Organisation and Society - Course Notes

Organisation and Society Organisation and society {#organisation-and-society.Kopvaninhoudsopgave} ======================== [Week 1 Introduction and characterization of modern society 4](#week-1-introduction-and-characterization-of-modern-society) [Freeman & Parmar. (2007) Stakeholder Capitalism 4...

Organisation and Society Organisation and society {#organisation-and-society.Kopvaninhoudsopgave} ======================== [Week 1 Introduction and characterization of modern society 4](#week-1-introduction-and-characterization-of-modern-society) [Freeman & Parmar. (2007) Stakeholder Capitalism 4](#freeman-parmar.-2007-stakeholder-capitalism) [Friedman. (1970). The Social Responsibility of Businesses is to Increase its Profits 5](#friedman.-1970.-the-social-responsibility-of-businesses-is-to-increase-its-profits) [Johnson. (2002). Globalization: what it is and who benefits 5](#johnson.-2002.-globalization-what-it-is-and-who-benefits) [Stiglitz. (2008). Making Globalisation Work -- The 2006 Geary Lecture 7](#stiglitz.-2008.-making-globalisation-work-the-2006-geary-lecture) [Achterbergh & Vriens. (2009). Organizational structures supporting rich survival 8](#achterbergh-vriens.-2009.-organizational-structures-supporting-rich-survival) [Notes of Lecture 1 10](#notes-of-lecture-1) [Notes of workgroup session 1 13](#notes-of-workgroup-session-1) [Week 2 The underpinnings of responsibility 14](#week-2-the-underpinnings-of-responsibility) [Athanassoulis. (n.d.) Vitue Ethics 14](#athanassoulis.-n.d.-vitue-ethics) [BBC. (2014). About duty-based ethics 14](#bbc.-2014.-about-duty-based-ethics) [Christie, Groarke & Sweet. (2008). Virtue Ethics as an alternative to deontological and consequential reasoning in the harm reduction debate. 15](#christie-groarke-sweet.-2008.-virtue-ethics-as-an-alternative-to-deontological-and-consequential-reasoning-in-the-harm-reduction-debate.) [Nathanson. (n.d.). Act and Rule utilitarianism 16](#nathanson.-n.d..-act-and-rule-utilitarianism) [Dittmer. (n.d.). Applied Ethics 17](#dittmer.-n.d..-applied-ethics) [McCormick. (n.d.). Kant's Ethics and Kant's Criticisms of Utilitarianism 18](#mccormick.-n.d..-kants-ethics-and-kants-criticisms-of-utilitarianism) [Van Staveren. (2007). Beyond utilitarianism and deontology: ethics in economics 18](#van-staveren.-2007.-beyond-utilitarianism-and-deontology-ethics-in-economics) [Notes of Lecture 2 21](#notes-of-lecture-2) [Notes of workgroup session 2 27](#notes-of-workgroup-session-2) [Week 3 Corporate Social Responsibility 28](#week-3-corporate-social-responsibility) [Crane, Palazzo, Spence & Matten. (2014). Contesting the value of "Creating Shared Value" 28](#crane-palazzo-spence-matten.-2014.-contesting-the-value-of-creating-shared-value) [Mosley. (2017). Workers' rights in global value chains: possibilities for protection and for peril 30](#mosley.-2017.-workers-rights-in-global-value-chains-possibilities-for-protection-and-for-peril) [Porter & Kramer. (2011). "Creating Shared Value", Harvard Business Review 31](#porter-kramer.-2011.-creating-shared-value-harvard-business-review) [Waddock. (2008). Building a new institutional infrastructure for corporate responsibility 37](#waddock.-2008.-building-a-new-institutional-infrastructure-for-corporate-responsibility) [Notes of Lecture 3 37](#notes-of-lecture-3) [Notes of workgroup session 3 41](#notes-of-workgroup-session-3) [Week 4 Stakeholder theory 42](#week-4-stakeholder-theory) [Mitchell, Agle & Wood. (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts 42](#mitchell-agle-wood.-1997.-toward-a-theory-of-stakeholder-identification-and-salience-defining-the-principle-of-who-and-what-really-counts) [Scherer & Palazzo. (2007). Toward a political conception of corporate responsibility: Business and society seen from a Habermasian perspective 46](#scherer-palazzo.-2007.-toward-a-political-conception-of-corporate-responsibility-business-and-society-seen-from-a-habermasian-perspective) [Schembera. (2018). Implementing corporate social responsibility: Empirical insights on the impact of UN Global Compact on its business participants 47](#schembera.-2018.-implementing-corporate-social-responsibility-empirical-insights-on-the-impact-of-un-global-compact-on-its-business-participants) [Notes of Lecture 4 49](#notes-of-lecture-4) [Notes of workgroup session 4 55](#notes-of-workgroup-session-4) [Week 5 Institutional theory 56](#week-5-institutional-theory) [Scott. (2013). Crafting an Analytical Framework 1: Three pillars of institutions 56](#scott.-2013.-crafting-an-analytical-framework-1-three-pillars-of-institutions) [Suchman. (1995). Managing Legitimacy -- Strategic and Institutional approaches 57](#suchman.-1995.-managing-legitimacy-strategic-and-institutional-approaches) [Wijen. (2014). Means versus ends in opaque institutional fields: Trading off compliance and achievement in sustainability standard adoption 58](#wijen.-2014.-means-versus-ends-in-opaque-institutional-fields-trading-off-compliance-and-achievement-in-sustainability-standard-adoption) [Schembera, Haack & Scherer. (2003). From compliance to progress: A sensemaking perspective on the governance of corruption 62](#schembera-haack-scherer.-2003.-from-compliance-to-progress-a-sensemaking-perspective-on-the-governance-of-corruption) [Notes of Lecture 5 65](#notes-of-lecture-5) [Notes of workgroup session 5 74](#notes-of-workgroup-session-5) [Week 6 Designers perspective on (ir)responsible organizing 76](#week-6-designers-perspective-on-irresponsible-organizing) [Curran. (2018a). The organized irresponsibility principle and risk arbitrage 76](#curran.-2018a.-the-organized-irresponsibility-principle-and-risk-arbitrage) [Curran. (2018b). Organized irresponsibility, corporations and the contradictions of collective agency and individual culpability 79](#curran.-2018b.-organized-irresponsibility-corporations-and-the-contradictions-of-collective-agency-and-individual-culpability) [Passas. (2005). Lawful but awful: Legal corporate crimes 80](#passas.-2005.-lawful-but-awful-legal-corporate-crimes) [Notes of Lecture 6 84](#notes-of-lecture-6) [Week 7 Career perspectives 86](#week-7-career-perspectives) [Notes of Lecture 7 86](#notes-of-lecture-7) **\ ** Week 1 Introduction and characterization of modern society ---------------------------------------------------------- Learning goals of this week: - Organizations do not operate in isolation - They are embedded in society & affect society - Organizations can make choices - Need to better understand society, to better understand the above - Characteristics of society - Many, interrelated, complex - Disagreement on them, i.e. their effects and the role of organizations in it - O&S -- and Business Administration -- descriptive & normative element ### Freeman & Parmar. (2007) Stakeholder Capitalism This article outlines the principles of stakeholder capitalism and describes how this view rejects problematic assumptions in the current narratives of capitalism. Traditional narratives of capitalism rely upon the assumptions of competition, limited resources, and a winner-take-all mentality as fundamental to business and economic activity. These approaches leave little room for ethical analysis, have a simplistic view of human beings, and focus on value-capture rather than value-creation. They argue these assumptions about capitalism are inadequate and leave four problems in their wake. They wish to reframe the narrative of capitalism around the reinforcing concepts of stakeholders coupled with value creation and trade. If they think about how a society can sustain a system of voluntary value creation and trade, then capitalism can once more become a useful concept. The five narratives of capitalism: 1. Labor capitalism 2. Government capitalism 3. Investor capitalism 4. Managerial capitalism 5. Entrepreneurial capitalism Problems with these traditional narratives 1. The problem of competition 2. The problem of business ethics 3. The problem of the dominant group 4. The problem of business in a liberal democracy Stakeholder capitalism Adults have freedom to do what they want, including making voluntary agreements that are sustainable over time. Individuals have rights protecting them in those agreements. **Principles of stakeholder capitalism** 1. The principle of stakeholder cooperation Value can be created, traded, and sustained because stakeholders can jointly satisfy their needs and desires by making voluntary agreements with each other that for the most part are kept. 2. The principle of stakeholder engagement To successfully create, trade and sustain value, a business must engage its stakeholders. 3. The principle of stakeholder responsibility Value can be created, traded and sustained because parties to an agreement are willing to accept responsibility for the consequences of the action. 4. The principle of complexity Value can be created, traded and sustained because human beings are complex psychological creatures capable of acting from many different points of view. 5. The principle of continuous creation Business as an institution is a source of the creation of value. Cooperating with stakeholders and motivated by values, businesspeople continuously create new sources of value. 6. The principle of emergent competition Competition emerges from a relatively free society so that stakeholders have options. Competition is an emergent property rather than a necessary assumption to capitalism. The current narratives of capitalism assume naïve self-interest, the separation of business and morality, and that valuable resources are limited. Business should be about the best we can create together, rather than about avoiding the worst. ### Friedman. (1970). The Social Responsibility of Businesses is to Increase its Profits Friedman argues that the primary responsibility of a business is to its shareholders, and its sole objective should be to increase profits, provided it stays within the rules of law and ethical custom. He opposes the idea that businesses have social responsibilities beyond profit maximization, suggesting that social issues are best handled by individuals and the government, not corporations. What does it mean to say that business has responsibilities? Only people can have responsibilities. A corporation is an artificial person and, in this sense, may have artificial responsibilities, but business as a whole cannot be said to have responsibilities, even in this vague sense. ### Johnson. (2002). Globalization: what it is and who benefits Globalization is more than the international movement of goods and investment. The flow of ideas from one part of the world to another has increased enormously in the past two centuries. The Nineteenth Century saw the beginnings of an enormous expansion of knowledge about living things -- specialized institutions devoted to the creation of knowledge were created, including research universities and research institutes. The knowledge that was created, such as the germ theory, was gradually made available throughout the world. The world's poor people have benefitted enormously as evidenced by a large increase in life expectancy in developing countries, a 60% decline in child mortality in less than four decades, a doubling of gain yields in developing countries after the mid-1960s and a large increase in per capita caloric food supply. At one time, the per capita income of Asia was 10% greater than in Western Europe. Today the difference from the highest to the lowest region is approximately 19 times greater. **What made globalization possible and effective?** 1. Increasing knowledge 2. Faster and cheaper transportation 3. Faster and cheaper communication 4. The growth of income that permitted the expansion of trade 5. Reductions of barriers to trade **Why the world is different now: knowledge** Not so long ago the life expectancy at birth was 25-35 years. 75% of the people consumed less than \$1 per day, very few were literate and 80-90% of the world's labor force was used to produce food. Now we have a far better understanding of the laws of nature and how to use our resources more effectively than ever before. **Sources of benefits of globalization** Globalizations is generally associated with the flow of goods. Yet Johnson gives four more aspects. 1. The flow of ideas, in combination with rapid communication. 2. The flow of capabilities, transformation of ideas into products or processes. 3. The spread literacy and education. 4. The flow of institutions and policies required for sustained economic growth. The increase in inequality has not been because the poor have gotten poorer, but because the rich have gotten far richer. **Life expectancy** Looking at life expectancy there can be no doubt that the benefits of globalization have become available to the poorer countries. The increases in life expectancy in the developing countries has been due primarily to the increased availability of clean water, improved sanitation, the availability of vaccination for childhood diseases, and increased food supplies. Hardly any of these benefits would have been available to the poorer people of the world without globalization, the spread of ideas and capabilities. **Increased agricultural productivity** The developing countries were following the developed countries. **Immunization** Immunization by vaccination have been important in reducing child mortality. Without globalization very few of these children would now be protected against major childhood diseases. **Knowledge** Much of knowledge has been discovered in the industrial world. Knowledge generally requires transformation into products and services before the knowledge impacts our lives. **Where markets have not been permitted to function** Globalization has increased the inequality of income. In China the ratio of per capita urban to rural consumption was 3.5 in 1999, due to three reasons. First, for more than four decades Chine has restricted migration from rural to urban areas. Second, investment in China has been biased in favor of urban areas, 70% of investments went to urban areas with less than 30% of the population. Third, discrimination in provision of education. Rural people get less and poorer quality education than urban people. **Concluding** Not all of the effects of globalization are positive for all people all the time. Whenever new knowledge is created, some people will be adversely affected. Economic growth requires change, perhaps the most striking is the adjustment of labor employed in agriculture. ### Stiglitz. (2008). Making Globalisation Work -- The 2006 Geary Lecture **Introduction** Stiglitz explains how the book \"Making Globalization Work\" was inspired by his wife's challenge to offer solutions to the problems of globalization. He sets the stage by listing four objectives: identifying legitimate complaints, analyzing changes, diagnosing failures, and proposing remedies to improve globalization. **What are the Legitimate Complaints about Globalization?** Stiglitz details the failures of globalization, emphasizing how trade agreements disproportionately benefit wealthy countries. He discusses the unfair distribution of benefits from the Uruguay Round, highlighting that subsidies and tariffs from developed countries harm developing nations. Additionally, global financial systems have failed to address the flow of capital and risk, causing crises in poorer countries, while many are burdened by crushing debt. **Are Things Getting Better or Worse?** This section evaluates whether globalization is improving. While some countries, such as China and India, have benefited from global trade and technological advancements, poorer nations, particularly in Africa, are left behind. Stiglitz also critiques policies, such as capital market liberalization, for exacerbating instability and inequality. **Why Globalisation Has Not Lived Up to its Potential** Stiglitz identifies three core problems with globalization: - Trade: Unbalanced trade agreements harm developing countries. - Financial Markets: Capital market liberalization has led to instability. - Resources: Wealthy countries fail to share resources fairly. He critiques how economic globalization has outpaced political systems, with developed countries focusing on their self-interest rather than global cooperation. **Intellectual Property Rights** Stiglitz critiques the global intellectual property regime, specifically the TRIPS agreement from the Uruguay Round, for its negative effects on access to life-saving medicines in developing countries. He proposes alternative systems, such as prize-based incentives, to encourage innovation without imposing undue costs on the world's poorest. **Global Warming** Stiglitz highlights global warming as a major failure of global governance. He emphasizes that addressing climate change is essential for global survival and suggests using trade sanctions as a tool to compel compliance from countries like the U.S., which has been a significant polluter and resistant to international agreements like the Kyoto Protocol. **Global Debt** The section on global debt describes the shortcomings of past debt relief initiatives, particularly for the poorest countries. Stiglitz argues that debt burdens continue due to systemic problems in the global financial system, which forces developing countries to bear the risks of exchange rate and interest rate volatility. **Concluding Remarks** Stiglitz concludes by warning that globalization will continue to change, but whether it improves or worsens will depend on proactive efforts to address its systemic failures. He advocates for deliberate reform rather than reactive crisis management. ### Achterbergh & Vriens. (2009). Organizational structures supporting rich survival Aristotle's ethics provides us with a description of what it means to live a fulfilled life. What this article is after is formulating a set of principles allowing for the design of organizational structures supporting rich survival. In order to find both these principles and the structures that result from their application, we need to take two additional steps. Rich survival is about organizations contributing to the creation of societal conditions, enabling human beings to live a fulfilled life. Once we have a model of how organizations are related to society, we can go into the question what this relation should look like. **Incorporating the Organization into Society** Aristotle's political theory provides the basis for deriving requirements and design principles for rich survival. According to Aristotle, ethics and politics have the same end: the fulfilled life of the individual. Human beings are naturally disposed to live together in a community and their individual virtue necessarily has a social dimension as it both depends on and addresses problems of living together in that community. A society is both a condition for and a result of the virtue of the individuals living in it. In Aristotle's view on politics, he inquires how the polis (the city-state) should be ordered to create the conditions for the virtuous development of its citizens, enabling them to live a fulfilled life. In Aristotle's times, segmentation and stratification were prevalent forms of differentiation. Modern society on the contrary, can be characterized as a predominantly functionally differentiated society. Luhmann (1998) defines a functionally differentiated society as a society consisting of a manifold of "societal subsystems" each devoted to handling a particular societal problem. Each societal subsystem has its own unique societal function, realizing a particular societal value. For instance, it is the function of the subsystem "law" to incorporate into society. According to Luhmann, societal subsystems are autopoietic. They exist by virtue of the production to subsystem-specific communications by subsystem-specific communications. Each societal subsystem, in the first place, has its own code. In the second place, societal subsystems develop their own structures guiding their autopoietic production. Luhmann thinks it is impossible to guarantee the success of attempts at overall steering of society, integrating modern society from a central locus of control in his view is impossible. The organizations we know operate in this functionally differentiated society, they are a part of it, they exist by virtue of it, and they contribute to it. To describe their relation to society it is useful to introduce the distinction between the performance and function of organizations. Performance means that each organization has a set of primary activities selected by that organization, constituting its reason to exist. Function means that by means of their performance, organizations contribute to the realization of the function of a societal subsystem. As a rule, organizations have a dominant function, their performance contributes to one societal subsystem. With this, organizations affect other societal sub-systems (by paying taxes, hospitals function). This relation is important when organizational performance becomes dysfunctional or cause unwanted side effects in other functional subsystems (using cheap toxic materials, with all problems around). To decrease the probability of performance related dysfunction or unwanted side effects, societal systems develop attenuating programs. Organizations, in turn, incorporate these programs into their decision premises and decisions, thus incorporating societal values and norms into their structures and elements. In spite of the incorporation of attenuating societal programs into decision premises, imbalances can still exist between the performance of organizations and their function in and effects on society. To stimulate reflection in organizations on both their social responsibility and the societal effects of their decisions, societal subsystems may develop programs, instituting audits or duties of disclosure. These programs increase the probability of an organizational awareness of social responsibility and a reflection on the societal effects of its performance. Afbeelding met tekst, schermopname, Lettertype, lijn Automatisch gegenereerde beschrijving Fig. 1 Incorporating the organization into society Arrow 1:\ Amplifying programs are designed to decrease the probability of dysfunction and unwanted societal side effects of organizational decisions. Attenuating programs are developed to increase the probability of internal reflection on the societal side effects and social responsibility of organizational decisions. Arrow 2:\ Decision premises that structure the production of organizational decisions. Arrow 3:\ By reinforcing these premises, it can strengthen the organization's awareness of and reflection on its societal role and responsibility. Which again can contribute to reinforcement of the societal programs they incorporate. Arrow 4:\ When organizations comply with decision premises incorporating societal programs, these programs themselves are reinforced becoming a common societal practice. By incorporating societal programs into their decision premises and decisions, organizations not only incorporate society into themselves, but they also incorporate themselves into society. ### Notes of Lecture 1 Organizations can make choices so that it contributes to society in a meaningful way, where it contributes to employees and civilians living a fulfilled life. The choice of an organization can also be to not focus on a sustainable contribution to society. As an organization you can make choices within society but you are also influenced by the society. **FairWear Foundation** The clothing supply chain has loads of factors which make controlling the working environment so difficult. FWF does so, by controlling the fabric and its employees, therefor they have connection throughout the whole supply chain. **The interdependence between organizations and society** Maneuvering of organizations in society can be understood as a two-way process. 1. Designers in organizations can choose to incorporate specific programs into the organization 2. Designers in organizations can choose to contribute to specific programs in society. **Course goal** Society had different perspectives and explanations. There are different concepts, approaches, theories that explain the link between organization and society. The course contains both descriptive and normative elements. Van der Kolk (2018) explains: One reason why scandals persist it that the textbooks used in most elementary management accounting courses ignore the connection between unethical business practices and accounting techniques. This ignorance led students to believe that business decisions are only technical, and bear no ethical implications. We need to see a much stronger integration of ethical considerations into business education. **Characterization of modern society** - Technology - Globalization - Risk society - Functionally differentiated - Organization - Easy travelling \> overtourism - Capitalist - Competitiveness Two debates - Globalization (Johnson vs Stiglitz) - Capitalism (Friedman vs Freeman) **Risk society** Danger and risk are two different things. Global dependency and new technology had given us the opportunity to transform danger into acceptable risk. But global dependency and new technology has also created new risks, man-made risks. It also creates far more awareness of risks and thus more concerns of potential problems. [**Ulrick Becks concept of the Risk Society**](https://www.youtube.com/watch?v=8e_W6Ax6MZI) After the Chernobyl nuclear disaster in 1986, Beck wrote the book Risk Society. He argued that environmental risks had become the predominant product, not just an unpleasant manageable side-effect, of industrial society. The environmental crises that we keep ignoring and postponing will come back to hurt us, the boomerang effect, no matter how rich or poor someone is. Risk society is the manner in which modern society organizes in response to risk. In a world risk society we are suffering the latent side effects of the victories of modernity. The solutions that we created in the first phase of modernity such as chemical agriculture, electrical energy and rapid transportation lead us to the risks that we face in the second phase of modernity. Reflexive modernization is a process of modernization that is characteristic of risk society whereby progress is achieved through reorganization and reform. Pointing the finger at those who cause the problem may also be difficult. In a risk society we move from analyzing the distribution of goods to analyzing the distribution of bads. Risks are no longer the side effect of industrial society, they become the predominant product of society. In reflexive modernity, key aspects of industrial society, such as the gender division of labour or class division: the very differences that we established for the functioning of industrial society, decrease in importance. [**Chernobyl, how the world became a risk society**](https://www.youtube.com/watch?v=Y21TGmzHHjk) Organized irresponsibility If we hear enough lies, we do not recognize the truth at all. **General characteristics of society** In the past producing societal values was done by primitive groups, tribes, hunting groups and families. As population grew, society became functionally differentiated. Society is complex, decentered, internally differentiated. Systems do not function based on commonly shared norms or consensus, instead each has its own horizon and logic. Societal systems: we have so much knowledge that one person cannot have all this knowledge, so we have health care systems. A health system has a different logic than a political system. Differentiation means specialization, higher knowledge, high technology. Disadvantage, different logics in society, what does bind us together? What is a commonly shared ground. Each social system has its own logic and values. Production of values in these subsystems is done by organizations. Many organizations within each subsystem exists. Dependency of organizations within and between subsystems. *This is what makes society complex.* This complexity asks for organizations to be able to deal with the structurally induced complexities within and between subsystems. **Market society** We live in a globalized market society in which distribution of resources is governed by a global market. In a perfect market situation this would lead to equal distribution of resources. Markets cannot be perfect due to - Limited by government, rules and regulations - Power is unequally distributed - Information asymmetry **Debate on globalization Stiglitz vs Johnson** *Joseph Stiglitz* "The bottom line of all this is that things are improving in the case of some of the problems I listed previously, but in many other cases, they are not. We recognize the problems, but in too many instances, we are not doing enough about them." Globalization: - "Globalisation has meant that we have become more integrated, more interdependent." - Trade relations between nation states & global financial system - Global (trade) institutions, i.e. IMF (International Monetary Fund), World Bank, WTO (World Trade Organization) Some benefits, such as free flow of capital, goods, technology and knowledge Many shortcomings - Majority of wealth seems to flow from poor countries to rich countries - Developing countries burdened with huge debt to US/ IMF under unbearable conditions, which does not enable them to develop *David Gale Johnson* "I should not leave the impression that all of the effects of globalization are positive for all people all the time. \[\...\] The dislocations are primarily the result of growth not globalization except that the greater the degree of integration of an economy into the world economy, the greater will be the rate of growth and the greater the need for change and adjustment. ### Notes of workgroup session 1  Week 2 The underpinnings of responsibility ------------------------------------------ Learning goals of this week: Link to first lecture/overall program/goals O&S - Modes of Incorporation - Theory - Practical Case: Shipbreaking in Developing Countries - The Underpinnings of Responsibility - Utilitarianism, deontological/duty ethics, virtue ethics ### Athanassoulis. (n.d.) Vitue Ethics Virtue = deugd Virtue ethics is a broad term for theories that emphasize the role of character and virtue in moral philosophy rather than either doing one's duty or acting in order to bring about good consequences. The moral advice virtue ethics gives you: "Act as a virtuous person would act in your situation". Virtue ethic theories deal with wider question: "How should I live?" and "What is the good life?" Instead of asking what the right action is here and now, virtue ethics asks what kind of person should one be in order to get it right all the time. It has a virtuous character. Aristotelian character is about a state of being. It is about having the appropriate inner states. The natural tendencies can be encouraged and developed or discouraged and thwarted by the influences one is exposed to when growing up. Moral education and development is a major part of virtue ethics. Moral development relies on availability of good role models. It is a process of habituating oneself in right action. ### BBC. (2014). About duty-based ethics Deontological ethics are concerned with what people do, not with the consequences of their actions. - Do the right thing - Do it because it is the right thing to do - Do not do wrong things - Avoid them because they are wrong You cannot justify an action because it produces good consequences, which is why it is sometimes called 'non-Consequentialist'. The word deontological comes from the Greek deon, which means duty. Duty based ethics is what people are talking about when they refer to the principle of thing. Some actions are wrong or right in themselves, regardless of the consequences. Moral rules of deontologists: - It is wrong to kill innocent people - It is wrong to steal - It is wrong to tell lies - It is right to keep promises People have a duty to do the right thing, even if it produces a bad result. Deontologists in comparison with consequentialists. Consequentialists begin by considering what things are good and identify right actions as the ones that produce the maximum of those good things. Deontologists appear to do the other way around. They first consider what actions are right and proceed from there. (This is what they do in practice, but this is not the starting point of deontological thinking) A person is doing good is they are doing a morally right action. **Good points of duty-based ethics** - It emphasizes the value of every human being. Focuses on giving equal respect to all human beings, which provides a basis for human rights. - Says some acts are always wrong, no matter what good consequences they produce. This allows various duties to be balanced. - Provides certainty. For example, consequentialists bring an uncertainty in that no-one can be certain about what consequences will result from a particular action, because the future is unpredictable. Dury based actions are concerned with the action itself. If an action is a right action, a person should do it. If it is a wrong action, they should not do it. - Deals with intentions and motives. If a person did not intent to do a wrong act, then from a deontological point of view we might think that they had not done anything deserving of criticism. **Bad points of duty-based ethics** - Absolutist. The only way of dealing with cases that do not seem to fit, it to build a list of exceptions to the rule. - Allows acts that make the world a less good place, because it is not interested in the results of the action. - Hard to reconcile conflicting duties. It just does not deal with conflicting duties. ### Christie, Groarke & Sweet. (2008). Virtue Ethics as an alternative to deontological and consequential reasoning in the harm reduction debate. Background: There is strong evidence that harm reduction interventions such as Supervised Injection Sites and Needle Exchange Programs prevent many of the negative consequences of problematic substance use. Yet many governments, including the United States and Canada, still do not endorse these interventions, claiming that they do not get people off of drugs and send a mixed message. Methods: This paper will analyze objections to harm reduction in light of the ethical theories of John Stuart Mill, Immanuel Kant and Aristotle. Results: The most important ethical issue in the abstinence vs. harm reduction debate is whether harm reduction--because it does not require individuals to either reduce their consumption of illicit substances or to abstain from illicit substance use -- can be ethically justified. Conclusion: Harm reduction interventions are clearly justified on Utilitarian grounds because, based on the evidence, such policies would produce the greatest good for the greatest number. However, Kant would not think that the values guiding harm reduction are ethical because the justification of harm reduction interventions focuses exclusively on examining consequences. Virtue Ethics seeks to find the proper balance between harm reduction and abstinence. We claim that the virtue of compassion would provide a defense of harm reduction. ### Nathanson. (n.d.). Act and Rule utilitarianism Utility= nutsvoorziening Utilitarianism is a philosophical view or theory about how we should evaluate a wide range of things that involve choices that people face. Actions, laws, policies, character traits and moral codes. Utilitarianism is a form of consequentialism because it rests on the idea that it is the consequences of things that determine whether they are good or bad, right or wrong. We ought to choose the one that will produce the overall best results, the option that 'maximizes utility'. Do what produces the best consequences. Therefor we need to know three things: 1. What things are good and bad 2. Whose good we should aim to maximize 3. Whether actions, policies, etc. are made right or wrong by their actual consequences or by their foreseeable consequences. **Debate of what is good** Hedonism: The only thing that is good in itself is pleasure (or happiness). Yet many thinkers have rejected hedonism because pleasure and pain are sensations that we feel. Being healthy or honest or having knowledge are though by some people to be intrinsic goods that are not types of feelings. Others see desires or preferences as the basis of value. **Whose well-being** 1. Individual self-interest 2. Groups 3. Everyone affected **Act utilitarianism and Rule utilitarianism** Both agree that the overall aim in evaluating actions should be to create the best results possible, but they differ about how to do that. The key difference between act and rule utilitarianism is that act utilitarians apply the utilitarian principle directly to the evaluation of individual actions while rule utilitarians apply the utilitarian principle directly to the evaluation of rules and then evaluate individual actions by seeing if they obey or disobey those rules whose acceptance will produce the most utility. ### Dittmer. (n.d.). Applied Ethics Three fields of ethics 1. Metaethics 2. Normative ethics 3. Applied ethics Business ethics - Corporate Social Responsibility - Corporations and Moral Agency - Deception (bedriegen) in Business - Multinational Enterprises Bioethics - Beginning of life issues, including abortion - End of life issues - Research, patients, populations and access Moran standing and personhood - Theories of moral standing and personhood - The moral status of non-human animals Professional ethics - What is a profession? - Engineering ethics Social ethics, distributive justice and environmental ethics - Social ethics - Distributive justice and famine relief - Environmental ethics ### McCormick. (n.d.). Kant's Ethics and Kant's Criticisms of Utilitarianism **Kant's Ethics** Kant is the primary proponent in history of what is called deontological ethics, the study of duty. Kant: "Act only according to that maxim by which you can at the same time will that it should become a universal law". **Kant's criticisms of utilitarianism** Utilitarian moral theories evaluate the moral worth of action on the basis of happiness that is produced by an action. Whatever produces the most happiness in the most people is the moral course of action. Kant has an insightful objection to moral evaluations of this sort. The essence of the objection is that utilitarian theories actually devalue the individuals it is supposed to benefit. If we allow utilitarian calculations to motivate our actions, we are allowing the valuation of one person's welfare and interests in terms of what good they can be used for. It would be possible, for instance, to justify sacrificing one individual for the benefits of others if the utilitarian calculations promise more benefit. Doing so would be the worst example of treating someone utterly as a means and not as an end in themselves. Another way to consider his objection is to note that utilitarian theories are driven by the merely contingent inclination in humans for pleasure and happiness, not by the universal moral law dictated by reason. To act in pursuit of happiness is arbitrary and subjective and is no more moral than acting on the basis of greed, or selfishness. All three emanate from subjective, non-rational grounds. The danger of utilitarianism lies in its embracing of baser instincts, while rejecting the indispensable role of reason and freedom in our actions. ### Van Staveren. (2007). Beyond utilitarianism and deontology: ethics in economics This article starts from a methodological position that fact and value are mutually related, both in the real world and in economic analysis. It then discusses deontological ethics. This approach is concerned with equality and dignity, as expressed in right and norms, and how these rights and norms constrain individual choices. Deontology is thus different from the utility maximization of utilitarian ethics, where ethics appears in utility functions as moral preferences. The paper then argues that, although deontology does better than utilitarianism in analyzing ethics in economics, it has its own weaknesses. These weaknesses require another theory of ethics for economics, virtue ethics, which emphasizes the interrelatedness of agents and commitment to shared values beyond the rules that a society has institutionalized. Virtue ethics internalizes morality not as a preference or a constraint, but through the practices in which agents are related in their pursuit of value added. *It starts with the position that fact and value are mutually related, both in the real world and in economic analysis.* **From utilitarianism to deontology** Utilitarianism, which focuses on maximizing individual utility, is central to traditional moral considerations but has been replaced in welfare economics by the Paretian principle, which rejects redistributions that make someone worse off and removes the ethical basis of utilitarianism from welfare analysis. This shift has led to critiques and the exploration of alternative ethical frameworks, such as deontology. Deontological ethics, championed by Kant, asserts that morality is a matter of duty and rational principles, not consequences or utility. It emphasizes universal moral rules, such as fairness and respect for human dignity, suggesting that people should never be treated as means to an end, and moral limits should guide behavior regardless of economic outcomes. *Deontology in economic theory: opposition* At first, deontology---focused on duties and moral rules---may seem incompatible with economics, which emphasizes choices and outcomes. However, normative requirements like rights and norms are essential for the functioning of markets and economic behavior. In mainstream economics, moral rules are viewed as necessary constraints to protect market efficiency and fairness, focusing on property rights and free competition. In contrast, heterodox traditions see a broader role for deontological ethics, emphasizing human dignity and fairness, often advocating for rules that address market externalities, inequality, and exploitation. This view supports the idea that ethical norms can enhance positive freedom by ensuring fairer resource distribution and social welfare. Importantly, deontology\'s emphasis on universal moral duties does not inherently harm economic incentives but can, instead, reduce negative externalities and increase long-term productivity, as shown by historical examples of successful economies that adopted redistributive policies. Understanding these different perspectives allows for a more nuanced approach to analyzing the ethical implications in economic theory and policy. *Deontological economics and its limitations* Deontological ethics, while emphasizing universal moral rules and duties, plays a key role in economic theory by constraining behavior to enhance freedom---whether through ensuring market competition (negative freedom) or promoting redistribution for social justice (positive freedom). However, deontology faces notable limitations. It cannot address all moral dilemmas, as life is too complex to be governed solely by rules. It also struggles with resolving conflicts between competing moral rules, offering no hierarchy or exceptions for difficult choices in real-life situations. This rigidity suggests that while deontology is valuable, a more flexible ethical approach may be needed to account for the nuances of human and economic life. **Virtue Ethics** *The ethical theory of virtues* Aristotle, the founder of virtue ethics, emphasizes the moral character of individuals and views virtues as traits shaped through social relationships and communities. Unlike deontology, which relies on universal moral rules, virtue ethics is contextual and seeks to balance reason and emotion in specific situations. Martha Nussbaum highlights the importance of emotions in ethical reasoning, acknowledging human vulnerability. For Aristotle, the \"good\" is pursued for its own sake, achieved through a balance between excess and deficiency, distinguishing virtue ethics from utilitarianism and deontology. Virtue ethics embraces human fallibility and complexity, rejecting strict rule adherence and emphasizing learning through trial and error within communities. It acknowledges that no universal standard of \"good\" exists; virtues are shaped by shared values. Every virtue finds balance between extremes, making the pursuit of virtue complex and imperfect. Aristotle also recognizes human will\'s weakness, as people often fail to achieve virtue due to indecisiveness or self-deception. Despite its strengths, virtue ethics has limitations. It was initially designed for individuals rather than societal structures, making adaptation to global issues challenging. Aristotle's framework was based on a privileged community in Athens, excluding marginalized groups. In today's complex world, it struggles to address virtuous behavior toward distant groups, raising questions about whether good intentions lead to good outcomes. In response to critiques, virtue ethics acknowledges that good intentions alone do not guarantee positive results. It emphasizes balancing intentions with social processes, such as feedback and reputation. The Brent Spar case illustrates this: Shell's decision to sink an oil platform, despite criticism, ultimately resulted in an environmentally sound solution by combining good intentions, reputation management, and environmental concerns. The second critique of virtue ethics concerns its small-scale focus. While Aristotle's theory suits close-knit communities, critics argue that virtues can also thrive in larger, more anonymous settings through trustworthiness and reputation. Although enforcing moral rules may be more challenging in larger contexts, virtue ethics remains relevant by fostering intrinsic values in social and economic relationships. *Virtue ethics in economic theory: virtuous economic behavior* The application of virtue ethics to economics highlights the interplay between economic behavior and social practices, emphasizing that morality is contextual rather than universal. Here are the key points: 1. Contextual Morality: Virtue ethics understands morality as embedded in specific contexts (time, place, social circumstances) and views economic practices as shaped by ethical motivations and practical realities like scarcity and uncertainty. 2. Economic Practices as Ethical Practices: Economic activities are seen as cooperative efforts among agents to create value, motivated by shared values rather than just external rewards (like profit). Overemphasis on profit can undermine the moral integrity of the practice. 3. Agent Motivation\*\*: Virtue ethics prioritizes intrinsic motivation (ethical responsibility and commitment) over extrinsic motivation (financial incentives), as the latter can erode moral responsibility and weaken productivity. 4. Trust and Reputation: Trust and reputation serve as social mechanisms that foster cooperation and reduce transaction costs. A shared commitment to values helps build trust, while a lack of shared values can lead to opportunism. 5. Balance Between Deficiency and Excess: Virtue ethics stresses the need for balance in economic practices. Excessive focus on external rewards can lead to unethical behavior (e.g., corporate fraud), while neglecting external needs can threaten sustainability. 6. Virtuous Economic Agents: Economic agents should be reflective and guided by internal values (like fairness and responsibility) while navigating external contingencies (such as scarcity and power dynamics). Overall, virtue ethics provides a nuanced understanding of economic behavior by focusing on moral dimensions, intrinsic motivation, and the complex relationships between agents, promoting a balance that fosters individual and community flourishing within the economy. **Conclusion** Paradoxically, neo-classical economics, which integrates morality through moral preferences in utility functions, struggles to reflect the diverse expressions of morality in economic life. In contrast, other theories, such as new institutional economics and Post-Keynesianism, primarily draw on deontology and virtue ethics. The deontological approach frames morality as rights and norms that support markets and competition, but it reduces morality to constraints and often leads to bureaucratic inefficiencies. Virtue ethics, on the other hand, sees morality as arising from internal mechanisms in economic practices, emphasizing reputation, responsibility, and trust without external enforcement. However, it is contextual and requires shared values among agents, ideally without significant power imbalances. Further research is needed to explore how these ethical approaches relate to utilitarianism within specific economic processes, as a comprehensive understanding of ethics in economics requires insights from both perspectives. ### Notes of Lecture 2 Main question: How can designers help organizations to provide a responsible contribution to society? In order to do so, we need to understand what choices can be made (by designers) to maneuver organizations responsibly in society and the type of society we live in. How can designers help organizations to provide a responsible contribution to society? By deepening our understanding of the relation between organization and society (4 different modes of incorporation and 3 normative underpinnings of responsibility). In order to do so, we need to understand what choices can be made to maneuver organizations responsibility in society and the type of society we live in. **The concept of incorporation** Afbeelding met tekst, schermopname, Lettertype, lijn Automatisch gegenereerde beschrijving Why is this concept a 'two-way-concept'? - Organizations incorporate society into themselves - Organizations attenuate or amplify programs, rules, cognitive schemes etc. by what they do Organizations can make choices to contribute to society and with a focus on expanding market share. To understand how organizations position themselves. The way how organizations incorporate societal programs into their decisions and decision premises, can differ → freedom of choice. Achterbergh and Vriens mention 4 modes of incorporation:  In the "isolating" mode, incorporation consists of nothing more than a "cost/benefit" analysis, weighing "costs" and "benefits" of compliance or non-compliance with relevant program In the "inclusive" mode, organizations incorporate societal programs into their decision premises because they decide it is the right thing to do and they decide it is the right thing to do, because they consider these programs as enabling citizens to live a fulfilled life. *Exemplary exam question resit 19-20\ For each of the modes, argue how this mode would look for incorporation of labor safety laws in Bangladesh by a shipbreaking company. Do that by imagining for each mode a shipbreaking company that acts according to that mode. Explain what the respective company would do. (12 point)* Box 1: Instrumental/isolating & incorporation of societal programs - Sticking to programs because it contributes to contingent goals - Main motivation: not being punished; sticking to rules that are enforced to avoid costly punishment or loss of reputation Box 2: Instrumental/isolating & incorporation BEYOND societal programs - Going beyond programs because it contributes to contingent goals - Main motivation: go beyond programs out of own, contingent goals Box 3: Responsible/inclusive/integrity & incorporation of societal programs - Sticking to programs because this is the right thing to do - Main motivation: Follow rules as the rules reflect good behavior - Example: protective equipment Box 4: Responsible/inclusive/integrity & incorporation BEYOND societal programs - Going beyond programs because this is the right thing to do - Main motivation: conviction that protecting workers' health during their working hours as well as later on (accidents and toxics have long-term effect), is the right thing to do **Modes of incorporation summary** Instrumental/isolating vs. responsible/inclusive/integrity - "The difference between the two is not that deliberation and judgment are involved, but rather the kind of deliberation and judgment." (Achterbergh & Vriens, 2010, p. 352-353) - IM: What helps to realize contingent organizational goals? Is it 'smart' for the organization? - RM: Is incorporation the right thing to do? -- Irrespective of punishment, costs etc - Modes of incorporation -- a tool for reflection on complexity of discourse on organizational responsibility - Example: linking modes to the Friedman/Freeman et al. debate - Friedman (1970): - The responsibility of companies is to make profit. - Freeman et al (2007): - Neutral description of stakeholders -- in line with instrumental mode - Reading of stakeholder perspective as 'the right thing to do' in line with integrity mode - Corporation is good for organizations Instrumental approach. - Let's get better by cooperating. **From the concept of incorporation to the philosophical underpinnings of responsibility** Incorporation = how organizations select, interpret and integrate When organizations choose a certain 'how', they also make a decision that is underpinned by 'deeper' normative positions - But why do organizational -- corporate, governmental etc. --decisions have such an underpinning? **The underpinnings of responsibility -- the mutual relation between fact and value** Irene van Staveren (2007) on ethics in economics: Values are part of economic analysis, alongside and frequently intertwined with facts, rather than being separated from facts in the form of policy recommendations following a supposedly value-free analysis. **The underpinnings of responsibility -- the mutual relation between fact and value** Values are intertwined with facts - the Covid stringency index: "This is a composite measure based on nine response indicators including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest). If policies vary at the subnational level, the index is shown as the response level of the strictest sub-region. - Economics, business administration, sociology, political sciences \... = social science - Social science ≠ natural science - Natural science: natural laws - Social science: the interaction between human beings - Organizations & society -- mutual relation **The underpinnings of responsibility -- prescriptive/normative vs. descriptive ethical traditions** Underpinnings are rooted in different philosophical traditions We look at three of those: - Utilitarianism or consequentialism (e.g. Bentham, Mill). - Deontological or duty ethics, i.e. Kant - Virtue ethics (e.g. Aristotle) → All three are prescriptive/normative traditions Prescriptive/normative: what should one do / ought to do, when confronted with a moral issue? Descriptive perspective: what do people believe to be right, how do they deal with moral issues etc. **Utilitarianism** - An action is morally right if the consequences of that action are more favorable than unfavorable. - The end result of an action. - Morality is all about producing the right kinds of overall consequence - Different types of consequentialism - Utilitarianism as one type of consequentialism Historical background: "Consequentialist theories became popular in the 18^th^ century by philosophers - who wanted a quick way to morally assess an action\ by appealing to experience, - rather than by appealing to gut intuitions - or long lists of questionable duties. - In fact, the most attractive feature of consequentialism is that it appeals to publicly observable consequences of actions." (Fieser, n.d.) How to assess what the best moral decision/action is? - Need to make a cost-benefit analysis resulting in an overall measure of 'goodness' /'utility' of the potential options to act How? - Identify the positive outcomes/benefits of an action - Identify the negative outcomes/costs of an action - Calculate the 'utility'/overall 'price' of an action - Choose the option with the highest utility The best action is based on a process of calculation of an action and its consequences ≠ deontology & virtue ethics Organizations would need to make cost-benefit analysis: the right thing to do is the one that has the best outcome - But how to calculate 'best outcome'? -- See very different responses by governments to Covid-19/Covid stringency index - Fast Fashion vs. Slow Fashion - Whom to include in your calculation? - Which time horizon to cover? - What is seem best differs - Often organizations need to make decisions under the conditions of scarcity. - Is it possible to make a fair cost-benefit analysis? Yes, no, how etc.? Limitations of utilitarianism - Whom to take into account? - Can positive and negative outcomes be measured? A scale for health, economic benefit, freedom to meet etc.? For example, during the corona crisis? - Equality: total amount of benefit/happiness etc. ≠ equal distribution - Personal rights that are 'uncalculable'/value of life? How to compare/weight positive and negative outcomes? - How much 'health units' are worth an 'economic-benefit-to-society' unit? **Deontology/duty ethics** Focus on general, binding rules - Actions based on sense of duty, law or principle - Deon = duty - Need to do the right thing, even when it produces bad results = non-consequentialist - It does not look at the results. Several deontological approaches exist -- [we focus on Kant's approach] - Ethics is about what is good - But: What is good in all situations, contexts etc.? - Only an action done for a good will is always good - i.e. independent of the context and the consequences - How to come to know whether an action is an action of good will? - Needs to pass the test of the Categorical Imperative - Focus on the doing, not the outcome - Only an action [done] for the good will is always good. How do you know whether an action is an action of good will? - Categorical Imperative - as a test for what is an action of good will - as the basis of all other rules - Kant: convinced that "it was possible to develop a consistent moral system by using reason" (BBC, 2014) ≠ God, or 'natural laws' etc. - Universal application (even to God, angels etc. Two versions of the categorical imperative 1. Always act in such a way that you can also will that the maxim of your action should become a unviersal law. 2. Act so that you treat humanity, both in your own person and in that of another, always as an end and never merely as a means. Questioning Kant - Immanuel Kant not only wrote on ethics but also on race - In writings such as \"On the Different Races of Man" he presented a theory on race/superiority of white, European men - How does that fit with his own categorical imperative/theory of ethics? **Virtue ethics** - An emerging concept - Background: - Critism on deontology and consequentialism - Founded on the ideas of Aristotle as outlined in Nicomechean Ethics - Central representative for modern philosophy - Deontology and consequentialism focus on the right action, virtue ethics has a broader perspective: "How should I live? What kind of person should I be?" - Answer: Live a virtuous live, have, or develop a virtuous character. - Wisdom, courage, temperance, justice. - Virtue ethics base their ideas on Aristotelian understanding of character and virtue - The right inner disposition leads to the right action, so then no laws, rules and outcome calculations would be needed). - Good habits of character develop over time - Relevance of moral education and development - For Aristotle, most virtues fall at a mean between more extreme character traits. - Cowardness -- being brave/have courage -- Rechlessness - Development may take one's whole life - If a moral character is established, one does act constantly and in a moral way. - How to develop a moral character? How to find the mean between the two extremes? - By doing it and getting feedback on it - Using intuition, deliberation, judgement on what will realize the desired moral value. - Developing good habits and practical wisdom - Learning from good examples How to realize virtue on the organizational level? - All members of an organization should strive, on an individual level, for being virtuous and acquire good habits as well as practical wisdom. - Organizational structures/programs (HR, technology, culture) need to be set up in such a way that people are enables to act in a virtuous was Limitations - Good intentions alone do not make for good results - Self centered, deliberation from a virtue ethics point of view might not turn out to be right: good motivation, character/habit but non-ideal outcome - Lack of guidance on how to act - A committee that follows utilitarianism can seek to calculate what to do - VE provides less guidance in how to deliberate - Complexity of organizational & societal questions: "The theory was developed for individuals, not for organizations or society, might be adapted, but this is a complex endeavor" - Responsibility of individuals remains unclear as development of character is beyond full individual control. ### Notes of workgroup session 2  Week 3 Corporate Social Responsibility -------------------------------------- Learning goals of this week: - have an understanding of what CSR is about (defining CSR); - know about different approaches to CSR; - have an understanding of how CSR can be practiced; - have an understanding of the complexities of practicing CSR in a global context. ### Crane, Palazzo, Spence & Matten. (2014). Contesting the value of "Creating Shared Value" This paper aims to analyze and evaluate the concept of shared value, to re-legitimize business, to redefine the purpose of corporation, to reshape capitalism, and to supersede corporate social responsibility in guiding the investments of corporations in their communities. And in terms of its overall contribution to understanding the social role and responsibilities of corporations. **The emergence of shared value** The first definition of shared value= Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. The three ways of creating shared value: 1. Reconceiving products and markets by seeking out social problems where serving consumers and contributing to the common good might be achieved in parallel. 2. Redefining productivity in the value chain by simultaneously enhancing the social, environmental and economic capabilities of supply chain members. 3. Enabling local cluster development where various developmental goals might be achieved in cooperation with suppliers and local institutions. **The strengths of the shared value concept** The success among CSV among corporations might result from the ability of Porter and Kramer to frame activities in appealing managerial language. Others have presented corporate responsibility with regards to social and environmental problems as an ethical duty, a political responsibility or a response to business risks. CSV invites corporations to perceive problems as a serious target for genuine business decisions with strategic importance. One of the critical strengths is the unequivocal elevation of social goals to a strategic level. Yet much of the CSR literature has been written with little attention to roles and responsibilities of government. However, Porter and Kramer articulate a clear role for state constructing 'regulations that enhance shared value, set goals and stimulate innovation.' By framing their contribution in terms of broader system-level problems, Porter and Kramer also bring some much needed conceptual development to debates about caring or conscious capitalism. Porter and Kramer contribute with a holistic framework about non-market strategy, social entrepreneurship, social innovation and the bottom of the pyramid in the shape of an umbrella. **Weaknesses and shortcomings of CSV** *CSV is based on false pretenses about the existing CSR (Corporate Social Responsibility) debate\ *The core premises of CSV is similar to existing concepts of CSR, stakeholder management and social innovation. They caricature the CSR literature to suit their own ends and simply herash the existing stakeholder and social innovation literatures without due acknowledgement. Porter and Kramer posit CSR as discretionary or in response to external pressure. They claim that CSR can be much more than a cost, a constraint or a charitable need, it can be a source of opportunity, innovation and competitive advantage. Their view is just a narrow reading of a broad literature and at worst disingenuous. *Unacknowledged debts to extant literature*\ Porter and Kramer fail to acknowledge that their ideas on the simultaneous creation of social and economic value for multiple stakeholders have already been well-developed in the existing literature. 1. Shared value concept 2. Social innovation *CSV ignores the social and economic tensions in responsible business behavior\ *The CSV concept fails to deal adequately with trade-offs between economic and social value creation, and with any negative impacts on stakeholders. Porter and Kramer claim to move beyond such trade-offs, largely by ignoring them. They tend to simplify the complexity of social and environmental issues leading to possible misrepresentation of the relevant investments and outcomes. Instead of promoting the good, CSV might promote more sophisticated strategies of greenwashing. *CSV suggests a myopic focus on reconceiving new products and markets\ *Porter and Kramer refer to the need to shift from creating demand to designing products which are good for customers and meet their needs. This creates the problem of companies that produce products which are questionable social good. *CSV glosses over the complexities of value chains\ *Assuring social and environmental value through the global supply chain is fraught with difficulty even where intentions are good. *CSV does not deliver on the promise of addressing issues of social embeddedness of corporations*\ Porter and Kramer claim that cluster formation will create shared value. Yet, income distribution due to cluster development, may accentuate local inequalities which may lead to migration issues, overcrowding and precarious dependencies on a particular industry. CSV Avoids any deeper thoughts about the systematic responsibility of corporations in society. *CSV is naïve about the challenges of business compliance\ *They appear to harbor rather optimistic assumption about business' appetite to adhere to external norms, most notably laws and regulations. Creating shared value presumes compliance with the law and ethical standards, as well as mitigating any harm caused by the business, but goes far beyond that. The concept of CSV is simply built on the assumption that compliance with legal and moral standard is given. *The CSV concept is strategically incoherent\ *The CSV concept lacks any real strategic coherence. It seeks to transform business thinking, yet makes no mention of the strategy models that might need transforming. It looks to solve the macro systematic problem of capitalism bu changing micro firm-level behaviors. It wants to rethink the purpose of the corporation without questioning the sanctity of corporate self-interest. It seeks to restore business legitimacy without considering either adherence to the rules of the game or role of financial markets. **Conclusion** Shared value is not such a social innovation as it proponents contend, and it may prove counterproductive in its aims to create a better world by reshaping capitalism. Porter and Kramer can only celebrate their innovation at the expense of discounting all those circumstances and constraints which hinder the pursuit of shared value at the expense of economic value creation. The point at which Porter and Kramer deserve credit then is that in the opening parts of their paper they make an eloquent case for the fact that at least the social impacts of corporations are now clearly obvious as to be impossible to ignore by business any longer. ### Mosley. (2017). Workers' rights in global value chains: possibilities for protection and for peril Mosley considers the effect of global supply chain production, in contrast to directly owned overseas production, for labour rights in low- and middle-income countries. He developed a set of hypotheses regarding the conditions under which supply chain workers are most likely to experience improvements in their working conditions and procedural rights. In doing so, he highlights the importance of host country governments in the protection of labour rights: while private governance efforts have intensified in recent years, their success is conditional on local political actor's interests in the protection of workers' rights. Put differently, appropriate protections for labour require that the incentives of participating firms (foreign or domestic) and host country governments align. He also suggests how future research might best explore these dynamics, by focusing its attention at the firm and supply chain level. The global value chains literature rightly draws our attention to the spread of production and consumption across multiple national political jurisdictions. In the last two decades, nearly all economic sectors have experienced a growth in the number of production stages. The change over time in the structure of production, which itself is partly endogenous to the nature of political institutions, has created governance challenges. Beginning in the mid-1990s, a series of high-profile cases brought to light harsh working conditions and collective labour rights, as well as concerns about environmental degradation and the treatment of indigenous peoples, in a range of countries and industries. Private governance of labour brought with it a range of concerns regarding effectiveness and compliance. More broadly, private governance has been insufficient to effect significant improvements in labour conditions in many developing countries. National governments continue to play a key role in affecting the condition of workers in global value chains, and in determining the extent to which workers share in the gains from multinational pro- duction. Given the central role of governments, it is important to treat them as strategic actors, rather than as passive recipients of the pressures generated by the rise of multinational production and global supply chains. The following section offers four hypotheses for conditions under which labor rights are more likely to be protected in global supply chains. 1. Democratic regimes: Workers\' rights are more likely to be protected in democracies where governments have both the capacity and political will to enforce labor protections. In contrast, authoritarian regimes, like China, often prioritize economic growth over labor rights. 2. Left-leaning governments: Democracies with strong labor movements and left-leaning political parties are more likely to enforce labor protections, especially for workers in formal sectors or industries with a history of unionization. 3. High-value markets: Supply chains linked to high-value markets with rights-conscious consumers and shareholders are more likely to protect labor rights. Firms may act to avoid reputational damage and meet consumer expectations for ethical production. 4. Narrow and shallow supply chains: Labor rights are more likely to be upheld in simpler, smaller supply chains. The shorter the chain, the easier it is for lead firms to monitor and enforce labor standards. These hypotheses provide a framework for future research, with a focus on firm- and supply chain-level analysis rather than national studies. The conclusion highlights the complexities in protecting workers\' rights within global supply chains, emphasizing the difficulty of achieving alignment between the incentives of firms, governments, and stakeholders. Effective labor protections are more likely when there is a high demand for labor, particularly skilled workers, or when foreign governments, intergovernmental organizations, and consumers show concern for labor rights. However, in many cases, governments prioritize the interests of investors over workers, creating a significant challenge. For improving labor standards, the willingness and ability of governments to enforce regulations are crucial, as government regulation is seen as the most sustainable solution. However, changing government incentives is difficult. The use of labor-related provisions in trade agreements, pressure from consumers and shareholders, and the expansion of Global Framework Agreements (GFAs) can potentially encourage better enforcement of labor standards across supply chains. It is also noted that the best mechanisms for improving labor rights may vary depending on industry, firm, and country context. Therefore, scholars need to better understand the complex factors that affect labor outcomes in global supply chains, as these factors differ across regions and over time. ### Porter & Kramer. (2011). "Creating Shared Value", Harvard Business Review **The Capitalist System** Business increasingly has bene viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community. The more business has begun to embrace corporate responsibility, the more it has been blamed for society's failures. Companies are trapped in an outdated approach to value creation, where they optimize short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. We still lack an overall framework for guiding these efforts, and most companies remain stuck in a social responsibility mind set in which societal issues are at periphery, not the core. The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth. But a narrow conception of capitalism has prevented business from harnessing its full potential to meet society's broader challenges. The purpose of the corporation must be rede- fined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again. **Idea in Brief** There are three key ways that companies can create shared value opportunities: - By reconceiving products and markets - By redefining the value chain - By enabling local cluster development Every firm should look at decisions and opportunities through the lens of shared value. This will lead to new approaches that generate greater innovation and growth for companies and also greater benefits for society. **Moving beyond Trade-Offs** **In neoclassical thinking, a requirement for social improvement, imposes a constraint on the corporation.** **A related concept is the notion of externalities. Externalities arise when firms create social costs that they do not have to bear, such as pollution. Thus society must impose taxes.** **This perspective has shaped the strategies of firms themselves. Firms have taken the broader context in which they do business as given and resisted regulatory standards as invariably contrary to their interests. Solving social problems has been ceded to governments and to NGOs. Corporate responsibility programs, have emerged largely to improve firms' reputations and are treated as a necessary expense.** **Societal harm and constraints do not necessarily raise costs for new firms, because they can innovate through using new technologies, operating methods and management approaches and as a result, increase their productivity and expand their markets.** **Shared value is not about personal values, it is about expanding the total pool of economic and social value.** ***Example: Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. Therefore, fair trade is mostly about redistribution rather than expanding the overall amount of value created. Instead, a shared value perspective, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers' efficiency, yields, product quality and sustainability.*** **The Roots of Shared Value** **The competitiveness of a company and the health of the communities around it are closely intertwined. A business needs a successful community to create demand for its products, to provide critical public assets and a supportive environment. A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens.** **Old capitalism view: Business contributed to society by making profit, which supports employment, wages, purchases, investments and taxes. This resulted in moditization, price competition, little true innovation, slow organic growth and no clear competitive advantage. The communities perceive little benefit. Instead they perceive that profits come at their expense with high unemployment, local business distress and severe pressures on community services, due to shortening investor time. Managers have focused on the industry, and missed the broader business environment surrounding their major operations.** **How Shared Value is Created** 1. **By reconceiving products and markets** 2. **Redefining productivity in the value chain** 3. **Building supportive industry clusters at the company's locations.** **Reconceiving Products and Markets** **Arguably, society's needs are the greatest unmet needs in the global economy. Too many companies have lost sight of the most basic question: is our product good for our customer?** **Though societal needs are even more pressing, these communities have not been recognized as viable markets.** **For a company the starting point for creating shared value is to identify all the societal needs, benefits, and harms that are or could be embodied in the firm's product. These opportunities are not static, they change constantly as technology evolves, economies develop and societal priorities shift.** **Redefining Productivity in the Value Chain** **The following are some of the most important ways in which shared value thinking is transforming the value chain, which are not independent but often mutually reinforcing. Efforts in these and other areas are still work in process, whose implications will be felt years to come.** ***Energy use and logistics*\ This was triggered by energy price spikes and a new awareness of opportunities for efficiency, even before carbon emissions became a global focus. We are learning that shipping is expensive, not just because of the energy costs and emissions, but because time, complexity, inventory and management costs.** ***Resource use*\ Better resource utilization, enabled by improving technology, will permeate all parts of the value chain and will spread to suppliers and channels.** ***Procurement\ *By increasing access to input, sharing technology, and providing financing, companies can improve supplier quality and productivity while ensuring access to growing volume. Buying local includes not only local companies but also local units of natinal or international companies. When firms buy locally, their suppliers can get stronger, increase their profits, hire more people, and pay better wages, all of which will benefit other businesses in the community. Shared value is created.** ***Distribution\ *New distribution models can also dramatically reduce paper and plastic usage (Google Scholar, online distribution of articles).** ***Employee productivity\ *Many companies traditionally sought to minimize the cost of expensive employee health care coverage. Today leading companies have learned that because of lost workdays and diminished employee productivity, poor health costs them more than health benefits to.** ***Location\ *Logistics are getting expensive, therefor choose to move some activities closer to home and having fewer major production locations.** **Enabling local cluster development** **Local cluster development highlights how a company's success depends on the surrounding network of businesses, suppliers, and institutions. Clusters---such as Silicon Valley for IT---boost productivity and innovation through collaboration and logistical efficiency. Strong infrastructure, education, and fair markets are crucial for thriving clusters, while deficiencies increase costs for companies.** **By investing in clusters, firms create shared value, improving both their own productivity and the community's economic health. This includes developing local suppliers, supporting education, and fostering open markets. Nestlé's Nespresso initiative exemplifies this, enhancing coffee production through local investments while boosting its own efficiency. Cluster development creates a mutually beneficial cycle of growth for companies and communities.** **Creating Shared Value: Implications for Government and Civil Society** **Creating shared value involves collaboration between governments, civil society, and companies. Instead of punitive regulations, governments should promote innovation through performance standards and technology support.** **NGOs like TechnoServe and Root Capital boost productivity by partnering with corporations to develop agricultural clusters, benefiting local economies and supply chains. Foundations, such as the Gates Foundation, also collaborate with businesses, NGOs, and governments to strengthen sectors like agriculture in developing regions.** **Effective collaboration among all parties is key to driving economic and social development.** **Government regulation and shared value** **Government regulation can either support or hinder shared value creation. Effective regulation sets clear goals, promotes innovation, and allows companies flexibility in meeting standards. It encourages both social and economic progress. In contrast, rigid regulations that mandate specific methods stifle innovation and increase costs, slowing shared value creation. Well-designed regulations align business and government interests, while also preventing unfair or exploitative practices.** **Creating shared value in practice** **Not all profit is equal. Profits with a social purpose represent a higher form of capitalism, driving both societal progress and business growth. Creating shared value (CSV) goes beyond legal and ethical compliance, offering opportunities for companies to achieve lasting growth by addressing societal needs. For example, financial services could have promoted responsible home ownership instead of harmful lending practices, as seen with Mexico\'s Urbi.** **Shared value is often tied to a company's core business, leading to sustained commitment and greater impact. Many pioneers in CSV are social entrepreneurs and developing countries' companies, who see opportunities more clearly. CSV opens new ways to serve customers, create products, and configure value chains, fostering sustainable competitive advantages.** **Unlike corporate social responsibility (CSR), which is often reputation-driven and disconnected from core business, CSV integrates societal impact into the company's strategy and profitability. The opportunities for CSV are broad and growing, encouraging collaboration across sectors and aligning business with community prosperity.** **CSV requires new metrics and collaboration, including partnerships with governments, NGOs, and competitors. This approach fosters innovation, enhances local clusters, and aligns corporate interests with societal benefit, driving lasting competitive advantages.** **The Next Evolution in Capitalism** **Shared value is crucial for driving business innovation and reconnecting corporate success with community well-being. It focuses on profits that benefit society rather than harm it. Although short-term gains may be tempting, they often overlook greater opportunities for sustainable growth.** **As social awareness rises and resources become scarcer, businesses have a unique chance to create shared value, enhancing their legitimacy and aligning market competition with societal benefits. This approach requires collaboration between the public and private sectors, necessitating a shift in business education to include resource stewardship, deeper understanding of customer needs, and the importance of local clusters.** **While shared value won\'t solve all societal issues, it empowers companies to use their resources for social progress, ultimately rebuilding trust and respect in the business sector.** ### Waddock. (2008). Building a new institutional infrastructure for corporate responsibility **Conclusion** This paper focuses on the emerging, mostly voluntary, institutional infrastructure, which pressures companies for greater accountability, responsibility, transparency and sustainability, synthesizes as greater corporate responsibility. In addition to voluntary entities, the infrastructure now includes laws that focus mainly on issues of corporate disclosure on environmental, social and governance issues. This rapidly evolving infrastructure attempts, through peer pressure, dialogue, exemplars, activism, standard setting, ratings and rankings, and other tactics, to encourage greater transparency among corporations. **New Expectations for Companies** To go beyond maximizing shareholder wealth to encompass better corporate responsibility on environmental, social and governance issues. - Expected to deliver sustainability reports - Be more transparent about their activities. **The Future of Corporate Responsibility** A major issue facing this emerging infrastructure is the degree of confusion. Yet it is clear that the corporate responsibility infrastructure that has emerged to date has put enough pressure on multinational companies. ### Notes of Lecture 3 We can distinguish at least three main approaches to CSR 1. CSR as corporate philanthropy 2. CSR as risk management 3. CSR as value creation **CSR as corporate philanthropy** Philanthropy= love of humanity - Making profit, but giving back to society - Many social and environmental initiatives depend on such donations Criticism - Lacking connection to firms' core business practices (responsible and irresponsible conduct may happen in parallel) - Only about how firms spend their profits, not how they make them - Limited impact: scarce funds are allocated to different charities - Short term benefits/not always sustainable: funding stopped or reduces in times of crisis - Outsourcing responsibility: corporate competencies and other business assets not fully utilized. **CSR as a form of reputational risk management** - Assumption of an "insurance-like" property of CSR activities: Minimizing reputational and financial risks - Study by Godfrey et al. (2009) differentiates between CSR activities: - Participation in institutional CSR activities ("those aimed at a firm's secondary stakeholders or society at large") è insurance-like effect - Participation in technical CSR activities ("those activities targeting a firm's trading partners") no such effect Criticism - Focuses on preventing bad practices, not on contributing positively to society - Focuses on avoiding damages to firm reputation, not necessarily on how to overcome bad business practices. Current trend: ESG (environmental, social, governance) risk management - 88 percent of professional investors use ESG ratings as part of their investment process. ESG rating industry - But: There is no uniform definition of what ESG is and how ESG performance should be assessed. - Competing perspectives: - ESG measures the impact of social and environmental factors on the company (risk factors that affect performance) - ESG reflects the impact a company has on the well-being of its\ stakeholders - High variance in the quality, consistency and effectiveness of ESG ratings.\ No formalization or joint work by ratings provider **CSR as value creation: the business case for CSR** CSR as a way to improve a firm's financial performance, i.e., CSR is supposed to ‚pay off' Myriads of studies on the link between corporate social performance (CSP) and corporate financial performance (CFP) exist, showing effects on e.g. - stock price (e.g. Flammer, 2013), - employee identification (e.g. Farooq et al., 2017), or - firm reputation (e.g. Miller et al., 2020) Does the business case work?\ Effect strength depends on further context variables (Orlitzky et al., 2003) - Certain industries (e.g., consumer goods) benefit more strongly from CSR - Certain CSR indicators (especially reputation) show stronger effect on CFP And: CSP-CFP causality effect is generally hard to prove (Vogel, 2005), also due to methodological problems (Van Beurden & Gössling, 2009) **The infrastructure of CSR initiatives** CSR is not just about what corporations do. The CSR infrastructure consists of: 1. Market/business initiatices: e.g. codes of conducts, monitoring, and reporting systems, business CSR-associations, responsible investment 2. Civil society/societal institutions, e.g. multi-stakeholder initiatives, NGOs, watchdogs and activists, ratings and rankings 3. State/government institutions, e.g. Acts and laws, standards, directives and\ guidelines, government-led educational programs **The "governance triangle"** Firms operate in the midst of multifold and orchestrated standards Afbeelding met tekst, diagram, Lettertype, lijn Automatisch gegenereerde beschrijving Trend goes towards private-led global governance initiatives  **Global Production Networks** (GPN)= The dominant form of production Afbeelding met tekst, diagram, lijn, Lettertype Automatisch gegenereerde beschrijving CSR in supply chains: responsible business conduct in GPN can be approached on different levels  Firm Level initiatives to improve labor standards in GPN= voluntary codes of conducts and audits as the dominant approach. Critique of the audit-model: - By whom are audits conducted? (dependent/independent) - How are audits conducted? (announced/unannounced, worker voice, \...) - 'audit fatigue' (too many audits per supplier) - 'standard squeeze' (pressure on standards\ while prices are shrinking)\ - No 'shared responsibility' between suppliers\ and buyers ### Notes of workgroup session 3  Week 4 Stakeholder theory ------------------------- Learning goals of this week: - understand the key principles, themes and concepts of a stakeholder perspective. - compare the stakeholder perspective with other prominent perspectives on the role of organizations in society (shareholder perspective & political perspective). - critically reflect on the strengths and weaknesses of each perspective ### Mitchell, Agle & Wood. (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts Stakeholder theory has been a popular heuristic for describing the management environment for years, but it has not attained full theoretical status. The aim of this article is to contribute to a theory of stakeholder identification and salience based on stakeholders possessing one or more of three relationship attributes: power, legitimacy and urgency. By combining these attributes, they generate a typology of stakeholders, propositions concerning their salience to managers of the firm, and research and management implications. Who (or what) are the stakeholders of the firm? And to whom (or what) do managers pay attention? The first question calls for a normative theory of stakeholder identification, to explain logically why managers should consider certain classes of entities as stakeholders. The second question calls for a descriptive theory of stakeholder salience, to explain the conditions under which managers do consider certain classes of entities as stakeholders. **Who is a stakeholder and what is a stake?** **There is early vagueness in the definition of stakeholder: *The notion that corporations have an obligation to consistent groups in society other than stockholders and beyond that prescribed by law or union contract, indicating that a stake may go beyond mere ownership.* This definition is followed by multiple question, which specify the groups. Many scholars have attempted to specify a more concrete stakeholder definition, albeit with limited success.** **Freeman and Reed (1983) recognized the difference about the broad and narrow definition of who or what really counts. The broad definition of a stakeholder as an individual or group who '*Can affect the achievement of an organization's objectives or who is affected by the achievement of an organization's objectives'*. The narrow definition defines stakeholders as those groups '*On which the organization is dependent for its continued survival*'. Freeman's now-classic definition is: '*A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization's objectives*'. In contact, Clarkson offers a narrow definition of stakeholders: *'Voluntary stakeholders bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm. Involuntary stakeholders are placed at risk as a result of a firm's activities. But without the element of risk there is no stake'.*** **Savage, Nix, Whitehead and Blair (1991) consider two attributes to be necessary to identify a stakeholder: 1. A claim and 2. The ability to influence a firm.** **Influencers have power over the firm, whether of not they have valid claims. Claimants may have legitimate claims or illegitimate ones, and they may or may not have any power to influence dimensions. Power and legitimacy are different, sometimes overlapping dimensions and each can exist without the other.** **Another crucial question leading to the comprehensibility of the term "stake" is whether an entity can be a stakeholder without being in actual relationship with the firm. 'No' but this article argues that the potential relationship can be as relevant as the actual one.** **What is the nature of the relationship between the firm and a stakeholder? This article mentions power, dependence and reciprocity in relations.** **What added value does a theory of stakeholder identification offer?** **A state-of-the-field provides an opportunity for a theory of stakeholder identification to move us forward by showing how power and legitimacy interact and, when combined with urgency, create different types of stakeholders with different expected behavioral patterns regarding the firm.** **Defining stakeholder attributes** **[Power]** **Weber (1947): The probability that one actor within a social relationship would be in a position to carry out his own will despite resistance.** **Dahl (1957): A relationship among social actors in which one social actor, A, can get another social actor, B, to do something that B would not otherwise have done.** **Salancik & Pfeffer (1974): Power may be tricky to define, but it is not that difficult to recognize: it is the ability of those who possess power to bring about the outcomes they desire.** **These definitions lead to the following question: How is power exercise? What are the bases of power?** **Etzioni (1964) suggests a logic for the categorization of power in the organizational setting.** - **Coercive power: based on the physical resource of force, violence or restraint.** - **Utilitarian power: based on material or financial resources** - **Normative power: based on symbolic resources.** **[Legitimacy]** **Wether or not the core of legitimacy is to be found in something 'at risk; or in property rights, in moral claims, or in some other construct, articulations of "The principle of who or what really counts" generally are legitimacy based.** **Legitimacy and power are distinct attributes that can combine to create authority.** **Suchman (1995) defines legitimacy as 'a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs and definitions'.** **[Urgency]** **Merriam-Webster: 'Calling for immediate attention' or 'pressing'.** **This article believes urgency is only met when two conditions are met. First when a relationship or claim is of a time-sensitive nature. Second, when that