“Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it… because it is good for our business”

— Niall Fitzerald, former CEO, Unilever

“The CEO of a midsize producer of a popular line of kitchen appliances is approached about merging with a larger company. The terms offered by the suitor are advantageous to the CEO, who would receive a large severance package. The shareholders of the firm would also benefit, because the offer for their stock is substantially above the current market price. The CEO learns, however, that plans call for closing a plant that is the major employer in a small town. The firm has always taken its social responsibility seriously, but the CEO is now unsure of how to balance the welfare of the employees who would be thrown out of work and the community where the plant is located against the interests of the shareholders. He is also not sure how much to take his own interests into account. Should he support a merger that harms the community but benefits the shareholders and himself?” (Ethics and the Conduct of Business – 5th ed.).

“The CEO of a midsize producer of a popular line of kitchen appliances is approached about merging with a larger company. The terms offered by the suitor are advantageous to the CEO, who would receive a large severance package. The shareholders of the firm would also benefit, because the offer for their stock is substantially above the current market price. The CEO learns, however, that plans call for closing a plant that is the major employer in a small town. The firm has always taken its social responsibility seriously, but the CEO is now unsure of how to balance the welfare of the employees who would be thrown out of work and the community where the plant is located against the interests of the shareholders. He is also not sure how much to take his own interests into account. Should he support a merger that harms the community but benefits the shareholders and himself?” (Ethics and the Conduct of Business – 5th ed.).

Decisions, decisions, decisions!

Business can be extremely complex, especially since CEOs and other executives have to balance the sometimes conflicting interests of several powerful stakeholders. So what should the CEO do? If you were the CEO, what would you do?

Ethics and Business

The study of ethics, and in particular business ethics, sets out to assist. So, in this installation of the

MBA Forum we will seek to at least scratch the surface of ethics.

Brace yourself for a few big words — which persons who subject themselves to knowing about the topic of ethics need to endure. According to the experts, most of the ethics theories can be thrown into one of two groups, namely teleological or deontological. There you have it — the first two big words. Now prepare for a couple more!

According to Boatright in his text,

Ethics and the Conduct of Business, the most prominent example of a teleological theory is the utilitarianism, while the popular theory for deontological is the ethical theory of Immanuel Kant.

Ethics and Morals

Let us take a breather — step back a little — and review what exactly ethics is. Let me borrow the definition from Dr Mujtaba (who was a member of my doctoral dissertation committee) and his colleague Dr Cavico, “Ethics is the sustained and reasoned attempt to determine what is morally right and wrong.”

It seems then that we should also define morals, so here goes — “Morals are the beliefs or views as to what is right or wrong or good or bad. Moral norms are standards of behaviour by which people are judged and which require, prohibit, or allow specific types of behaviour.”

So we see then that ethics and morals are intricately woven. Ethics is actually, “the theoretical study of morality”.

Utilitarianism and Deontological Ethics

The utilitarian view of ethics can be summarised in the well known phrase, “the end justifies the means”. What this means is that, according to this theory, as long as a particular action results in the net good to the majority of persons, then that action is good — whatever the action. The action itself then does not really count, as long as what it achieves can somehow be measured as being ‘good’. A big issue with utilitarianism though is that you must be able to somehow measure the action and also find some way to quantitatively measure the result of the action!

Deontological theories, on the other hand “deny that consequences are relevant in determining what we ought to do”. Additionally, people who adhere to the principles of deontological ethics believe that whether or not we should do a certain action should be based on whether or not that action in and of itself is right or wrong.

Businesses in the news

Last week I outlined a few cases that were in the news some time ago. In the case of the Ford Pinto, crash tests before the launch of the vehicle indicated that if the Pinto was hit in the back by an object moving at about 34 km/hr this would cause the gas tank (fitted at the rear of the vehicle) to rupture. To fix the problem, it was calculated to cost the company about US$15 per vehicle. However, the car company decided to proceed with the launch of the vehicle despite knowing about the defects and the imminent danger.

Tragically, the danger unfolded in the death of one person and another being nearly burnt to death when a Pinto was hit in the rear, resulting in the doors being jammed shut– trapping the victims – while the gas ignited insbide the cabin!

With Enron, as I cited last week, “there seemed to be a complete lack of ethical standards by almost everyone involved!” The executives did not just make a blunder or two, they deliberately knew what they were doing when they were cooking the books and doing other shenanigans! They were also malevolent, firing people who raised any doubts about their carryings on!

Not to be outdone, WorldCom did not want to miss out on the party. Their “accounting irregularities” (such a nice, benign term), mounted up to US$11 billion!

Good thing they were caught and made to do the time!

Dr Kenroy Wedderburn is a MBA part-time lecturer. Send your e-mails to drkwedderburn@gmail.com.