corruption includes bribery, embezzlement, concealment/hide and laundering of
earnings, and trading in influence.
– Bribery =to give somebody money or some other incentive to do something, especially
something illegal or dishonest.
– Embezzlement= to take for personal use money or property that has been given on trust by
others, without their knowledge or permission.
– Nepotism - favoritism shown by somebody in power to relatives and friends, especially in
appointing them to good positions.
• Corruption in Africa is understood in practical terms such as: theft of public resources
by civil servants, embezzlement, illegal extraction of public resources, nepotism,
favoritism, bribery, etc…

• Sources of corruption include procurement, campaign finance (military and vote) and
poor financial management rules.

• In many instances, companies in the bid to obtain government projects may be

involved in corrupt practices.

• To mitigate this problem, many countries have procurement rules.

• Campaign finance and poor financial management rules are more prominent in
 Corruption…
• Corruption has many faces and comes in all shapes and sizes.

• Corruption can be petty or grand.

• Grand corruption is ‘the misuse of public power by heads of states,

ministers and top officials for private, pecuniary profit’.

• ‘Grand corruption, at least in the developing world, is usually

international because a purely domestic transaction seldom meets
the criteria which enable grand corruption to flourish.’

• Grand corruption involves two main activities:

– bribe payments and the embezzlement
– misappropriation of state assets.
 MNCs and International Corruption
• Grand corruption: The payment of bribes by MNCs
to senior officials or ministers of state.

• Such grand corruption will effect changes which will

greatly impact on petty corruption and development
particularly in sub-Saharan African countries.

• If corruption is dealt with at the top levels of

government, the effects are likely to trickle down to
the lower levels.
 MNC…
• The World Bank on State Capture
– about bribes paid for the operation of firms
(licenses, regulation etc),
– bribes paid to get favourable decisions on public
procurement.
• The finding showed how some powerful
corporations exert undue influence on
– state institutions, laws, regulations and policies,
often through illegal means – described as state
capture (policy corruption …)
 MNC…
• Examples of international bribery cases involving
MNCs,
– payments by corporate officials to foreign public officials,
usually made through third-party agents or intermediaries.
• Although, MNCs are vehicles of development, they are
also seedbeds of corruption (chief participants in the supply side
of corruption).
– They are involved in making facilitation payments to public
officials to grease the wheels for speedy receipt of contract
awards;
– They also make commission payments to third
parties/agents in the process of obtaining contract awards.
 MNC..

• The companies had paid more than US$1 million in

bribes to Nigerian officials for confidential bid
information and favourable recommendations.

• Officials of NAPIMS, a Nigerian government agency

that evaluated and approved potential bidders for
contract work on oil exploration projects in Nigeria,
including bidders seeking subcontracts with foreign
oil and gas companies, were the recipients of the
bribes.
 Transparency International
• Transparency International (TI) is a well-known NGO which addresses
corruption issues.
• It is at the forefront of attempts to eliminate corruption and its annual
publication of perceptions on corruption in different countries, listing the
countries with the least and most corrupt tendencies, is globally well
received.

• Transparency International’s Business Principles for Countering Bribery (TI

Business Principles), 2002

• The aim of the TI Principles is to ‘provide practical guidance for countering

bribery, creating a level playing field and providing a long-term business
advantage’.
• They call for companies to have zero tolerance towards corruption.
• Read the principles of TI
www.transparency.org/global_priorities/private_sector/business_principles/gu
idance_document
 Transparency International…
• Corruption can be measured by corruption Index(CPI),
which ranks countries based on how investors, political
and risk analysts, and the public perceive levels of
corruption.

• The Index ranges from zero (high corruption), to 10

( highly clean-minimum corruption).

• The CPI is based on 1999 data is shown in the next table

• Based on CPI data, Denmark (CPI=10)and Finland (9.8)
are the least corrupt or top two cleanest states. Nigeria
(CPI=1.6) & Cameroon (CPI=1.5) are the most corrupt
states.
• Of the 10 most corrupt economies 4 are in Africa
(Cameroon, Nigeria, Tanzania, and Kenya).
Transparency International 2000 Corruption Perceptions Index:

Country Country Score Country Country Score Country Country Score

1 Finland 10.0 30 Costa Rica 5.4 60 Colombia 3.2
2 Denmark 9.8 31 Namibia 5.4 61 Ethiopia 3.2
3 New Zealand 9.4 32 Hungary 5.2 62 Thailand 3.2
4 Sweden 9.4 33 Tunisia 5.2 63 China 3.1
5 Canada 9.2 34 South Africa 5.0 64 Egypt 3.1
6 Norway 9.1 35 Greece 4.9 65 Burkina Faso 3.0
36 Malaysia 4.8 66 Kazakhstan 3.0
9 Netherlands 8.9
37 Mauritius 4.7 67 Zimbabwe 3.0
10 United Kingdom 8.7 38 Morocco 4.7 68 Romania 2.9
11 Luxembourg 8.6 39 Italy 4.6 69 India 2.8
12 Switzerland 8.6 40 Jordan 4.6 70 Philippines 2.8
13 Australia 8.3 41 Peru 4.4 71 Bolivia 2.7
14 USA 7.8 42 Czech Republic 4.3 72 Côte-d’Ivoire 2.7
15 Austria 7.7 43 Belarus 4.1 73 Venezuela 2.7
16 Hong Kong 7.7 44 El Salvafor 4.1 74 Ecuador 2.6
17 Germany 7.6 45 Lithuania 4.1 75 Moldova 2.6
18 Chile 7.4 46 Malawi 4.1
19 Ireland 7.2 76 Armenia 2.5
47 Poland 4.1
77 Tanzania 2.5
20 Spain 7.0 48 South Korea 4.0
78 Vietnam 2.5
21 France 6.7 49 Brazil 3.9
79 Uzbekistan 2.4
22 Israel 6.6 50 Turkey 3.8
80 Uganda 2.3
23 Japan 6.4 51 Croatia 3.7
81 Mozambique 2.2
24 Portugal 6.4 52 Argentina 3.5
53 Bulgaria 3.5 82 Kenya 2.1
25 Belgium 6.1 83 Russia 2.1
26 Botswana 6.0 54 Ghana 3.5
55 Senegal 3.5 84 Cameroon 2.0
27 Estonia 5.7 85 Angola 1.7
56 Slovak Republic 3.5
28 Slovenia 5.5 86 Indonesia 1.7
57 Latvia 3.4
29 Taiwan 5.5 87 Azerbaijan 1.5
58 Zambia 3.4
59 Mexico 3.3 88 Ukraine 1.5
89 Yugoslavia 1.3
90 Nigeria 1.2
 Reflection
• Identify main corruption areas in Ethiopia? (i.e. what are the
activities usually accomplished through corruption eg-driving
license)
• Suggest possible way outs/solution.
• If you are nominated as a commissioner of the Ethiopian Anti-
corruption commission, what challenges do you expect to face
in combating corruption:
– in import-export business?
– local business?
– Money laundry : to pass illegally acquired money through a legitimate
business or bank account in order to disguise its illegal origin.
• Does corruption has economic advantage?
• What do you suggest as a solution?
 Causes of Corruption in Africa

1. Corrupt governments- Example- Nigeria- where institutions are used by

individuals as tools of plunder citizens.

2. Incompetence and inefficiency of civil service.

3. Poverty and severe inequality in income.

4. Cultural Norm.
• Low Risk (punishment) /High Reward (corruption) Environment:

• Clear opportunities to abuse (lack of transparency)

• Pressure to abuse (economic, political pressure).

• Low risk of getting caught or punished.

.
.
 Corruption Debates- Two Views

• View 1- It may encourage inefficiency and discourage wealth

creation and growth..
• View 2: It may “grease” wheels of bureaucracy, and make
government more responsive to the needs of investors and
society.
However, the first view is dominant due to the following reasons
1. Studies show corruption has negative effects on economic
development by contributing to less effective governance and
retarding wealth creation, reversing democratic gains making
economies less able to sustain viable and effective economic
systems.

2. Cost of public service is high to provide more income to civil

servants- contributes to high transaction costs.
 Corruption Debates- Two Views

3. Increases the burden of the public sector on citizens.

4. It demoralizes, and leads to political opportunism such as ‘rent
seeking” that contribute to inefficiency.

5. Leads to inability of a government to sustain professionals and

administrators,

6. Encourages the underutilization of skilled and educated labor

cost or the ‘brain drain’..,
7. Distorts international trade and investment,

8. Discourages investment and leads to capital flight,

9. May stunt innovation and introduction of new technologies
10. Social divides (ethnicity, race, class, regions, etc.) – can lead
to conflict
11. Result in higher depletion & pollution, trafficking of
endangered species.
UNDP’s experience on Anti-corruption
institutional arrangements
 Lessons from the Case Studies…
Australia (Independent Commission against Corruption)
• Success was a result of help and info by public (public
perceived it accountable and transparent)
• Three-pronged approach for public sector : Hong Kong
model (prevention, investigation, and education)
• Focus on systems and organizational changes
• Successful collaboration with other agencies
• Appropriate data to carry out proper risk analysis and
assessments (public surveys; hearings)

Botswana (Directorate on Corruption and Economic Crime)

• Replicated three-pronged approach of Hong Kong model
• Provide community outreach programmes for public and
private sector
• Has predictable budget (US $2.4 million)
 Lessons from the Case Studies (Contd.)
Bulgaria (Commission for Coordinating Actions against Corruption)
• National AC strategy lacks education and public awareness
• Lack of judges, prosecutors and investigators specialized in
corruption (comprehensive reform of judiciary needed)
• Concern on regression from the anti-corruption
strategy in East European countries that accede to EU
(also Pakistan, Bangladesh)

Indonesia (Commission for Eradication of Corruption)

• Initially bugged with disappointment and mediocracy;
• Superficial commitment to fighting corruption (inadequate
funding; lack of government’s genuine support)
• Reforms of the judiciary disappointing
• Now, it is really moving and making an impact
 Lessons from the Case Studies (Contd.)
Hong Kong: Success of Independent Commission
against Corruption is Generally Attributed to:
• Political will manifested by adequate legal powers and
resources to the ICAC;
• Independence of the ICAC;
• Authority of the Commissioner to manage staff;
• Existence of properly enforced legislation against corruption;
• Publicity for prosecutions of corruption;
• A law that obliges public servants to declare their assets and
the sources of their funds, when asked;
• A holistic approach to the problem of corruption;
• A supportive public; and the rule of law

Malaysia: The success of ACA is attributed to:

• Political will of the government (continuous
strengthening of AC legislation and mandates of ACA)
• Adoption of the National integrity Plan (NIP)
• Focus on family (enhance integrity; build ethical society)
 Conclusion: Major Lessons Learned
• Strong political backing at the highest level of government
• Political and operational independence of ACA(anti-corrptn agency/authority)
• Realistic costing exercise; sufficient resources (financial, human and
technical) over the long run (address issue of resources upfront)
• Clearly defined ToR of specialized agencies
• Need for sound performance indicators of ACCs (monitoring methodology
and indicators of success)
• Coordination and clarity in mandates vital while strengthening existing
institutions
• Solid and comprehensive legal frameworks
• Systemic, long-term, coherent and holistic strategy for combating corruption
(prevention, investigation and awareness raising)
• Support of society at large
• Competency and effectiveness of all institutions involved in AC
The end!