CSR , Business Ethics and Ethical Theories

 

From accounting scandals to pollution to executive compensation, Business Ethics has always been a hot topic.  It is related to the broader field of Corporate Social Responsibility (CSR), plays a role in ethical investing and may or may not influence sustainable (“green”) business as well.

Ethics are codes of values and principles that govern the action of a person, or agroup of people regarding what is right versus what is wrong (Levine, 2011; Sexty, 2011). Therefore, ethics set standards as to what is good or bad in organizational conduct and decision making (Sexty, 2011). It deals with internal values that are a part of corporate culture and shapes decisions concerning social responsibility with respect to the external environment. The terms ethics and values are not interchangeable (Mitchell, 2001). Whereas ethics is concerned with how a moral person should behave; values are the inner judgments that determine how a person actually behaves. Values concern ethics when they pertain to beliefs about what is right and wrong.

Business Ethics is the moral guidelines for the conduct of business based on notions of what is right, wrong and fair. Most business people rely upon their own consciences in making business decisions, falling back upon their own moral and religious backgrounds for guidance. However, business people are also affected by their superiors and immediate colleagues when making business decisions and may feel pressurized to behave unethically when seeking to make profits. Over recent years many firms and industries have attempted to develop codes of conduct which can be used to guide managers when making decisions.

Business ethics is defined as the rules, standards, codes, or principles that provide guidance for morally appropriate behavior in managerial decisions relating to the operations of the corporation, and business relationship with the society (Sexty, 2011). It applies to all aspects of business conduct and is relevant to the conduct of individuals and the entire organization (Mitchell, 2001). There are three levels of ethical standards i.e., the law, policies and procedures, and moral standards of employees (Josephson, 1988)

Corporate Social Responsibility is a business philosophy which stresses the need for firms to behave as good corporate citizens, not merely obeying the law but conducting their production and marketing activities in a manner which avoids causing environmental pollution or exhausting finite world resources. Some businesses have begun to behave in a more socially responsible manner, partly because their managers want to do so, and partly because of fear of environmentalist and consumer pressure groups and the media, and concern for their public image. It is argued that socially responsible behaviour can pay off in the long run, even where it involves some short-term sacrifice of profit.

Companies or corporations are facing increasing demands that, they look beyond their own interests and prioritize those of the societies in which they operate (Broomhill, 2007). The notion that, business enterprises have responsibilities to society beyond that of making profits for shareholders has been around for centuries (Carroll, & Shabana, 2010). This is because businesses host their operations within society, and in return, society expects business to show responsibility for aspects of their operations (Bichta, 2003). It is no longer acceptable for a firm or corporation to experience economic prosperity in isolation from the stakeholders within its immediate and as well the wider environment (D’Amato et al., 2009). Accordingly, the quality of relationships that an organization has with its employees and other key stakeholders (e.g., customers, investors, suppliers, public and governmental officials, activists, and communities) is crucial to its success. Corporate Social Responsibility (CSR) can be understood as an integrative management concept, which establishes responsible behavior within a company, its objectives, values and competencies, and the interests of stakeholders (Meffert & Münstermann, 2005). It refers to a business system that enables the production and distribution of wealth for the betterment of stakeholders through the implementation and integration of ethical systems and sustainable management practices (Frederick, 2006). Furthermore, CSR refers to the responsibility of enterprises for their impacts on society; and the consequences for the integration of social, environmental, ethical, human rights, and as well consumer concerns into business operations and core strategy, in close collaboration with stakeholders (European Commission, 2011).

Corporate Social Responsibility (CSR) is when a company operates in an ethical and sustainable way and deals with its environmental and social impacts. This means a careful consideration of human rights, the community, environment, and society in which it operates.

The 2015 Cone Communications/Ebiquity Global CSR study found that a staggering 91% of global consumers expect businesses to operate responsibly to address social and environmental issues. Furthermore, 84% say they seek out responsible products wherever possible.

In essence, responsibility is one of the core five elements of ethics:

• Honest
• Respect
• Fairness
• Compassion
• Responsibility

Ethics requires all five. Therefore, a corporation can have a strong sense of responsibility without necessarily being honest.

CSR is an argument based on two forms of ethical reasoning—consequentialist(utilitarian) and categorical (Kantian). Consequentialist reasoning justifies action in terms of the outcomes generated (the greatest good for the greatest number of people), while categorical reasoning justifies action in terms of the principles by which that action is carried out (the application of core ethical principles, regardless of the outcomes they generate).

At a more practical level, these two ethical perspectives become realized in social norms which have been accepted by the organization, the industry, the profession, or society as necessary for the proper functioning of business. They are codified with the organization in the form of a code of conduct or code of ethics, which then acts as a point of reference or guide in determining “whether a company is acting ethically according to the conventional standards.”

The violation of a society’s ethical principles regarding issues of social justice, human rights, and environmental stewardship is deemed to be ethically wrong and socially irresponsible. This premise is the foundation of the “social contract,” which is based on societal expectations that bind firms because compliance is directly related to a social license to operate. Remaining within these implicit ethical boundaries is directly related to the firm’s societal legitimacy and long-term viability.