Ethics & Responsible Governance (Session 1) PDF

ETHICS & RESPONSIBLE GOVERNANCE Session 1 Ethics and Business  Learning Objectives  Analyze the basic nature of business ethics  Emphasize the importance of moral reasoning and moral decision-making in business ethics  Examine ethical issues arising fro...

ETHICS & RESPONSIBLE GOVERNANCE Session 1 Ethics and Business  Learning Objectives  Analyze the basic nature of business ethics  Emphasize the importance of moral reasoning and moral decision-making in business ethics  Examine ethical issues arising from globalization and international business connections and practice  Explain the deep foundations and structure of moral reasoning  Assess the factors that define and refine the concept of moral responsibility  Ethics Ethics is the discipline that examines your moral standards or the moral standards of a society. Ethics asks how moral standards apply to your life and whether these standards are reasonable or unreasonable— that is, whether they are supported by good reasons or poor ones. So you start to engage with ethics when you take the moral standards you have absorbed from family, church, and friends. What are the definitions and meanings of “ethics”? Ethics studies the principles of conduct that govern individuals or groups. Ethics consists of the rules by which individuals live their personal lives. Ethics is the study of morality..  Business Ethics Business ethics is the application of ethics to those institutions and activities we call business. Business Ethics is a framework of basic principles for understanding what is meant by the terms good and right  Ethical Behavior as a Strategy Ethical behavior can give a company significant competitive advantages over companies that are not ethical What is Morality? The standards that an individual or a group has about what is right and wrong, or good and evil. Moral and Nonmoral Standards and Norms Moral standards include the norms we have about the kinds of actions we believe are morally right and wrong, as well as the kinds of things we believe are morally good or morally bad. Moral norms can usually be expressed as general rules about our actions. These are examples of general rules that express moral norms: “Always tell the truth,” “It’s wrong to kill innocent people,” and “Actions are right to the extent that they produce happiness.” Our beliefs about the kinds of things we judge to be morally good or morally bad can usually be expressed with statements that indicate their value, such as “Honesty is good,” and “Injustice is bad. Where do moral standards come from? How do we distinguish between moral and nonmoral standards? Six Characteristics of Moral Standards 1. Cover serious matters, 2. Preferred over other values, 3. Are independent of authority, 4. Are universal, 5. Are impartial, 6. Enlist special vocabulary and emotions, Cover Serious Issues: They involve serious wrongs or significant benefits that can impact human beings Preferred over other values They regulate the behavior of individuals living in society Are Independent of authority They are independent of legal or written rules and are transmitted by habits, words and examples Are Universal They are accepted every where Are Impartial They are based on the moral values and principles that vary from different cultures and people. Enlist Special vocabulary and Emotions They are associated with special emotions such as ( guilt and shame) and vocabulary (such as good and bad , right and wrong) What does business ethics study? Business ethics studies moral standards and how they apply to: Modern social systems and organizations through which modern societies produce and distribute goods and services. Activities of the people who work within these organizations Level of Business Ethics  Individual Level ( Micro Level)  Organizational Level ( Mid Level)  Societal Level (Macro Level) Individual Level A ‘micro-level’ concerning the behaviour within business organization. It comprises such ethical issues as leadership, followership, communication, conflict resolution, etc. Mid Level A ‘mid-level’ concerning the activities, policies, and behaviour of organization. This category can be called ‘internal policy’, it includes the issues of the strategical nature, such as developing codes of ethics (or codes of voluntary ethical behaviour), corporate social responsibility programs, etc  Societal Level At the societal level, we ask questions about the basic institutions in the society. Companies wishing to do business there still face a complex set of issues as political, economic, and social dynamics change; the situation can still present an ethical conundrum for many companies. Ethical Issues in International Business Examine ethical issues arising from globalization and international business connections and practices – Technology and Globalization ▪ Types of new technologies. ▪ Significant issues in international business and new technologies. ▪ Globalization. Technology and Business Ethics – Ethical issues raised through technological advancements ▪ Industrial and agricultural revolutions: Labor, fair trade, deception and stock manipulation. ▪ Information technology: risk, privacy, and property rights. ▪ Nanotechnology and biotechnology: risk and dangerous products. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved What are the types of technology related to new technologies? Information technology Nanotechnology Biotechnology Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved What are the ethical issues in information technology? Privacy and big data: Given the vast amounts of information that can be collected, there are concerns that private information is jeopardized. Property rights and information: Computer programs can be copied many times over, which leads to questions of the extent of ownership of that copy. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Types of Issues Business Ethics Cover? Systematic Issues Corporate Issues Individual Issues Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethical Issues in International Business Integrative Social Contracts Theory Hypernorms: should apply to people in all societies Microsocial norms: Apply only in specific societies and differ from one society to another. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Kohlberg’s Stages of Moral Development  Foundations of Moral Development Kohlberg’s Stages of Moral Development Preconventional stages: Punishment and obedience orientation; instrumental and relative orientation Conventional stages: Interpersonal concordance orientation; law and order orientation Postconventional stages: Social contract orientation; universal principles orientation  Approaches to Business Ethics Instrumental Perspective The instrumental perspective of business ethics considers the function of ethics for business, that is, business demands come first, ethical treatment follows. It doesn’t mean that ethics is unimportant, still the question is about placing accents. The question to be asked is: What role ethics play in business? Philosophical Perspective Contrary to the instrumental approach, the philosophical one starts from the ethical vantage point. The questions are: What is the ethical meaning of business? Thanks  ETHICS & RESPONSIBLE GOVERNANCE Session 2 Corporate Governance  Session Outline  Corporate Governance  Board of Directors  Shareholder & Stakeholders  Goodwill  Maslow theory of needs  Ethical Corporate Culture  Moral Seduction Govern: which means 'to control, influence, or regulate (a person, action, or course of events)' or 'to conduct the policy  Governance The way that organizations or countries are managed at the highest level and the systems for doing this. Good Governance Good governance is the process whereby public institutions conduct public affairs, manage public resources and guarantee the realization of human rights in a manner essentially free of abuse and corruption, and with due regard for the rule of law. Corporate Governance Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It encompasses the relationships among various stakeholders, such as shareholders, management, employees, customers, suppliers, and the community at large. Corporate governance would focus on: the internal structure and rules of the board of directors; the creation of independent audit committees; rules for disclosure of information to shareholders and creditors; and, control of the management. Importance of Corporate Governance Corporate governance is vital to a healthy company for a myriad of reasons, including: Providing a framework for effective decision-making and strategic planning Establishing accountability and transparency Fostering trust amongst employees and stakeholders Allowing organizations to adapt to changing market conditions Enhancing a company’s reputation Mitigating financial and reputational risks Promoting ethical behavior to ensure compliance with laws and regulations Benefits aside, corporate governance is especially important for what it prevents. Companies with bad corporate governance in place are subject to losing support of stakeholders and the public, financial loss, and ultimately, collapse. Board of Directors Directors have a duty to act in the best interests of the company and its shareholders. Their fiduciary responsibilities include making informed decisions, exercising due care and diligence, and avoiding conflicts of interest. By fulfilling their duties, directors contribute to the overall governance and success of the organization Executive Director An executive director is a salaried employee of the company who is appointed by the board of directors and is a member of the board. Non Executive Director This board member isn't a company employee, which means they don't engage in the day-to-day management of the organization. Rather, most non-executive directors act as independent advisors and are involved in policymaking and planning exercises. Their responsibilities generally include monitoring executive directors and acting in the interest of corporate stakeholders Independent Director Refers to a member of a board of directors who does not have a material relationship with a company and is neither part of its executive team nor involved in the day-to-day operations of the company. Nominee Director Nominated by the Government. Any Govt official Difference between Non Executive Director and Independent Director Non-executive director may be representing a major shareholder but an independent director will generally have no other links with the company other than sitting on the board.  The Benefits of a Strong Corporate Governance Framework Improved Decision-Making A strong corporate governance framework facilitates informed decision-making by providing a structured process, incorporating diverse perspectives, and focusing on long-term value creation Increased Shareholder Trust and Confidence Transparent governance practices and adherence to ethical standards foster trust by shareholders. When investors have confidence in the organization's governance, they are more likely to invest, leading to increased access to capital and potential growth opportunities. Reduced Legal and Reputational Risk Robust corporate governance practices help minimize legal and reputational risks by ensuring compliance, ethical behavior, and accountability. Corporate Governance and the Board of Directors The board of directors is the key to good corporate governance. This body is responsible for overseeing the company’s activities, setting strategic objectives, appointing and monitoring senior management, and representing the interests of shareholders. 4.. Shareholders Stakeholders Corporate Stakeholders Corporate stakeholders are those groups without whose support the corporate organisation would cease to exist. They are broadly grouped into Internal stakeholders Internal stakeholders are those who engage in economic transactions with the organisation such as owners, employees, managers. External stakeholders External stakeholders are those who do not engage in direct economic transaction but their actions can affect the business. e.g. Government, Suppliers, Creditors. These stakeholders have certain interest in the organisation without which some conflict will arise. Good Will Goodwill is a critical asset of business, regardless of size. Ethical behaviour is integral to goodwill. Maslow’s Hierarchy of Needs The hierarchy has been modified a number of times over the years but the underlying principle is the same: meet the need, move up to the next level. Maslow’s original Hierarchy of Needs is set out below: 1 Biological needs. 2 Safety. 3 Love and belonging (friends, relationships, intimacy). 4 Esteem (having a sense that you are valued in the community). 5 Self-actualization (deep self-fulfilment, looking for development). Source: See Maslow’s Hierarchy of Needs in recommended reading  Creating an Ethical Corporate Culture Corporate Climate Corporate climate refers to an employee’s long-lasting perception of the working environment and culture of the business they work for. A corporate climate, refers to the prevailing ethical ethos of the organization. Ethical climate: Refers to the beliefs an organization’s members have about how they are expected to behave. Types of Ethical Climate  Carying  Independence  Law and Code  Rules  Instrumental Caring : A climate that encourgaes the concern for and considerations for others Independence: A climate that encourgaes decision according to personal moral beliefs. Law and Code: This type of climate relies on the laws from outside sources like actual state or federal laws Rules: The rules type of ethical climate is concerned with the following, rules, procedures and policies established by the organization. Instrumental: An ethical climate that encourages the organization Interest. Ethical culture refers to the kind of behavior an organization encourages or discourages by repeated use of examples of appropriate behavior, incentives for ethical behavior, clear rules and ethics policies, rewards for exemplary conduct, stories of notable ethical actions, etc. Ethical culture refers to the ways an organization encourages or discourages ethical behaviors. The culture of some organizations encourages and rewards only business objectives with no attention to ethics. The culture of other organizations encourages and rewards ethical behavior and not just bottom-line results. Organizations with a strong ethical culture make it easier to decide to do what is right. Organizations with strong business cultures can make it harder to decide to do what is right. Moral Seduction: refers to the subtle pressures that can gradually lead an ethical person into decisions to do what he or she knows is wrong. Leadership Ethics  Fairness  Accountability  Trust  Honesty  Equality  Respect  Ethics of Conflict Management The culture of organization, especially its ethical component, has a strong impact upon success of conflict resolution policies and practices. Relationship conflict in the workplace is related to differences in personality, character, style, etc. People of different background with different attitudes towards things are often thrown together and must try to get along. Task conflict involves issues related to employees’ work assignments, differences of opinion on procedures and policies, interpretation of situation, etc. Process conflict refers work procedures. (Moreno et al., 2009). URL: https://teach-e-rbs.uir.ac.ma Exercise Q1 What circumstances made Ghson’s misconduct possible? How can companies prevent such misconduct.  ETHICS & RESPONSIBLE GOVERNANCE Session 3 Ethics in the Marketplace  Session Outline  Economic Models  Outline the conditions that must be present to achieve ethical perfect competition  Justice and Fairness  Ethical Decision Making Process Economic Models Economists have identified four types of competition  Perfect competition  Monopolistic competition  Oligopoly  Monopoly Prefect Competition: In economics a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. Perfect competition represents the ideal scenario where a market has so many highly informed buyers and sellers that monopolies cannot occur. As a result, the price of commodities is informed by demand and not influenced by buyers and sellers.  Perfectly competitive free markets are characterized by the following seven defining features: 1. There are numerous buyers and sellers, none of whom has a substantial share of the market. 2. All buyers and sellers can freely and immediately enter or leave the market. 3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of the prices, quantities, and quality of all goods being bought and sold. 4. The goods being sold in the market are so similar to each other that no one cares from whom each buys or sells 5. The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties. 6. All buyers and sellers are utility maximizers: each tries to get as much as possible for as little as possible. 7. No external parties (such as the government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market. Monopolistic Competition In monopolistic competition, we still have many sellers (as we had under perfect competition). Now, however, they don’t sell identical products. Instead, they sell differentiated products— products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily). Monopolistic Competition How is product differentiation accomplished? Sometimes, it’s simply geographical; you probably buy gasoline at the station closest to your home regardless of the brand. At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from another—and better than it. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price. Oligopoly Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge. But there’s a catch: because products are fairly similar, when one company lowers prices, others are often forced to follow suit to remain competitive. You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions  Monopoly In terms of the number of sellers and degree of competition, monopolies lie at the opposite end of the spectrum from perfect competition. In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly, however, there’s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn’t necessarily have to be an entire country.. Natural Monopoly Natural monopoly include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they’re legal because they’re important to society. In exchange for the right to conduct business without competition, they’re regulated. For instance, they can’t charge whatever prices they want, but they must adhere to government-controlled prices. As a rule, they’re required to serve all customers, even if doing so isn’t cost efficient.. Legal Monopoly A legal monopoly arises when a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years (United States Patent and Trademark Office, 2006). During this period, other companies can’t use the invented product or process without permission from the patent holder. Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant-film technology (Bellis, 2006). Polaroid priced the product high enough to recoup, over time, the high cost of bringing it to market. Without competition, in other words, it enjoyed a monopolistic position in regard to pricing How Perfect Competition Is Perfectly Ethical  In a perfectly competitive market, buyers and sellers are free (by definition) to enter or leave the market as they choose. That is, individuals are neither forced into nor prevented from engaging in a certain business, provided they have the expertise and the financial resources required.11 Perfectly competitive markets thus embody the negative right of freedom of opportunity.  Second, in a perfectly competitive free market, all exchanges are fully voluntary. That is, participants are not forced to buy or sell anything other than what they freely and knowingly consent to buy or sell. In a competitive free market, all participants have full and complete knowledge of what they are buying or selling, and no external agency (such as the government) forces them to buy or sell goods they do not want at prices they do not choose in quantities they do not desire.  Moreover, buyers and sellers in a perfectly competitive free market are not forced to pay for goods that others enjoy. In a perfectly competitive free market, by definition, the costs and benefits of producing or using goods are borne entirely by those buying or selling the goods and not by any other external parties. Perfectly competitive free markets thus embody the negative right of freedom of consent. Third, no single seller or buyer will so dominate the perfectly competitive free market that others are forced to accept the terms. In a perfectly competitive market, industrial power is decentralized among numerous firms so that prices and quantities are not dependent on the dictates of one or a few businesses. Ethical Decision Making Process In general, the ethical decision-making means the process of choosing and evaluating different alternatives against the background of existing ethical principles. The process involves an identification and elimination the unethical options, and after that – making the informed (the conscious) choice. This is especially important because employees and managers face ethical issues daily, potentially leading to misconduct on different organizational levels – from the corporate to the societal ones. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethical Decision Making Process In general, the ethical decisions making process is viewed as a succession of five particular steps Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethical Decision Making Process Problem Definition: The first stage involves the recognition of an ethical issue as such. This stage presupposes asking the questions like these: Could this decision or situation be damaging to someone or to some group? Is it related to choice between a good and bad alternative? And so on. Fact Gathering: The second stage is about gathering all information possible. The questions to be asked are the following: What are the relevant facts of the case? What facts are not known? Can I learn more about the situation? Do I know enough to make a decision? What individuals and groups have an important stake in the outcome? Are some concerns more important? Why? What are the options for acting? Have all the relevant persons and groups been consulted? What are the creative options? Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethical Decision Making Process Evaluation of Alternatives: The third stage, in its turn, is the evaluation of alternatives or alternative actions. The questions posed are the following: Which option will produce the most good and do the least harm? Which option best respects the rights of all who have a stake? Which option treats people equally or proportionately? Which option best serves the community as a whole, not just some members? Decision Making: The fourth, the most important step is, without any doubts, the decision making, the acting upon the chosen alternative on the basis of the information gathered. Outcome: Finally, the fifth stage is related to the reflection about the outcome of the decision-making process. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethical Decision Making Process The questions here are the following: How can the decision be implemented with the greatest care and attention to the concerns of all stakeholders? How did the decision turn out and what must be learned from this specific situation? (Markkula Centre for Applied Ethics, 2015). Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Moral Compass This particular ethical decision-making framework was developed by the Harvard ethics specialist Lynn Paine (2006). The focus of the framework is quality of the decision-making process and the ethical grounding of each of the steps. The framework is represented by so-called lenses or frames (four altogether). Originally called the “Manager’s Compass,” and sometimes generally referred to as the “Moral Compass,” Pained introduced the model for guiding business executives in making decisions. Lens 1: Purpose The first frame examines the end results of the decision-making process taking into account the ethical component as well. The questions posed here are related to the short-term and long-term goals, the efficiency of the taken course of action, the justification of the means used for reaching the goal. Will the action or decision serve a worthwhile purpose? Is there clarity around ends and means? The first lens of the Manager’s Compass of Paine centers on determining and evaluating results. To be specific, the first lens involves determining whether the purpose of the action or decision will produce valuable results. Hence, doing so involves examining alternative options and identifying which one will provide the best outcome. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Moral Compass Lens 2: Principle – Is this action consistent with relevant principles? The relevant principles can be ethics codes, ethical standards, etc. The questions to be asked within this frame are related to the norms of conduct and the compliance of actions with the norms and standards agreed upon by the organization. Is the action or decision consistent with relevant principles? What norms or standards, or best practices can be used to justify such? In the second lend, the decision-maker needs to demonstrate an understanding and an ability to utilize a specific standard. A standard can include a moral or ethical principle, values, social norms, best practices, codes of conduct, and legal requirement, among others. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved People Lens 3: People – Does this action respect the legitimate claims of the people likely to be affected? This lens concerns the impact of decisions. This process can be described as a possible risk and alternative assessment. The significant aspect this frame involves is the one of the harm mitigation and compensation to the parties involved (the least harm principle). Does the action or decision respect the legitimate claims of the people affected? Who are the stakeholders? The third lens of the Paine Manager’s Compass involves identifying relevant stakeholders and examining the impacts an action or decision has on them. The goal of doing so is to minimize their exposure or the negative effects of an action or decision, consider their rights and understand their reasons, explore alternative solutions, and/or provide a way to compensate. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Power Lens 4: Power – Do we have the power to take this action? This lens directs attention to the exercise of power and influence. The focus of this particular frame is availability of resources (material and intellectual) and ability to act. Do the business leaders and decision-makers have the power to take action or make the decision? Do they have the legitimacy, resources, and competency to do so? In the fourth lens, the decision-maker considers his or her capacity, as well as the capacity of the organization to take an action or make the decision. Essentially, the first three lenses are useless there is no authority and ability to act or decide. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Moral Compass Once an issue is identified, the four kinds of questions explicate different features of the situation so they can be inspected and compared with other features, and then evaluated and addressed. Taken together these four frames (lenses) constitute a compass for the manager that helps chart a reasonable course through conflicting demands (Paine, 2006). Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved PLUS Ethical Decision-Making Model PLUS is an acronym of another ethical decision-making framework that strives to create a clear and cohesive approach to implementing a solution to an ethical problem (Ethics Resource Center). It is a tool for managers to apply the so-called “ethical filters” to decision-making process. It has to be noted that this particular framework leaves out any issues related to making a profit in order to focus on values, rather than revenues. In what follows we will decipher each letter subsequently: P – Policies and procedures: aligning decisions with the policies and procedures laid out by the company L – Legal: compliance with the legal parameters or regulations U – Universal: compliance with organizational core values and organizational culture S – Self: accordance to individual’s personal standards of fairness and justice Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Five ‘ I’ Formula This formula, developed by C. E. Johnson (2018) is a combination of all previous models. According to the author, the Five ‘I’ formula is useful for practical purposes, when there is no handbook or manual at hand. It describes the steps of ethical decision-making. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Five ‘ I’ Formula Step 1: Identification. The first step in the Five I Format of ethical decision-making involves the identification of the problem. Setting goals and objectives is also part of problem identification. To be specific, identification means determining the moral question or ethical dilemma of the situation. The decision maker needs to understand why the problem needs to be solved and what are the consequences if it remains unsolved. To be specific, identification means determining the moral question or ethical dilemma of the situation. Step 2: Investigation. This step presupposes situational analysis and data collection, stakeholder identification and introduction of ethical perspectives. The causes and effects of the problem need to be determined to identify the stakeholders. Furthermore, it is important to identify conflicts in duties and values. Step 3: Innovation. It is essential for the decision maker to avoid making quick decisions. The third step - generating a variety of solutions or options. The decision maker needs to weigh the merits of each solution based on a set of criteria such as its applicability to the problem and its context, suitability to a particular ethical perspective or theory, and how it can help reach the identified goals and objectives as effectively and efficiently as possible. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Five ‘ I’ Formula Step 4: Isolation. Isolating the solution specifically requires evaluating the data collected and the results of the analysis, examining the pros and cons of alternative solutions, taking into consideration the context of the problem, and referencing a particular ethical perspective or theory. The fourth step involves reviewing the results of step two and comparing it to the outputs of step three. The purpose of this process centers on the need to isolate a solution. Note that the decision maker is looking not for the perfect solution but for a well-reasoned one. Step 5: Implementation. The final step of the ethical decision-making framework of Johnson involves the actual implementation of the solution. The decision maker needs to develop an action plan on how to implement the solution. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved  ETHICS & RESPONSIBLE GOVERNANCE Session 4 Ethics and Environment  Session Outline  The Ethics of Pollution Control  Examine the Important Ethical Considerations of Pollution Control  The Stages of Moral Development of Companies Model  Sustainability  Net Zero Environment The environment is not a political issue, it is an ethical issue. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved  Environment Corporations have been a major contributor to increased standards of living but it has come at a cost. Corporate activity has also been a major contributor to pollution, changing the climate of the world and consuming resources at such a rate that it is likely to compromise the quality of life for future generations. How corporations manage their operations so as to ensure environmental damage is minimized, climate stabilized and resources properly stewarded is crucial. Environmental issues, then, raise large and complicated ethical, economic, and technological questions for our business society. Pollution Pollution is defined as introducing harmful substances (solid, liquid, or gas) or any form of energy (light, heat, sound, or radioactivity) into the environment. The harmful elements that damage air, water, and land quality and cause pollution are called pollutants. Types of Pollution  Air Pollution  Water Pollution  Land Pollution  Air Pollution Air pollution is not new—it has been with us since the Industrial Revolution introduced the world to the belching factory smokestack. The air in our atmosphere has a roughly stable chemical composition consisting of nitrogen, oxygen, argon, carbon dioxide, and trace amounts of other gases. Any change in the air composition due to the addition of unwanted gases such as sulfur dioxide, carbon monoxide, and nitrogen oxides, chemicals, particulate matter, and biological molecules is called air pollution. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved GreenHouse Effect The greenhouse effect is the natural warming of the earth that results when gases in the atmosphere trap heat from the sun that would otherwise escape into space. The process was identified by scientists in the 1800s. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Water Pollution Water pollution occurs when toxic pollutants and particulate matter are introduced into water bodies such as oceans, rivers, lakes, ponds, and aquifers, making them impure and toxic. These contaminants are primarily generated by human activities and sometimes by natural disasters. Among all other types of pollution, water pollution is found to have the maximum adverse consequences on the ecosystem. These pollutants can impair or destroy aquatic life, threaten human health, and foul the water. In 2015, the EPA reported that about 40 percent of our surface water was too polluted. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Shortage of Safe Drinking Water Underground water supplies are also becoming more polluted. The sources of contamination include landfills, waste piles, legal and illegal dumps, and surface reservoirs. Today, about 750 million people in the world lack access to safe drinking water. About a third of them live in sub-Saharan Africa, and most of the rest live in rural areas of poor developing countries. Fresh water is essential not only to human life, plant life, and animal life but also to agriculture, industry, and economic development. There is no substitute for water in most of its uses. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Land Pollution Land pollution includes the formation and release of toxic substances, solid wastes, and nuclear waste. Toxic substances include acids, heavy metals, solvents, pesticides, herbicides, and phenols. Solid wastes include residential garbage, industrial wastes, agricultural wastes, and mining wastes. Nuclear wastes are categorized as high-level (cesium, strontium, plutonium), transuranic (diluted high level wastes), and low-level (contaminated reactor equipment, uranium mine tailings). Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved  Residential and Industrial Garbage Residential garbage is 250 million tons a year. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Consumers Become a Source of Pollution Pollution problems are not rooted only in business activities. Pollution also results from the use that consumers make of products and from human waste products Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Ethics of Pollution Control: Consumer Responsibility Environmental Rights and Absolute Ban Markets and Partial control Consumer Responsibility A primary source of air pollution is automobile use, and a primary source of water pollution is sewage. We are truly all polluters. Because every human being pollutes, pollution problems have increased as our population has multiplied. The world’s population grew from 1 billion in 1800 to 3 billion in 1960 to 7.3 billion in 2015 and is projected to grow to 9.7 billion by 2050. This population explosion has put severe strains on the air and water resources into which we dump our share of pollutants. Moreover, these strains have been aggravated by our tendency to concentrate our populations in urban centers. All over the world, urban areas are growing rapidly, and the high-population densities that urbanization has created multiplies the pollution burdens placed on air and water resources. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved  Environmental Rights and Absolute Ban Environmental rights means any proclamation of a human right to environmental conditions of a specified quality. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved The ‘Stages of Moral Development of Companies’ Model Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved The ‘Stages of Moral Development of Companies’ Model Stage 1: The Amoral company: This corporation is motivated solely by profit and is constrained only by the risk of being caught. Rules or social norms that can be ignored, circumvented or broken are fair game if doing so can bring a greater return. The ethos is ‘survival of the fittest’ and wider social considerations are viewed as weakness. If the corporation discusses ethics it will inevitably be because they have been exposed in some public way and are trying to repair the damage rather than making a sincere attempt to correct their attitude. This attitude is readily rationalized as a necessity to be ‘a step ahead of the competition’. The management would be very directive rather than collaborative; employees will be expected to obey rather than question. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Stage 2: The Legalistic Company This corporation’s operating ethos is ‘everything within the law’. Issues are resolved with reference to their internal legal group without questioning whether their action has any wider considerations. Even their internal codes will reflect this mode of thinking. Codes will be written and framed as rules to be obeyed with staff punished if they fail to meet the required standard. It is likely that in an effort to ensure control, these codes will increase exponentially until they are unworkable by an increasingly confused workforce. Examination of a company’s written codes will readily inform any reviewer whether they fit into this category. The collective mindset is that they are meeting their requirements within the community by operating within a strict interpretation of the law. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Stage 3 The Responsive Company This corporation recognizes that its responsibilities incorporate more than what is required by law. They will be seeking to strike a balance between profit and their social responsibilities, which include the communities they work in and their employees. They may have made this shift from Stage 2 as the result of a public mistake or costly event. The corporation at the responsive stage is, however, still reactive. Its actions are largely driven by the potential backlash from an unethical decision rather than a sense of obligation. Their codes are drafted in such a way that they include values and responsibilities but the core of the document will be to protect the company rather than the wider community. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Stage 4 The Emergent Company This corporation actively seeks to create an ethical culture. There is recognition throughout the organization that there is a balance to be struck between profit and the social good. Codes are written in a collaborative way and continuously refined as real-world experience tests their operation. The corporation ethos permeates training, selection, other procedures and policies. There are officers with the specific responsibility to check and review the decision making in the organization. This might include roles such as a ‘risk manager’ who sits as part of the Executive, an ethics committee or an Ombudsman. The CEO will be visibly engaged with the ethics measures. There can be hotlines where officers can report inappropriate behaviour that bypasses the hierarchy. In an ideal world the hotline handlers would be independent of the company. Together these measures tell the organization that management is committed to their stated values. The corporation is still, however, not performing at an ethical optimum as there are still missteps and failures when the code is insufficient or misapplied. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Stage 5: The Ethical Company The morals and values of this organization are accepted by the workforce and incorporated into everyday decision making at all levels. The code is outward facing to the community as a whole. An important component is a proactive mindset. The corporation’s officers consider their actions in advance against the value set. Considerations of profit, social benefit and social harm are processed in parallel. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved The Ethics of Conserving Resources Conservation refers to the saving or rationing of natural resources for later uses. Conservation looks primarily to the future: to the need to limit consumption now to have resources available for tomorrow. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved The Rights of Future Generations Future generations have an equal right to the world’s resources. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Sustainability Generally, sustainability refers to the ability to sustain—that is, to continue or to maintain— something into the future. Sustainability, then, means the capacity something (a thing, a quality, an activity, a system, etc.) has to continue to function into the future. The term sustainability was popularized by the UN World Commission on Environment and Development in its 1987 report (the Brundtland Report): “Humanity has the ability to make development sustainable—to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Three Pillars of Sustainability Sustainability is often said to depend on “three pillars”: Economic activities Social activities Environmental activities Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Net Zero Net zero means the state at which enough greenhouse gas emissions are removed from the atmosphere to offset the amount produced by human activities. At net zero, carbon dioxide emissions are still generated, but an equal amount of carbon dioxide is removed from the atmosphere as is released into it, resulting in zero increase in net emissions. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Reaching Net Zero Transportation, energy production (especially the burning of fossil fuels) and industrial processes generate carbon dioxide, methane and other gases known as greenhouse gases (GHGs). These gases trap heat within Earth’s atmosphere and contribute to global warming. Reaching net-zero emissions involves countries, communities and corporations taking steps toward decarbonization. Meaning, they must balance out the emissions they produce by removing an equivalent amount through natural or artificial means, such as using renewable energy sources and implementing carbon capture and storage technologies. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Circular Economy The circular economy is a system where materials never become waste and nature is regenerated. In a circular economy, products and materials are kept in circulation through processes like maintenance, reuse, refurbishment, remanufacture, recycling, and composting. The circular economy tackles climate change and other global challenges, like biodiversity loss, waste, and pollution, by decoupling economic activity from the consumption of finite resources. Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved Questions of Exercise Q1 Consider the corporate Culture of Volkswagen in Germany. How did it affect the situation? Q2 What is your assessment of Volkswagen sense of business ethics and fair play as manifested in the emissions cheating scandal? Copyright © 2018, 2013, 2007 Pearson Education, Inc. All Rights Reserved