Management Women and the New Facts of Life

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*each* individual question should be between 2 and 3 pages in length…double spaced! This will mean test totals should be 6 to 9 pages. Word process or type your answers! Though writing styles vary, much less than 2 pages will probably prove insufficient and anything much longer than 4 pages will likely be ignored. 3. All margins are to be 1 inch all around. All fonts used should be in 12 point type. Do not separate paragraphs with extra rows or returns. Microsoft Word defaults to 1.5 spacing between paragraphs, or more. You must correct that default in your paper. Do not repeat or retype the question at the beginning of your paper. See the sample page attached for visual confirmation of the text format required. Failure to properly format your answers will affect your grade! 4. The test itself will be open book and open notes. That is worth repeating: you may use any material from the class - your notes, my notes, or even the books on the test. Your answers should present your understanding and opinions of the arguments and materials covered in THIS class. First sources must be the material assigned and are necessarily first sources. Second sources are not necessary and you will be graded not only on your understanding of the secondary source, but also its relevance to the issue at hand. Second sources are not acceptable on their own! Note well, however, this is a test of your understanding of the material from this class so you would be well advised to concentrate on the material assigned. It is not a test of your ability to transcribe quotes. For example, do not simply list arguments advocated by one author or another. If you do list an argument in premise form, also write an answer that demonstrates you understand the premises and how they are justified. DO NOT SIMPLY RE-STATE CASE FACTS: ASSUME I AM FAMILIAR WITH ASSIGNED CASES. "Martin should slap the auditors because…" is sufficient case detail. 5. The answers should be your work. DO NOT turn in any work that you did not produce by your own hand. 6. You are required to answer the underlined question or questions. The material preceding the underlined question is meant to direct you to the relevant issues. 7. You may answer any question, but DO NOT cut and paste any old material into your new answers. Take the time to read, understand, and rethink your old answer to make it better. Please answer ANY 3 of the following: 1. Question: When doing business in countries other than your home country, when should you comply with the host country's cultural traditions and when should you follow principles other than those favored by host country's cultural traditions? What decision procedure should you use to answer this question? Feel free to use cases we have studied or other “real life” examples to answer this question. 3. Not too long ago, Milton Friedman argued that the only moral responsibility of managers in a capitalist system is to increase the owner’s investment through profit maximization, with precious few (if any) moral limitations. Many have claimed that a justified sea change occurred when Ed Freeman started arguing to rebuild, revitalize, and reconceptualize stockholder managerial capitalism to transform it to stakeholder managerial capitalism. Question: How revolutionary is Freeman’s theory when applied to managerial decisions? When we move from Milton Friedman’s Stockholder theory to Ed Freeman’s Stakeholder theory – does this shift in theories end up telling managers to take different actions, or do they simply disagree about the justifications for roughly the same actions? Feel free to use cases we have studied or cases from “real life” to answer this question. 4. Ellen Moore will cost more to employ in Saudi Arabia than an equally qualified man, though no such male candidate exists at the time of the case. Ellen will not only cost more to employ, but the General Manager believes she has a lowered chance of success because she is a woman. Felice N. Schwartz presents arguments to convince businesses regarding the rationality of hiring women even though women cost more to employ. What is Schwartz's argument against sexism in hiring and promotions, and is this a good argument? Why should a business be blind with regard to sex? The next page will demonstrate the REQUIRED format for your answers regarding type face, margins, spacing etc. 1. This is sufficient indentation to begin your first paragraph. Notice as well that I started this answer at the top of page and just below the 1 INCH margin, that is, 1 INCH MARGIN AROUND THE ENTIRE PAGE! Now suppose I am done with this very short paragraph. See how I just hit enter /return, indented ½ an inch, and started typing again?!! There is no additional space between paragraphs. If you add spacing between paragraphs you indicate that you are changing the topic under discussion. I don't care much about the font, but I do want the tests typed in 12 point scale. This font is Times New Roman, but most anything will be accepted. And for goodness sake, please staple your answers together! One and only one staple is necessary if done correctly. Staplers are fairly easy to operate. Do not make an elaborate origami sculpture out of your paper in the upper left hand corner just because you didn't bring a stapler. I will probably be nice enough to bring my stapler along. Remember to hit a hard page return when you have completed an answer. The instructions indicate that each new answer should start on a new page. Let's assume I want to give an extended quote or list the premises of an argument: "Whether a quote or a list of premises, notice how the page is double indented and starts over at the same point on the soft return. Also notice that the type face is reduced, and this part of the paper is single spaced. And here we are again back to normal. The purpose of all the above formatting at the quotation section is to reduce the size of the quotation to leave you more room to expound on the meaning of the quotation. Your words are more important than the quotations. Good Luck! Name: _________________________________ Question #_________________________ Question #_________________________ Question #_________________________
Business Ethics – Thomas A. Package Lecture 18 I. Case "Ellen Moore" II. Case "Is this the right..." III. Management Women and the New Facts of Life A) BFOQ - Bona Fide Occupational Qualification. Some group of qualifications which are necessary for holding a job. A mechanic must understand how to repair engines; financial advisors must understand capital markets and investment instruments and so on. BFOQ do not generally included things like sex, gender, race, religion, or ethnicity. In fact, we generally think including said characteristics is wrongful or unjust. Further, excluding a person from employment based on those sorts of characteristics is also deeply unjust. B) Schwartz asserts that employing women is more costly than employing men. For example, women require maternity leave and often do not return to work following said leave. Women supposedly have a higher rate of turnover than do men, 2.5 times as high as men in upper management positions. For whatever reason, women plateau or interrupt their careers in numbers men do not. Schwartz further asserts that the different cost in employing women along with men is NOT a "function of inescapable gender differences." She asserts that the cost results from the policies and practices of mostly male-led corporations. The solution is not to stop employing women, but to reduce the cost of employing women. The causes of the costs of employing women fall into two categories: 1) those things associated with maternity and 2) differences resulting from differing traditional or cultural expectations of the sexes. Schwartz says we can't change the fact that women are the ones who have children, but we can reduce the impact on the workplace and nearly eliminate its effect on employee development. This can be accomplished by addressing the gender or socially malleable differences in expectations of men and women. In other words, if corporations want to reduce their cost of employing women, corporations need to effect change in the social structure, expectations, and attitudes of both men and women. C) Interestingly, Schwartz does not seem to believe in the glass ceiling. The glass ceiling is a level beyond which women are not generally offered positions of increased responsibility and prestige, usually because they are women and are considered only partially qualified. Schwartz seems to think the metaphor of geological barriers is better since it is the costs of employing women in high positions which tends to decrease the numbers of women actually steering Fortune 50, 100 or even 500 companies. Management tends to withhold significant offers to women since women sometimes choose to either take the "Mommy Track" or if they do return to work after maternity leave, women are noticeably less productive and seem to be splitting their resources. Either way, management sees the costs of developing women as managers is high and the possibility of returns are lower than for men. Schwartz quotes statistics regarding how women are employment resource which management would be particularly unwise to fail to exploit. Simply put, management needs all the talent it can get. The baby boomer bubble has pushed through the initial recruitment stage and management no longer has so large a pool from which to pick. Thus, we see where once 2 women were an untapped resource pool of talent which we would be smart or pleasant to develop, women are now a necessary resource for continuing the flow of talent into the ranks of business. There are simply less employable people so ALL resources should be explored. Also, if management wants to continue to hire and promote only qualified males, then there will be a problem since there may not be enough qualified males to fit the bill. D) Career-primary v. Career-and-family Career-primary(CP) is a personality type which cuts across sex and gender differences. CP means you put your career first and you tend to make the sorts of sacrifices which we would expect: 70 hour work weeks, living at work, etc. Both men and women would share those characteristics in CP. However, for women CP seems to mean putting off having children, perhaps indefinitely. 90% of executive men have children while only 35% of executive women have children. That statistic should give thinking people some cause for pause. Schwartz recommends recognizing CP women early and clearing artificial barriers from their path to the top. This enables the corporation to properly exploit the valuable resource. Schwartz also notes that CP women would serve as good role models for other women at work. How do you clear a path? 1) Identify CP women early. 2) Give CP women the same opportunities and responsibilities afforded to CP men. 3) Accept CP women as valuable members of the management team. 4) Recognize that the business environment is more difficult for them as women than for men, since there is obvious active and residual sexism. In other words, we should make efforts to treat women equally, both procedurally and substantively. Career-and-family (CF) is a personality type of people who want to pursue careers while rearing children as well. CF women are willing to trade some career benefits and goals for other benefits and goals such as families. Not surprisingly, Schwartz notes that companies would prefer to have all CP employees instead of CF, but she also says that companies would do well to exploit the ranks of CF women for talented employees. CF employees, both men and women, tend to be passed over for promotions since the employer is looking for those driven go-getter CPs. Not developing women who find themselves CF after some investment loses the investment unless it is "amortized" over a long career as a perfectly functional middle-manager who likes to go home at 5PM on Fridays. Some women only temporarily stall at CF during child bearing years and would welcome the opportunity to change to CP when those years have passed. Business should welcome this change as well, even if it means allowing CF women to work productive part time hours. E) Managing and developing CF women requires three things: 1) Managing maternity. You must be willing to be flexible in allowing the employee to set her own date of return. The one thing which is inarguable is that NOT doing so means foregoing her valuable experience and knowledge. That alone should be worth some further investment to protect and retain. 2) Provide the flexibility needed. Mothers have responsibilities which are not easily accounted for by schedules. Assuaging this need can amount to simply allowing a flexible 3 schedule, say an hour or two off to shuttle to day care or make doctor's appointments. The wired workplace can also allow you to work from home when necessary, a valuable convenience for a new mother. On the opposite end of the spectrum, being flexible can also mean part-time return to work or alternative work schedules. 3) Provide the family supports needed. This includes not only maternity leave and flexibility, but also providing parental leave for men, flexible benefits, and most importantly, assistant with child care. Neither Mothers nor Fathers work well when they are worried about who is minding the baby. Child care could and perhaps should be offered as an employment benefit much like health care or life insurance. IV. Does Schwartz defeat sexism? A) What question is Schwartz answering? The article begins by noting that women are: 1) more costly to employ than men, and 2) more likely than men to divert from the go-getter, highest level executive career path. From the human resource perspective, women cost more money and return at a lower rate. Schwartz then attacks both of those claims by attempting to widen the scope of consideration, but she does not do so without argument. Schwartz asserts that much of the cost of hiring women can be reduced, just as the rate of return can be increased. Her recommendation is for employers to be flexible and to provide additional services such as halftime or part-time employment, and perhaps subsidized childcare at the office. With time, she says, the rate of return will increase. Another argument against sexism, using sex as a BFOQ, is that companies now need women executives in ways they did not before. As the Boomers bubble moves on through the demographic stages, there are not enough talented men in the possible executive pool to fuel the needs of business. Thus, the sexist company is over-looking one important cost of sexism, a coming shortage in the all male rising executive pool. Sexist companies and hiring agents will find their sexism to be self-defeating as the diverse companies out compete the sexist companies. But is this the right way to phrase the question? Does this defeat the moral problem of sexism or does it simply say that sexist hiring managers are also strategically stupid because they do not recognize all of the relevant costs. This seems to be a contentious strategic argument aimed at defeating an arguable immoral conclusion. Is sexism defeated by showing it to be strategically unwise? Does that demonstrate it to be immoral? B) Even worse, it seems Schwartz comes dangerously close to denying what she asserts in the very first sentence "The cost of employing women in management is greater than the cost of employing men." Doesn't the argument at A tell us that it's more expensive to NOT hire women than it is to hire women? Which is it, that it women are more costly or not more costly? Luckily, all is not lost. Call M the cost of employing men. Call W the cost of employing women. Thus: W > M. Sexism is also costly since, by A above, sexist companies will miss out on the necessary resource of women managers. Call S the cost of being sexist, since sexist firms miss out on the benefits provided by female executives. Thus: S > W > M. Women cost more to employ than men, but when we consider the whole picture, sexism costs more than employing women. 4 C) Are sexists stupid? Of course, Kantians say yes (after a fashion) since it is irrational to treat people as mere means, and sexism fails to recognize the full humanity of women. For the rest of us, saying that sexists are both morally wrong and strategically wrong is at least contentious. This all turns on showing that sexism is indeed more costly than developing women as executives, with or without kids. Also, without the commitment to profit maximization, it ain't a moral argument at all. That is what Schwartz is really saying, that the hiring manager who keeps track of stats on executive development is looking at the wrong stats, or is deeply confused about what maximizes profits. Is that an argument about what is wrong with sexism and why you should not be sexist in hiring, or is it an argument about why it is unwise with regard to profits to be sexist in hiring? D) What's the right question? But suppose the strategic argument goes against Schwartz. Suppose the stats show that women fall off the executive track and return less often to work. What argument can we muster to show that even if women cost more money to employ, firms should be blind to this stat? Consider how statistics can demonstrate all sorts of morally suspect premises that we don't allow firms to use, e.g. insurance costs based on race. Women earn $.77 for every $1.00 earned by men in the same position with the same qualifications. Women do not get equal pay for equal work. This number falls when we analyze it from race as well…$.71 for African American women and $.58 for Latin American women. An economist might explain this as follows: Firms have access to the very same statistics as Schwartz. Economic maximizing rationality dictates that perfectly rational person would pay less for labor that they believe will provide fewer benefits. Schwartz seems to be denying that the statistical analysis is complete in the market. All of the firms that constitute the market that returns only $.77 must be wrong in order for Schwartz to be right. The right question is "Should firms be blind with regard to sex even if it costs them more money to do so?" And there is a very good response to this that Schwartz does not analyze, though some parts of it are available in her article. If $.77 is explained by childbearing, then women are paying a disproportionate share of the necessary good of somebody having children. It is not that kids are interesting life projects like climbing Mt. Everest. The bearing and raising of children is a primary good, as Rawls would put it, since even if you don't want to have kids, you need somebody to do it. Somebody is raising the doctor you will need in old age, and somebody is bearing and raising the entire work force that business will need in the future. If women pay more for kids by losing out on both jobs and pay for the jobs they do get, then the burdens and benefits of children are not borne equally by all people. Thus firms should not take into negative consideration, firms should be blind to the fact that an employee or potential employee is a woman. If we allow firms, legally or morally, to consider sex as a BFOQ even if the stats back this up, then we are allowing women to bear an unfair share of the burden of raising children, a necessary good for us all. Questions to Consider: 1. Can Ellen Moore succeed in the Accounts Control position her boss offered, but then retracted? Is Ellen more costly and more risky in that position than an as yet unrevealed male counterpart? Is Ellen's boss saying that sex or gender is a B.F.O.Q? 2. In the other case, isn't George asserting that sexual preference is a B.F.O.Q.? If that is what both boss's are asserting, then is that a reasonable and morally acceptable conclusion? 5 3. Schwartz begins by asserting that women are more costly to employ than men, and that women are a more risky investment as well since they tend to plateau or resign more often than men. Given that *fact of life*, she claims that the pursuit of profits demands that employers take those risks or else they will be outperformed by others who do. How good is this argument? Does it defeat the sexist? Does Schwartz succeed in convincing us that Ellen's boss is both morally and strategically confused? 4. Suppose we take Schwartz's argument one step further. Suppose we consider the possibility that a business should be blind with regard to sex or gender, and should be blind with regard to sexual preference? Can we find a reasonable argument in support of that claim?
Global Business Ethics vs. Ethics: Is There a Difference? • In theory: very little. • In practice: context shapes practice in new & interesting cases. • We sometimes don’t know what we believe until challenged – “put your money where your mouth is.” Global Business Ethics by Two Hard Concepts • Lying & bribery: easy in conversation. • Deceptively simple. • Clear, concise, precise definitions free from defeaters & counter-examples are difficult. • Why lying & bribery? • Cultures vary upon definitions & applications. • Objective principle approach -> cross-cultural definition that “works” well in the field. Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Italian federal corp. tax rate approx. 31.4% but similar to other systems ends there. • Italian IRS (IIRS) assumes corp. never tells the truth & corp. deflate income by 30-70%. • IIRS assumes corp. yearly income always increases, corp. never operate at a loss, & IIRS issues invitation to discuss upon receipt of filing. • Corp. hire commercialista to discuss & negotiate fee for services includes a bustarella to IIRS agent. • Moral status of declarations & payments? Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Lie? – declare €30 mil. instead of €100 mil. • Bribe? – pay bustarella to IIRS agent. • American banker in Italy though objectively: – Refused to lie & submits Americanized return. – Italians apply 3x markup & issue invitation to discuss. – Refuses to bribe through commercialista & simply pays his initial assessment. – Receives notice disallowing int. on dep., resulting in tax bill 15x his initial assessment. – Personally accepts invitation to discuss. – Resolution: cost bank 3x IIRS GAAP taxes & LOST HIS JOB! • How we struggle with vagueness & ambiguity! • Embrace relativism? Horrid logical consequences. Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Objective moral theory: lying & bribery should be wrong for one & all. – A lie in NYC or Delhi is a lie in Rome. – Bribing a public official in Tokyo is wrong, as is bribing a public official in Rome. • Wasn’t the banker morally correct, objectively speaking? Depends on definitions. • What is a lie? Much > than speaking falsely. • What is a bribe? Much > than payments to officials. • Definitions are required. Philosophically precise definitions are not easy. Lying: What is it? • Philosophers disagree. Kant is badly confused! • After Kant, somewhat ignored in moral philosophy – late resurgence. See Thomas Carson’s Lying & Deception. • Contra utility, lying is presumptively wrong, & must not be consequential. Thin/Descriptive Taking Killing Speaking falsely Thick/Moral Stealing Murder Lying • When is it wrong to lie? Always, Sometimes or Never? Lying is Presumptively Wrong • Prima facie wrong: weakest of wrongs. – Easiest to justify violation. – Breaking promises, singular intrusions to privacy. • Presumptive wrongs: strong moral prohibitions. – Still justifiably over-ridden or trumped – Most moral prohibitions “live” or reside here. – Violence, stealing, &murder can be justified. • Absolute wrongs: strongest moral prohibitions. – Can NEVER be correct or acceptable to violate. – Genocide. • Kant’s view? Always, sometimes or never? • Kant: The American banker got it right!...but got fired! Always Wrong to Lie: Kant’s Absolutism on Lying • In the Groundwork, Metaphysics of Morals, Lectures on Ethics, & even in On the Supposed Right to Lie From Philanthropy Kant is decidedly ABSOLUTIST about lying. • For Kant, lying is never justified & always wrong! This is a tortured & tortuous view. • Lying: always self defeating – violates CI 1 • Kant begins with the thin/thick distinction: – Falsiloquiums: to merely speak falsely. – Mendacium: to wrongfully speak falsely against the rights of the auditor to the truth. Kant’s Absolutist Argument on Lying • • • • Kant: suppose you are mugged at gunpoint. Thief’s nefarious intention & ends = no right to the truth. Thus falsiloquium – “I have no money” is OK! But not so fast. No rights qua mugger, but… – – – – You need to be believed to save your money. You won’t be believed if everyone lies to muggers. Also, all humans have a right to a community of truth. That right is violated by speaking falsely when you make yourself understood to be telling the truth. – Even thief is a human being – part of a community of truth. – Thus you must speak truthfully to the person mugging who has rights qua human. • Violations of community of truth: preajudicium humanitatis. Kant’s Absolutist Argument on Lying • Violations of community of truth: preajudicium humanitatis or prejudicial against humanity…crimes against humanity. To tell a lie to a mugger! • What of the Gestapo officer at the door? • Kant: Still human, thus still preajudicium humanitatis. • I am not making this up! • The crime against humanity is directing evil people! • Shouldn’t Kant have said “Lying recognizes CI 2, while telling the truth fails CI 2!” • Thus, reason demands the occasional lie, especially to protect innocents – Philanthropy. Never Wrong to Lie: Albert Carr’s Argument on Poker’s Game Ethics • Carr: American banker misunderstood games. • Business: game, like poker – acceptable “lies”. • "By conscious misstatements, concealment of pertinent facts, or exaggeration - in short by bluffing“ business people seek to influence others. • American banker: troubled or guilty? Remember the impersonal nature of games and their special ethics. • Limits to lying in business? The laws of business. • Do we really need another venn diagram? The law is simply no excuse for moral principles. Never Wrong to Lie: Albert Carr’s Argument on Poker’s Game Ethics • Analogy breaks down: lying includes false speech. – Chips speak: players don’t need to speak to bluff. – If they speak, neither false nor intended to be. • Games change the moral landscape, e.g. boxing, cricket & rugby, but that’s because we consent to play. • In poker, all players consent to play. • Do all business players consent? – Libertarians: yes. Marxists: no one does. – Reasonable position: depends, or most but not all. Sometimes (or Usually) Wrong to Lie: Package & Carson • Package: wrongful intentional, stated falsiloquiums. Liar attempts to use another as mere means – violates CI 2 – Thick • Criticism: Cart before horse – lying is neutral & basic. It is used to generate judgments of other acts. – Perhaps, but also true of murder or any thick terms. • Criticism: Against considered moral judgment & common usage. – Common usage can be imprecise & even incorrect. See the considered judgments on lies & utility Sometimes (or Usually) Wrong to Lie: Package & Carson • Carson: a statement speaker does not believe but warrants to be true. – Thin • Lies are a way of advertising what you don’t believe for your own ends or gain. • Breach of trust between speaker & auditor, not all humanity! • Immorality of lies directly proportionate to degree of warrant speaker offers as true. Higher the warrant, higher the wrong – breach of trust. • What do theses definitions say of our American Banker? • See http://orion.it.luc.edu/~tcarson/LIE-NOUS.pdf Are Italian Tax Returns Lies? • Package: No! Not a lie – maybe false, but not wrongful. No violation of CI 2. • Why? Italian gov’t has invited negotiations, consenting to the process. Also, Telling the truth holds you “cully to integrity” (Hume). • Carson: Yes! Warranting 30% as true when you know it to be false is lying. • Carson: BUT, not wrong. Warrant of 30% taken seriously by neither both speaker nor auditor! • Banker was being absolutist about lies. Is the Bustarella a Bribe? • Direct translation is bribe, but good translation? • Old view on bribery: – Bribes are payments to do something wrong. A pays B to perform wrongful act. • Rejected: too broad. Catches all criminal enterprise as bribery. • Carson’s new view: – Bribes violate obligations to employers. A pays B to perform wrongful act that violates obligation to C. • Voluntary obligations vs. non-voluntary duties. Is the Bustarella a Bribe? • N.b. Carson’s new view: – Bribes violate obligations to employers. A pays B to perform wrongful act that violates obligation to C. • A: Banker/Commercialista, B: IIRS Agent, C: IIRS. • What is IIRS agent’s job? How is she obligated? • Since IIRS is aware of system, accepting bustarella is allowed by IIRS as compensation to employees. • Thus, bustarella is not a bribe…what is it? What is the Bustarella? • Grease or facilitating payment: to speed routine actions, e.g. processing paperwork & mails. – excludes decisions by official to award business to a company. See Lockheed Martins payments to Japanese defense ministers. • Purpose of grease payments amendment is to allow firms to meet local payment/wage structure. N.b: consult an attorney re: facilitating. • Different countries pay officials in different ways & that is neither bribery nor extortion! When Should I Follow Host Country Practices & When Not? • Query of International Business Ethics: What is the moral floor for behavior across borders? • DeGeorge’s Double Standard: Foreign investors have higher bar than domestic. Morality demands more! • Incipient capitalism has real problems: – Strong prohibitions for all: murder, theft, violence & slavery. – What of bribery, extortion & graft, trademark violations? • • • • Distinction : 1) praise & blame vs. 2) right & wrong Domestic firms: blame free - cannot survive otherwise Foreigners can survive otherwise, thus still bound. Ought implies can! Danger of the Naturalistic Fallacy • Naturalistic fallacy: normative conclusion never follows descriptive premises. • Remember: is & ought are distinct! • Example: Social Darwinism 1. In nature, the strong dominate the weak & only the fittest survive. 2. Therefore, in society the strong should dominate the weak & only the fittest should survive. • Validity needs missing premise. Danger of the Naturalistic Fallacy • Naturalistic fallacy: normative conclusion never follows descriptive premises. • Remember: is & ought are distinct! • Example: Social Darwinism 1. In nature, the strong dominate the weak & only the fittest survive. 2. Nature should guide society. 3. Therefore, in society the strong should dominate the weak & only the fittest should survive. When Should I Follow Host Country Practices & When Not? • Thomas Donaldson & Thomas Dunfee Integrated Social Contracts Theory (ISCT) • A contract based alternative to stakeholder theory. Firm: nexus of contractual relationships. • Social groups have a right to a moral free space, & self-determined social contracts. • Floor: moral minimums or hyper-norms are met. • Rough conclusion: So long as local practice meets hyper-norms…respect local practice & follow local norms. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • Following Thomas Hobbes’s social contract theory, selfdetermination & agreements are important. • Norms-1: Indicators of social agreement verified by sociology, e.g. Americans embrace the death penalty. • Norms-2: Normative or moral principles verified by arguments, e.g. the death penalty is unjust. • ISCT rejects the latter: philosophers & professionals continue to argue about: – Cultural relativism/Ethical Imperialism: blind export of home practice. – Absolutism: morality demands identical behavior around the world. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • Neither CR nor Absolutism complex, ambiguous, context driven, situated human activity: global business • Philosophers (the professionals) disagree re: morals by argument but we need global moral requirements. • Even philosophers like Michael Walzer say: “there is no Esperanto of global ethics.” No one way to morals. • And rights won’t cut it. Whole traditions, such as Buddhism & Confucianism, didn’t use rights talk & it’s morally repugnant to exclude these views. • Nobody knows what Norms-2 are but we can determine Norms-1 so start there. Why Hyper-Norms Instead of So-Called Objective Moral Principles? Three Principles for shaping ethical behavior in global business: 1. Respect for hyper-norms, which determine the absolute moral thresh-hold for all business actions by agreement. 2. Respect for local traditions. 3. The belief that context matters when deciding what is right and what is wrong. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • No unanimity on all principles, though views convergence. The golden rule exists in nearly all moral traditions. • A sampling of shared principles: – – – – – – Kant: Refrain from harm to others. Western/Christian: Do unto others as you would have done to you Confucian: What you do not wish for yourself, do not do to others. Buddhist: Hurt not others in ways that you yourself would find hurtful. Islamic: That which you want for yourself, seek for mankind. Hindu: One should never do that to another which one regards as injurious to one’s own self. – Utility: Help others when you can. – Confucian: Since you yourself desire standing then help others achieve it, since you yourself desire success then help others attain it. What Are Hyper-Norms? The parts of the overlapping consensus. Respect for Human Dignity. Respect for Basic Rights. Good Citizenship. (Virtually) All traditions. Hindu Utility Kant Confucian When Should I Follow Host Practices? 2 Tests for Conflicts 1. Conflict of Relative Economic Development: Would the practice be acceptable at home if my country were in a similar stage of economic development? • If yes, then follow practice. If no, then reject. • Hypothetical: Host country engages in slavery. • Did your home country accept slavery at a similar stage in it’s economic development? • Compare to 1850 U.S. When Should I Follow Host Practices? 2 Tests for Conflicts 1. Conflict of Relative Economic Development: Would the practice be acceptable at home if my country were in a similar stage of economic development? • Thus, you may employ slave labor since they used to back home? Absurd! • But, what’s blocking this result? Hyper-norms? • We allow export of science & medicine so we should allow export of moral developments. When Should I Follow Host Practices? 2 Tests for Conflicts 2. Conflict of Cultural Traditions: It is permissible to follow practice only if you can answer no to both: 1. Is it possible to conduct business successfully without violating local cultural practice? 2. Is the practice a violation of hyper-norms? • Hypothetical: Japanese gifts & Spanish siesta. • Business: in Japan virtually impossible without gifts, in Spain less possible w/o siesta. When Should I Follow Host Practices? 2 Tests for Conflicts 2. Conflict of Cultural Traditions: no to both: 1. Is it possible to conduct business successfully without violating local cultural practice? 2. Is the practice a violation of hyper-norms? • There are no hyper-norms considering gifts or long lunches & naps. • Thus, respect gift giving & siestas. • Notice how hyper-norm appeared again! • Redundant? How do hyper-norms work? A Closer Look at Hyper-Norms Norm-1 Social Norms: Morals by Agreement VS. Verified by Statistical Evidence ACCEPTED: Just ask the crowd! (Self-determination is important) Norm-2 Moral Principles: Morals by Argument Verified by Abstruse, Contentious Argument REJECTED: Nobody can tell us what these are! A Closer Look at Hyper-Norms Hyper 100% OR LESS Accepted Rejected Norm STATISTICAL INDICATOR OF AGREEMENT 100% STATISTICAL INDICATOR OF AGREEMENT What Are Hyper-Norms? 100% Agreements – Overlapping Consensus Respect for Human Dignity. Respect for Basic Rights. Good Citizenship. Sound familiar? Kant’s Moral Rights! Hindu Utility Kant Confucian Hyper-Norms? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace If it walks, swims & quacks like a duck… Hindu Utility Kant Confucian Hyper-Norms or Rights? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace If it walks, swims & quacks like a duck… Hindu Utility Kant Hyper-Norms or Rights? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace Hindu Kant A thing is what it is & not something else. ISCT accepts foundation is needed, so why reject in name but embrace in logic & force? By Definition: No Hyper-Norms Only Localized Agreement Confucian Hindu Utility Kant Christian When Should You Follow Host Country Practices & When Not? • ISCT: on the right path & reached a decent conclusion. • Faltered on morals by agreement. • Improvement: Define “hyper-norm” by reference to morals by argument, or reasonable moral principles. – – – – Hyper: Strong, greater than, excitable, improved. Norm: More or moral principle. Strong Moral Principle Such as Basic Rights, Respecting Human Dignity, and Being a Good Person. When Should You Follow Host Country Practices & When Not? • Query of international business ethics: What is the moral floor for behavior across borders? • Reasonable conceptions of moral principles. • Ignore host country practices when they violate reasonable conceptions of strong moral principles. – Reasonable conceptions of moral principles: Virtue, Utility, or Kantian Deontology. YOU DECIDE! When Should You Follow Host Country Practices & When Not? • What of actions that don’t violate moral principle, are profitable, but violate local cultural norms? • Contract to max. profits demands violating local cultural norms IF profitable – probably won’t be for long. • Or get a new job if you don’t like being a jerk. When Should You Follow Host Country Practices & When Not? When consistent with reasonable, strong moral principles. When inconsistent with reasonable, strong moral principles. Profitable Not Profitable Follow Local Cultural Mores Ignore Local Cultural Mores Ignore Local Cultural Mores Ignore Local Cultural Mores Professionalism & Moral Trumps • “Don’t be an imperialist jerk!” is a virtue claim. • Virtue trumps profits if virtue > important than contracts/promises : Subjective. • Contracts/promise trump cultural practices so profits are obligatory unless… • Reasonable moral principles trump both contracts/promises & cultural practices. • We all need a theory of reasonable moral principles. Parting Thoughts on Wisdom • Ethics is about no less a subject than how we ought to live, and we live our lives through business. Business meets our needs, fulfils our desires, & is one way bring meaning to our lives. • I hope you have found some knowledge and are on your way to new moral wisdom. • Chinese Proverb: One conversation with a wise person is worth ten years of study. • Find someone wise to talk to. Look around. They are everywhere. Questions for Discussion • Reflecting on your own experience, is lying a thick or thin term? • When is it wrong to lie & why? • Is bribe a thick or thin term? • Can you bribe a child with sweets to convince her to take her medicine? • If we agreed with ISCT in international ethics, what would really be in the overlapping consensus & be a hyper-norm? What moral principles are agreed on by ALL societies? Questions for Discussion • Suppose Donaldson & Dunfee are correct that local practices should matter somehow, but given the contract/promise to profits how should they matter besides character or personal value claims? That is, can you support them with something stronger than “Don’t be a jerk! Give the workers a siesta or the supplier a gift?” • Suppose D&D are not correct about hyper-norms. What actions would reasonable, strong moral prohibitions rule out regarding profits?
Business Ethics – Lecture 8 I. Merck & Co. Inc. II. Freeman's Stakeholder Theory of the Corporation A) In Whose Interest? Ed Freeman, noted business ethics scholar of the Darden School of Business Administration, has developed a theory of the normative dimensions of corporations. His theory is an answer to the question "For whose benefit and at whose expense should the firm be managed?" As I'm sure some of you are aware, a common answer to this question is stockholders or shareholders. Management has been charged with the responsibility of maximizing wealth or returns to those who own the company. This is the normal conception of the fiduciary relationship between management and the owners. Management by contract, or by an employment agreement, has been entrusted with running the company for the purpose of guarding and maximizing the owner's interests. In the case of corporations this is cashed out in terms of who owns the stock. For moral theory and business ethics, the problem with the normal stock or shareholder analysis is that it offers no guidelines or principles for restricting the maximizing of profits when maximizing profits conflicts with moral principles. On a certain unreflective view of the special relationship between management and stockholders, it is possible for management to be morally obligated to maximize shareholder wealth or value even when doing so violates an ethical principle held by the manager, society, or a principle nobody holds but arguably should hold. What Freeman wants to do is expand the notion of the obligations of managers to include a fiduciary or trustee relationship to persons other than the stockholders. He uses the term "stakeholder" to refer to anyone who has an interest in the operations of the firm. B) Who are the stakeholders? Good question. Stakeholders are those who have an interest in the decisions of the firm. Goodpaster analogizes "interest" to "stake" from a poker game. It means that the stakeholder has something to gain or something to lose when the managers make decisions A brief, though probably not exhaustive, list of stakeholders follows: 1) Owners 2) Management 3) Community 4) Customers 5) Employees 6) Suppliers. Owners have an obvious stake in the way the business is run, it's their money management is playing with. Management, like other employees, are compensated and continue to be compensated when the business does well. The community, be it the town or the whole world community, has a lot to gain or lose as it is their resources which the business will consume and they also have an interest in the business continuing. Customers gain value in the form of goods and services and have an interest in better rather than worse products. Employees receive all sorts of benefits and have a big stake in the continuance of those benefits. Suppliers run their own businesses and also have a large stake or interest in continued beneficial exchange. 2 Freeman's main idea is that all of these interests count for something when management makes strategic decisions. Stakeholder's interests, from owners through suppliers, must be taken into consideration when management considers options and executes decisions. Stakeholder theory turns on the idea that management is not only entrusted with protecting the rights and interests of owners, but is also entrusted with protecting the rights and interests of all the other stakeholders as well. Freeman writes that “stakeholders” can be taken in at least two ways: 1) The wide definition – any person who is affected by or can affect the outcome of a decision by the corporation and management. For some large enterprises, this could mean nearly everybody on the planet. That is a wide and varied group of interests and stakes. 2) The narrow definition – any person or group of persons who are vital to the survival and success of the corporation. This is a much smaller group. To be included as a stakeholder, the group must be those whom the corporation requires for continued survival – these people are necessary for the life of the enterprise. C) Weights and Priority of Interests. The question of the priority of interests arises very quickly once you understand the stakeholder approach. Freeman is very clear in not allowing one group of stakeholders to count for more than any other group: "The stakeholder theory does not give primacy to one stakeholder group over another, though there will surely be times when one group will benefit at the expense of others." Owners are paid dividends and stock prices are maintained not simply because owners interests are primary, but because the support of the stock price is necessary to the survival of the firm and is in the best interests of all stakeholders. In the section we read, Freeman notes three possible approaches for establishing a priority of interests through what he calls possible normative core theories: the Doctrine of Fair Contracts (DFC), Feminist Theory, and Ecological Principles. Freeman favors DFC and elaborates principles which would govern the formation of contracts and agreements. It would be unfair, and thus unjust, to allow one stakeholder's interests to count for more than another stakeholder's interest. The redesigned idea of the corporation will capture our ideas about fairness and justice by ensuring a basic equality among stakeholders. Freeman's justification for the six ground rules is an expression of Rawlsian ideas about fairness and contractual agreements. Freeman has us imagine what people behind the Veil of Ignorance in the Original Position (OP) would want contracts and arrangements to look like in order to achieve fairness in the prioritization of interest among stakeholders. From behind the Veil in the OP, persons would choose the following ground rules or principles for the contractual arrangements which govern corporations, their charters and possibly their statements. If you did not know your position on the list of possible stakeholders, then you would want incorporation documents and contracts to be arranged according to the following rules: 1) Principle of Entry and Exit - contracts must have clearly defined entry, exit, and re-negotiating conditions. 2) Principle of Governance - procedures for changing the rules and re-negotiating agreements must have unanimous consent of all parties concerned. No one group can be voted out by any other group or groups. 3) Principle of Externalities – any third parties to a contract who may bear costs in the agreement must have the option of becoming a participating party to the contract. Any third party who is 3 affected by the way a corporation is run must be allowed to becoming a participating member of the contract. 4) Principle of Contracting Costs - all parties must share in the costs of the contract. 5) The Agency Principle - an agent who acts on behave of the corporate body must act on the interests of all stakeholders. 6) Principle of Limited Immortality - corporation will be managed as if it can continue to serve the interests of all stakeholders until such a time as the interests of all stakeholders is the "empty set." D) The ground rules are supposed to guide actual stakeholders in devising a corporate charter or constitution. As such the laws about corporations would have to reflect or enable us to use these principles for writing corporate charters. Freeman offers three more principles for the law with regard to corporations: The Stakeholder Enabling Principle - Corporations are to be managed in the interests of all stakeholders - employees, financiers, customers, and communities. The Principle of Director Responsibility - Directors are charged with the duty of care to direct the corporation in accordance with the Stakeholder Enabling Principle The Principle of Stakeholder Recourse - Any stakeholder may bring action against the directors for failing to perform the required duty of care. In other words, the law of corporations should be re-written to hold managers accountable not only to owners and stockholders, but to vital stakeholders as well. Other stakeholders should have the right to have their claims addressed in the courts, but not merely as third parties to the contract between management and owners, but as participating principals in a fiduciary relationship. For Freeman, stakeholders should also have a legal claim if managers fail to act in accord with the interests of some stakeholder group as the managers should be seen as equally responsible to the stakeholder’s interests and as the same kind of responsibility owed to owners. III. Freeman’s Decision Procedure A) Note well what is missing from this picture so far. All of the groups listed on even the narrow version of stakeholders are a pretty disparate set. What makes the problem even worse is that many of those groups have opposing interests. For example, Owners would love to pay the employees less and work them more. Employees often have just the opposite desires – work less for more money! Community members would like the corporation to shoulder more of the burden of externalities to the business e.g. cleaning the environmental damage from production facilities, while the owners and the corporation is often in favor of keeping costs external to their efforts. According to Freeman, we have all these different rules, a la Rawls, regarding how we should re-conceptualize and re-configure the law regarding corporations, but what decision procedure does he advocate for the manager at the ground level? Does Freeman want Dr Roy to use the Utility calculus as his decision procedure? Certainly not! But what decision procedure should the intelligent reader glean from this article? 4 B) Well, on page 46, I think he answers this question. “…inequalities among stakeholders are justified if they raise the level of the least well off stakeholder.” (italics added) So, a management decision is justified, for the Doctrine of Fair Contracts approach, if it raises the level of the bottom group of stakeholders. N.B. how different this is from Rawls’s difference principle, which requires the state, as a matter of justice, to MAXIMIZE the level of the least well off group in society. This is quite a difference. Benefiting or raising the level of some bottom group is a much less stringent standard than one which requires you to MAXIMIZE benefits to the least well off group. Think about like this: Imagine the least well of member of some group of stakeholders are the janitors and other relatively unskilled employees of a corporation. Freeman would say a manager’s decision is justified if it raises the pay of the janitor. Perhaps we should assume that the ground level manager is not to test their decisions via this principle, but rather that corporate decision and procedural manuals should prescribe behavior according to this version of Freeman’s Difference Principle. Contrast that with a straight application of Rawls’s Difference Principle to this problem: a decision is justified if it MAXIMIZES the salary of the janitor. The two parties would be arguing over how much of a raise is required to justify an action, where Rawls requires a much higher standard than Freeman in this article. C) The final question here, one that I will leave to further discussion, is whether or not such an application of the machinery of the Original Position to the corporate setting is properly Rawlsian. Remember that Rawls is theorizing about how to make the operation of any state just, by thinking about the requirements of justice in a one state world where citizens enter and leave through birth and death only. Rawls, and perhaps Rawlsians, would think we’ve skipped a few steps by applying some version of the Difference Principle to the corporation directly. Rawls would prefer to use the OP to determine societal principles of justice, then use said principles to write constitutions, then use constitutions to write both the criminal and civil laws, then use the civil law to write the law of corporations and then, finally, use the law of corporations to write incorporating documents for firms. That’s a long process that we have attempted to circumvent, but perhaps not without good reason! IV. More Moral Theory A) Duties and obligations qua human v. qua manager or employee Any good moral theory makes a distinction between: 1)Duties - these are the normal moral restrictions on our behavior, like prohibitions against lying, cheating, stealing, killing, raping, maiming and other forms of harm. Some duties are also positive duties to others, where positive means that they require some positive action from you, not just refraining from acting. Some positive duties include duties of justice, rescue and appropriate beneficence. Duties are NON-VOLUNTARY. They bind you and your behavior whether or not you accept them voluntarily. 2) Obligations - by contrast, obligations are voluntary restrictions or commitments placed on you by acceptance, usually through agreements of contracts. For example, I have an obligation to repay a loan, or deliver a particular product (wine, CDs, computers, whatever), based on my agreement to do so. Prior to the agreement, I was not obligated to send checks to the bank nor to deliver a case of wine to some random buyer. Obligations are fixed, they are dischargeable in the way delivering upon a contract is dischargeable. 5 For our purposes, duties are usually stronger than obligations, if they contradict. Think of obligations as layered over your normal duties. You can't contract or agree to do something which is itself immoral. This negates the possibility of there being a contractual obligation to do the wrong thing. B) Required v. supererogatory actions. Required actions are those which it would be wrongful to not perform. For example, I am required to pay my share of justified taxes. To fail to pay those justified taxes would be wrongful since I am failing to meet my duty to justice. Supererogatory actions are above and beyond this call of duty. Donating extra money to the worthy projects of the state, like adding $100 to my tax check to be spent on the School Lunch Program, is more than what I am required to do. It is a morally better action than just paying my share of taxes, but it is not required. V. Friedman's Skepticism A) Friedman begins by noting that morality adheres between individuals. He asks the question "What does it mean to say that 'business' has responsibilities?" His initial answer is pretty good: that only people have responsibilities, not businesses. So, Friedman argues, if we are to make any sense of the question posed, then we must understand the way in which businesspersons have responsibilities and to whom they are owed. The answer he favors is that people in business, employees and managers, have only a direct responsibility to owners. This is the fiduciary relationship we see in Freeman and Goodpaster. Friedman says that managers and employees have a (fiduciary) responsibility to: "conduct the business in accordance with [the owners] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." emphasis added Friedman’s deference to custom or law is a bad move, and you should know why by now. Friedman argues that the above is the only responsibility you have qua manager. Any others you may have qua person are a different story for Friedman. Business people certainly have them, but they have them as principals (I would say persons), not as agents in a fiduciary relationship. Acting against the above directive must be to act against the maximizing of profits for the owners. Following any non-fiduciary obligations or duties while acting in a fiduciary role is literally "spending other people's money." By doing so you are engaging in taxation of the owner's money and deciding how that tax should be distributed. This is a rhetorical move with some flourish – remember the Boston Tea Party! “No taxation without representation!” was one of the battle cries of the American Revolution. Spending other people’s money is treating the property of other people as though it were your own property. Friedman’s stronger point would be this claim – that managers in socially responsible firms are engaging in conversion. This has a stronger name…Friedman is calling such managers, like Freeman’s followers, _________. Note well how a great deal turns on how you interpret the italicized portions of the above quoted passages. If you think there are duties which bind someone in a position of management, as both Freeman and Goodpaster think, then even Friedman's formulation of the responsibilities of managers qua managers are significant. 6 B) Taxing and spending the wealth of others is the province of democratic processes, not managerial fiat, asserts Friedman. To tax the wealth of others by diverting corporate funds to projects which do not maximize profits is both stealing and undemocratic as you are subverting the political process. In the first place, it is not so obviously taxation as Friedman alleges. Yes, it's withholding certain amounts of money some possibly moral purpose, and that is taxation "in effect." But it would need to be taxation simpliciter for Friedman's arguments from "taxation without representation" to apply. In addition, it is not so clearly unjust to violate a profit maxim, certainly not just because it violated democratic processes. If diverting funds to reduce environmental emissions and engaging in workfare or something like that can be defended on principled moral grounds, principles which anyone who understands the argument must also realize the priority of morality to even the vaunted democratic process, then the diversion of funds is not so obviously unjust, even if it does violate a contract. Violating democratic processes is not necessarily unjust. Occasionally, the democratic process can get things wrong from the point of view of justice – Slavery, Jim Crow, the disenfranchisement of women. C) Friedman also argues that a corporate executive is a poor judge of the effects of her actions on larger issues, such as inflation. Perhaps so, but it does not seem to be a difficult task to judge the effects of one's actions on the environment with the case of say, burning low-sulfur coal, or dumping less than the legal maximum of herbicides into the water table, or not developing a wild-life preserve for oil-production. The effects of these actions seem plain, as do the effects of work-fare as engaged in small or large communities. There are that many more people employed than would otherwise be employed. Friedman entirely ignores these "consequences" and focuses on the much more complicated consequences of price control with regard to inflationary pressures. All of this is a non-starter if you are a deontologist of any variety. D) The argument against stockholders calling on other stockholders is perplexing. When the argument works to his advantage, Friedman defers to democratic principles and processes. What does he mean by "against their will"? If the stockholders vote to defer or forego profits in favor of any social end, then what complaint can Friedman have? The democratic vote determined the course the corporation was to follow. If his previous argument is applied ceteris paribus, then he would have no right to complain of the outcome of the stockholder's vote. But when the democratic vote would not go in favor of his conclusion he denies the vote it's normative power. This is inconsistent. E) Friedman also argues that the doctrine of social responsibility is frequently a cloak for the real goal of maximizing profits. Businesspersons can say they are acting in the interests of some other social end, but this is in effect fraud. The moving cause for their action is revenue and profits and they would not act towards the other desirable social end unless it was profitable. Acting for a socially desirable end is either: 1) Profitable and then why engage in the morally questionable practice of subterfuge, or 2) Not profitable and then the businessperson is spending other people's money, which is patently unjust by all of the above arguments. Friedman claims that such subterfuge as pursued in 1 is tantamount to fraud and it harms the foundations of a free society. In addition to the first-order moral judgment of fraud, if businesspersons succeed in convincing people of the validity of non-profit motives then the 7 government will step in and start controlling the market which will lead to the general decay of free-trade and democracy itself. Hence he claims that such actions are suicidal behavior on the part of "socially responsible" businesspersons. This is usually referred to as a slippery slope fallacy. The claim that substituting non-profit for profit motives will lead to the decline of the free-market is specious and unwarranted. VI. Questions to Answer 1. What should Dr. Roy Vagelos do with the potential preventative Merck has for River Blindness? What would a utilitarian say, and what would Kant say? 2. What is a stakeholder, and what is the difference between narrow and wide conceptions of stakeholders? 3. How does Freeman use Rawls to defend stakeholder theory? Does Freeman then advocate Rawls's Difference Principle as a decision procedure for managers? Would such a suggestion be appropriate for Rawls? 4. What does Freeman tell Dr. Roy to do? Why? 5. Milton Friedman takes a dim view of development of Ivomec for humans. According to Friedman, when and why should Dr. Roy develop a preventative for River Blindness? 6. On Friedman's view, what are the limiting factors for the promise to shareholders? Are these reasonable limits?
Our Story Thus Far: • Deontology & rights provides the best decision procedure essential for evaluating conduct. • Disputes in business are primarily over property rights to profits. These disputes are depend on… • Contracts transfer wealth, goods & services. • Business practioners, business scholars, & business ethicists complain that virtue, utility, & rights need a tailored fit. • Business ethics, the field, is a systematic attempt to tailor moral theory to context of business. Business Ethics: An Oxymoron? • Oxymoron: combination of contradictory words, e.g.: fresh frozen, jumbo shrimp, pretty ugly. But business ethics? • Strong Separation Thesis (SST): Ethics does not apply. All is fair in love & war & business. • Weak Separation Thesis: People tend to ignore ethical restrictions in business. • SST is moral skepticism & denial of MPV • WST may be true. Ask a human behavior scholar. • Business people are no better or worse than anybody. Most people are business people! Corporate Ethics: In Whose Interest? At Whose Expense? • “What should I do?” in a corporation. • What is the purpose of the corporation? Usual answer: maximize profits. • What are the moral limits profits? • When do other people matter? • Assumption: ceteris paribus, the same limits apply to non-corporate actors. Case: Merck & River Blindness • 1978, Researchers at Merck hypothesize that Ivermectin, anti-parasite agent for livestock, could have substantial human applications in preventing river blindness. High chance of scientific success but virtually no market. • River blindness (onchocerciasis): affects > 85 mil. poor people in developing countries. • Onchocerca volvulus parasite larvae transmitted through black fly bite, then mature to worms in nodules under the skin. How bad is river blindness? • Worms up to 2 ft. long, live 12 to 15 years & produce larval microfilariae cause severe itching & suicide. Later stages: larvae invade the eyes causing blindness. • So prevalent in affected areas that itching & blindness > 45: developmental stages like puberty & baldness…only if you avoid suicide to alleviate the itching. • No good options: spray the rivers, kill the ecosystem. Relocation destroys the agricultural communities. • Ivermectin – a boon to affected people, but a profits looser. No price point for drug. • Merck has the resources… They can do it. Merck’s Resources & the Drug Business in 1978 • To end 10 year drought in new products Merck spent $1 bil. in 3 years to produce: – – – – Clinoril: arthritis pain reliever. Mefoxin: general antibiotic ointment. Timoptic: glaucoma drug. Ivomec – anti-parasitic drug for livestock. • Doing OK: ’78 sales - $1.98 bil., net income - $307 mil. Sales and Income up nearly 3x from ’69. • But not great since: from “Eureka!” to shelf, new drugs cost $200-300 mil., 1 in 15-20 succeed, 10-20 year research cycle. Merck’s Mission • George W. Merck in a speech at the Medical College of Virginia – “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.” • Merck’s business: alleviating human suffering. Final Case Facts to Consider • Source of Ivomec? Random soil samples Japanese golf course! • Ivomec performs well against Onchocerca cervicalis in horses & should against Onchocerca volvulus in humans. • Tolerated in large mammals but cross-species conjecture is just that. Needs testing, but < $300 mil! & > 1 in 20! • Researcher William Campbell formally request Head of R&D Dr. Roy Vagelos to pursue human testing. • Any efforts likely prove unprofitable! But Vagelos concerned that denial will renege upon promise of George W. Merck to employees & public to alleviate human suffering. • From which profits will never fail to follow? Where will they come from if the victims of river blindness have no money?!! What Should Dr. Vagelos of Merck Do? • Merck is a for profit company, thus they are not required to develop Ivermectin for humans. • But think of the good they can do! • And think of the Merck mission & philosophy of alleviating suffering! • Talk about schizophrenic morality…it speaks with many voices. What is the Purpose of the Firm? • Firm, company, or corporation is formed by the owners to make money. • The purpose of the firm is to maximize profits. • This is the position defended by many, and justified by economist & sometime philosopher Milton Friedman. • Read Capitalism and Freedom (1962) & “The Social Responsibility of Business is to Increase Its Profits” in the New York Times (1970). Milton Friedman on Profits & the Purpose of the Firm • His view is in the title “The social responsibility of the business is to increase profits.” Read it online. • The purpose of the firm, the “What should I do?” for managers? Simple: maximize profits. • If managers deviate, even for good, charitable, philanthropic, or eleemosynary ends, then they are “spending other peoples money.” This is taxation without representation & deeply unjust! • The limits to profits? Law and ethical custom. Friedman’s Limitations on Profits PROFITS LAW Shaded area: NOT MORALLY ACCEPTABLE! ETHICAL CUSTOM OUTPUTS Purpose: Return Maximal Profits. Limitations: Law & Ethical Custom Are the Law & Ethical Custom Good Moral Limitation? • Law as moral limitation? NO! • Distinction between law & morality LA MA CA MA • Legally acceptable ≠ morally acceptable. Actions may be legal but immoral. • Custom as moral limitation? NO! • Culturally acceptable ≠ morally acceptable. Actions may be customary, but immoral. • E.g. slavery & the derivative markets. Slavery & The Horse Tack Business in U.S. in 1850 • Horse tack is saddles, bits, bridles, etc. • Friedman demands max. profits. • Should you expand from tack to collars, chains, & whips for the slavery market? • Friedman is committed to yes – no law or ethical custom against it! • But morality dictates not making any money on the horrible injustice of slavery! Fails the CI 2 by failing to recognize that humans should not be whipped & chained as slaves, nor should you profit. Friedman’s Limitations on Profits PROFITS LAW & EC MORAL Prohibitions OUTPUTS Purpose: Return Maximal Profits. Limitations: Law & Ethical Custom Out With the Old, In With the New • Old View: Stockholders are the rulers of the firm and must be respected above all others. Managers are fiduciaries for one principal: OWNERS. • New Views: Somebody besides owners matter. • R. Edward Freeman wants to re-imagine, re-vitalize, & re-conceptualize managerial capitalism to improve it, but maintain conceptual coherence & clarity. “Repair like a ship at sea, one plank at a time.” • Freeman (1994) wants “a theory about who or what really counts.” Freeman’s Stakeholder Theory • In whose interest and at whose expense: Stakeholders! Definition: • Wide View: any group or individual who can affect or be affected by the corporation – Rejected: Too unwieldy & too encompassing Freeman’s Stakeholder Theory • In whose interest and at whose expense: Stakeholders! Definition: • Wide View: any group or individual who can affect or be affected by the corporation – Rejected: Too unwieldy & too encompassing Stakes Humanity Incorrect! Humanity Stakes Correct! Freeman’s Stakeholders Defined • Narrow View: any group or individual who is vital to the survival and success of the Stakes Humanity corporation • Stakeholders include: – Owners, Managers & Employees. – Customers, Suppliers & Contractors. – Community Correct! • All are VITAL. Remove one group & the machine that creates value grinds to a halt…then everybody looses. Freeman’s Stakeholders Justified: Rawls to the Rescue • • • • • • • Owner Manager Employee Customer Suppliers Contractors Community Freeman’s Stakeholders Justified Veil of Ignorance • Owner • Manager • Employee • Customer • Suppliers • Contractors • Community Freeman’s 6 Stakeholder Ground-rules Freeman’s Difference Principle Freeman’s Stakeholder Groundrule Principles for Corporations 1. Entry & Exit: P.O.E.s must be clearly defined. 2. Governance: changes to charters must have UNANIMOUS consent of all stakeholders. 3. Externalities: those who bear positive costs are stakeholders. 4. Contracting Costs: all parties share costs. 5. Agency: agents must serve all stakeholders. 6. Limited Immortality: until stakeholders Ø! Use these rules to write corporate charters & to bind managers. Freeman’s Difference Principle as Decision Procedure • Freeman wants to capture the “liberal notions of autonomy, solidarity, and fairness as articulated by John Rawls” • Freeman’s Difference Principle: inequalities among stakeholder are justified if they raise the level of the least well off stakeholder. • N.b.: Rawls’s maximizes, Freeman raises. Freeman is much less demanding than Rawls. Freeman’s Limitations on Profits PROFITS Shaded area: NOT MORALLY ACCEPTABLE! ~ Raise Bottom Stakes OUTPUTS Purpose: Return profits to owners, but manage in the interests of all stakes. Limitations: That which doesn’t raise the level of the least well off stakeholder. Stakeholder Analysis at Merck • What does the re-imagined stakeholder capitalism say to Dr. Roy & Merck? 1. Identify stakeholders – those vital to success. 2. Identify the least well off stakeholder. 3. Survey options & determine which increase the level of the least well off stakeholder. 4. Decide which option (of 3) you should act upon. – BUT, all options increase the level of the least well off! Are Victims of River Blindness Stakeholders? • Are they necessary to the survival and success of the firm? Can Merck get along without them? • Yes…unfortunately. Not customers, not contractors…not even community members. • Principle of Externalities: they bear negative or opportunity costs, not positive costs! They lose an opportunity to be saved from river blindness. • Perhaps derivative or secondary stakes. • Merck: promises to employees re: research…but medicine for the people must be profitable. Profits & Ivermectin For Humans? 1. Pure profit drugs: baldness cures, botox, cosmetics. 2. Profitable drugs that alleviate suffering: cancer, allergy & heart disease medications. 3. Drugs that only alleviate suffering: rare genetic disorders & river blindness prevention drugs. NO SALE! 1 2 3 What Happened to the Revolution? • By an ordinary language use of “I have a stake in this”, the people threatened by river blindness should get a chance at a prevention drug. • But this stakeholder ethics can’t give them a chance. • Tragically, they are not narrow stakeholders. Freeman & Friedman agree on restraint & that’s not revolution. • For Utility, this is an easy question! Give till it hurts! But, there’s good reasons against Utility & against the similar wide view of stakeholder ethics. • Utility & the wide view are too revolutionary. They leave capitalism behind, not re-conceive it. A Third Option via a Resolved Paradox • Kenneth Goodpaster (1991) raises & resolves the stakeholder paradox – a puzzle disguised as a contradiction, e.g. the paradox of hedonism. • The Stakeholder Paradox: “It seems essential, yet in some ways illegitimate, to orient corporate decisions by ethical values that go beyond strategic stakeholder considerations to multi-fiduciary ones.” • Translated: “Neither Milton Friedman nor Ed Freeman are completely correct.”N.b.: Goodpaster is assuming a functional difference between the two. • Resolution will bear fruit! Stakeholder Paradox • M. Friedman’s Single Fiduciary Owners: Special.  Non-owner stakes: mere strategic implements. • R.E. Freeman’s Multi-Fiduciary Owners: Not special - 1 among many equals.  Non-owner stakes: source of moral concern. • Paradox: neither is wholly correct! Stakeholder Paradox Resolved: Take the Good Points from Each! • M. Friedman’s Single Fiduciary Owners: Special. • R.E. Freeman’s Multi-Fiduciary Non-owner stakes: source of moral concern. Fiduciary Stockholders Stakeholders Non-Fiduciary Please, Define: Non-Fiduciary Moral Relationship • Goodpaster: Nemo Dat Principle (NDP): “Nemo dat quod non habet” literally “nobody gives what he doesn’t have.” • NDP: Investors cannot expect of managers (more generally principals cannot expect of their agents) behavior that would be inconsistent with the reasonable ethical expectations of the community. • “Reasonable” saves us from Cultural Relativism! Reason 1. Ethical Expectations of Community (EEOC). 2. Reasonable EEOC. 3. Reasonable Ethical Expectations. NDP limits profits by 2 < (2&3) Not all communities meet reason. 1 EEOC 2 3 Reasonable Ethical Expectations • What does this sound like? • KANT! Morality based on reason. • Limiting factor: 2nd Formulation of the Categorical Imperative. Treat people as ends, not mere means. • Maximize profits until or unless it treats people as mere means, not ends. Reasonable Limitations on Profits PROFITS Shaded area: NOT MORALLY ACCEPTABLE! Violates CI 2 OUTPUTS Purpose: Return as much profits to owners as possible, but do not Limitations: Treating people as mere means Business Ethics Depends on Normative Ethics • Which is why you sat through sessions 4-7! • Seriously though, the dialectic lead is to reasonable ethical expectations: 1. Virtue 2. Utility 3. Deontology • Decide for yourself! • What rights or principles are in play at Merck? Reasonable Moral Principles & Merck • Keep promises to maximize profits. • Utility: Too easy & too demanding. Reasons for suspicion. • Virtue: Would a good person break this promise? • Kant: does not funding violate CI 2? Threatens to treat stockholders as mere means. • Consider: Dividend ’78=$1.72 on 85.7 mil. shares • $3 mil. to fund Campbell’s proposal reduces dividend by $.035 per share…on $147.7 mil! • Hold on that number! Duties of Rescue & CI 2 • Rescue the drowning person when… – Little cost to you. – Great benefit to them. – Specially situated to do so. • Failing to do so violates CI 2 • OR simply fails a weak deontology where consequences sometimes matter, especially in cases like this! If Merck Were One Person…& Since They are Many… • Not spending $3 mil.: greedy (Vice) or worse given: – – – – Great need > 85 mil. Chance of finding precious, rare compound (soil samples!) Great benefits to others (sight & life) at comparatively little cost, Even though protected intellectual property on the compound. • A single person who refused violates CI 2 – fails to respect victims as anything other than mere means. • Given the cost is spread out to $.035 a share, it’s even worse for a corporate setting – 85.7 mil. Shares, mostly institutional investors! Lots & lots of people! • Thus Merck must give something! • $3 mil. is arbitrary….but far from what happened! What Actually Happened: Mectizan Donation Program • Merck funded initial trials & tried to recoup from WHO, UN, etc. & failed. • Funded more extensive trials & failed to recoup. • Death of a thousand cuts: ever closer to the great prize – a great drug ready to distribute. • On their own $$$, Merck developed, tested, manufactured, distributed through channels they designed & implemented Mectizan. • Then they gave it away! $174 mil. in 2001. In 21 years & 1,000,000,000 treatments @ $1.50 per pill 1x year! • http://www.mectizan.org/ Sightless Among Miracles • Copy of oversize bronze sculpture comm. by Merck for their world headquarters in New Jersey in 1995. This copy at Carter Center. Beyond the Call of Duty • At the very least, Merck should allow university & non-profit researchers access to intellectual property. • Enforcement violates CI 2 • The stockholders never complained. • Maybe they agreed funding met reasonable moral standards as prohibitions on maximal profits. • A small problem remains. Remember Vioxx? Everybody Knows Vioxx, Nobody Knows Mectizan • MDP still a profits loser: didn’t leverage goodwill against mistakes. • Vioxx development contemporaneous with MDP development. • Merck should give up intellectual property, but maybe not change their business model out of area of expertise. Drugs, not distribution networks. Post hoc, ergo, propter hoc? • Still, $174 mil. is supererogatory or heroic. • But you need normative ethics to see why. • The separation thesis is bunk & we all need moral theory. We just never know when. Review • Friedman’s stockholder theory: profits first, not above all else. • Friedman limits obligations to profit via law & ethical custom. These function poorly as moral limitations. • Freeman places a general equality among stakeholders & requires that managers increase the least well off. • Those groups vital to the success of the firm are Stakeholders. • Stakeholder difference principle has problems in application. • The stakeholder paradox can be resolved with an application of normative ethics – reasonable moral principles. • Yet again, moral principle: foundation in moral action. • In general, moral principles of duty trump obligations to profit. Questions for Discussion • How far off the mark is Milton Friedman? • Stakeholders can come in many forms. Can stakeholders be legitimate and illegitimate on Freeman’s view? • On your view, can they be illegitimate? • What do you mean when you say stakeholder? • We all use the word “stakeholder” so how revolutionary is Ed Freeman’s view? • Can you think of a case where Freeman departs from Friedman in practical application? • What principle is a reasonable limiting principle for profits? References • Milton Friedman’s Capitalism as Freedom (Chicago, IL: University of Chicago Press, 1962) & “The Social Responsibility of Business is to Increase Its Profits”, New York Times Magazine (New York, NY: Sept 13, 1970). • R. Edward Freeman in “The Politics of Stakeholder Theory: Some Future Directions”, Business Ethics Quarterly (1994, Vol. 4, No. 4). Freeman’s development of the theory exists in many articles and monographs. I urge you to seek them out. • Kenneth E. Goodpaster in “Business Ethics and Stakeholder Analysis”, Business Ethics Quarterly (1991, Vol. 1, No. 1) • “Sightless Among Miracles” http://www.freedompark.org/
*each* individual question should be between 2 and 3 pages in length…double spaced! This will mean test totals should be 6 to 9 pages. Word process or type your answers! Though writing styles vary, much less than 2 pages will probably prove insufficient and anything much longer than 4 pages will likely be ignored. 3. All margins are to be 1 inch all around. All fonts used should be in 12 point type. Do not separate paragraphs with extra rows or returns. Microsoft Word defaults to 1.5 spacing between paragraphs, or more. You must correct that default in your paper. Do not repeat or retype the question at the beginning of your paper. See the sample page attached for visual confirmation of the text format required. Failure to properly format your answers will affect your grade! 4. The test itself will be open book and open notes. That is worth repeating: you may use any material from the class - your notes, my notes, or even the books on the test. Your answers should present your understanding and opinions of the arguments and materials covered in THIS class. First sources must be the material assigned and are necessarily first sources. Second sources are not necessary and you will be graded not only on your understanding of the secondary source, but also its relevance to the issue at hand. Second sources are not acceptable on their own! Note well, however, this is a test of your understanding of the material from this class so you would be well advised to concentrate on the material assigned. It is not a test of your ability to transcribe quotes. For example, do not simply list arguments advocated by one author or another. If you do list an argument in premise form, also write an answer that demonstrates you understand the premises and how they are justified. DO NOT SIMPLY RE-STATE CASE FACTS: ASSUME I AM FAMILIAR WITH ASSIGNED CASES. "Martin should slap the auditors because…" is sufficient case detail. 5. The answers should be your work. DO NOT turn in any work that you did not produce by your own hand. 6. You are required to answer the underlined question or questions. The material preceding the underlined question is meant to direct you to the relevant issues. 7. You may answer any question, but DO NOT cut and paste any old material into your new answers. Take the time to read, understand, and rethink your old answer to make it better. Please answer ANY 3 of the following: 1. Question: When doing business in countries other than your home country, when should you comply with the host country's cultural traditions and when should you follow principles other than those favored by host country's cultural traditions? What decision procedure should you use to answer this question? Feel free to use cases we have studied or other “real life” examples to answer this question. 3. Not too long ago, Milton Friedman argued that the only moral responsibility of managers in a capitalist system is to increase the owner’s investment through profit maximization, with precious few (if any) moral limitations. Many have claimed that a justified sea change occurred when Ed Freeman started arguing to rebuild, revitalize, and reconceptualize stockholder managerial capitalism to transform it to stakeholder managerial capitalism. Question: How revolutionary is Freeman’s theory when applied to managerial decisions? When we move from Milton Friedman’s Stockholder theory to Ed Freeman’s Stakeholder theory – does this shift in theories end up telling managers to take different actions, or do they simply disagree about the justifications for roughly the same actions? Feel free to use cases we have studied or cases from “real life” to answer this question. 4. Ellen Moore will cost more to employ in Saudi Arabia than an equally qualified man, though no such male candidate exists at the time of the case. Ellen will not only cost more to employ, but the General Manager believes she has a lowered chance of success because she is a woman. Felice N. Schwartz presents arguments to convince businesses regarding the rationality of hiring women even though women cost more to employ. What is Schwartz's argument against sexism in hiring and promotions, and is this a good argument? Why should a business be blind with regard to sex? The next page will demonstrate the REQUIRED format for your answers regarding type face, margins, spacing etc. 1. This is sufficient indentation to begin your first paragraph. Notice as well that I started this answer at the top of page and just below the 1 INCH margin, that is, 1 INCH MARGIN AROUND THE ENTIRE PAGE! Now suppose I am done with this very short paragraph. See how I just hit enter /return, indented ½ an inch, and started typing again?!! There is no additional space between paragraphs. If you add spacing between paragraphs you indicate that you are changing the topic under discussion. I don't care much about the font, but I do want the tests typed in 12 point scale. This font is Times New Roman, but most anything will be accepted. And for goodness sake, please staple your answers together! One and only one staple is necessary if done correctly. Staplers are fairly easy to operate. Do not make an elaborate origami sculpture out of your paper in the upper left hand corner just because you didn't bring a stapler. I will probably be nice enough to bring my stapler along. Remember to hit a hard page return when you have completed an answer. The instructions indicate that each new answer should start on a new page. Let's assume I want to give an extended quote or list the premises of an argument: "Whether a quote or a list of premises, notice how the page is double indented and starts over at the same point on the soft return. Also notice that the type face is reduced, and this part of the paper is single spaced. And here we are again back to normal. The purpose of all the above formatting at the quotation section is to reduce the size of the quotation to leave you more room to expound on the meaning of the quotation. Your words are more important than the quotations. Good Luck! Name: _________________________________ Question #_________________________ Question #_________________________ Question #_________________________
Business Ethics – Thomas A. Package Lecture 18 I. Case "Ellen Moore" II. Case "Is this the right..." III. Management Women and the New Facts of Life A) BFOQ - Bona Fide Occupational Qualification. Some group of qualifications which are necessary for holding a job. A mechanic must understand how to repair engines; financial advisors must understand capital markets and investment instruments and so on. BFOQ do not generally included things like sex, gender, race, religion, or ethnicity. In fact, we generally think including said characteristics is wrongful or unjust. Further, excluding a person from employment based on those sorts of characteristics is also deeply unjust. B) Schwartz asserts that employing women is more costly than employing men. For example, women require maternity leave and often do not return to work following said leave. Women supposedly have a higher rate of turnover than do men, 2.5 times as high as men in upper management positions. For whatever reason, women plateau or interrupt their careers in numbers men do not. Schwartz further asserts that the different cost in employing women along with men is NOT a "function of inescapable gender differences." She asserts that the cost results from the policies and practices of mostly male-led corporations. The solution is not to stop employing women, but to reduce the cost of employing women. The causes of the costs of employing women fall into two categories: 1) those things associated with maternity and 2) differences resulting from differing traditional or cultural expectations of the sexes. Schwartz says we can't change the fact that women are the ones who have children, but we can reduce the impact on the workplace and nearly eliminate its effect on employee development. This can be accomplished by addressing the gender or socially malleable differences in expectations of men and women. In other words, if corporations want to reduce their cost of employing women, corporations need to effect change in the social structure, expectations, and attitudes of both men and women. C) Interestingly, Schwartz does not seem to believe in the glass ceiling. The glass ceiling is a level beyond which women are not generally offered positions of increased responsibility and prestige, usually because they are women and are considered only partially qualified. Schwartz seems to think the metaphor of geological barriers is better since it is the costs of employing women in high positions which tends to decrease the numbers of women actually steering Fortune 50, 100 or even 500 companies. Management tends to withhold significant offers to women since women sometimes choose to either take the "Mommy Track" or if they do return to work after maternity leave, women are noticeably less productive and seem to be splitting their resources. Either way, management sees the costs of developing women as managers is high and the possibility of returns are lower than for men. Schwartz quotes statistics regarding how women are employment resource which management would be particularly unwise to fail to exploit. Simply put, management needs all the talent it can get. The baby boomer bubble has pushed through the initial recruitment stage and management no longer has so large a pool from which to pick. Thus, we see where once 2 women were an untapped resource pool of talent which we would be smart or pleasant to develop, women are now a necessary resource for continuing the flow of talent into the ranks of business. There are simply less employable people so ALL resources should be explored. Also, if management wants to continue to hire and promote only qualified males, then there will be a problem since there may not be enough qualified males to fit the bill. D) Career-primary v. Career-and-family Career-primary(CP) is a personality type which cuts across sex and gender differences. CP means you put your career first and you tend to make the sorts of sacrifices which we would expect: 70 hour work weeks, living at work, etc. Both men and women would share those characteristics in CP. However, for women CP seems to mean putting off having children, perhaps indefinitely. 90% of executive men have children while only 35% of executive women have children. That statistic should give thinking people some cause for pause. Schwartz recommends recognizing CP women early and clearing artificial barriers from their path to the top. This enables the corporation to properly exploit the valuable resource. Schwartz also notes that CP women would serve as good role models for other women at work. How do you clear a path? 1) Identify CP women early. 2) Give CP women the same opportunities and responsibilities afforded to CP men. 3) Accept CP women as valuable members of the management team. 4) Recognize that the business environment is more difficult for them as women than for men, since there is obvious active and residual sexism. In other words, we should make efforts to treat women equally, both procedurally and substantively. Career-and-family (CF) is a personality type of people who want to pursue careers while rearing children as well. CF women are willing to trade some career benefits and goals for other benefits and goals such as families. Not surprisingly, Schwartz notes that companies would prefer to have all CP employees instead of CF, but she also says that companies would do well to exploit the ranks of CF women for talented employees. CF employees, both men and women, tend to be passed over for promotions since the employer is looking for those driven go-getter CPs. Not developing women who find themselves CF after some investment loses the investment unless it is "amortized" over a long career as a perfectly functional middle-manager who likes to go home at 5PM on Fridays. Some women only temporarily stall at CF during child bearing years and would welcome the opportunity to change to CP when those years have passed. Business should welcome this change as well, even if it means allowing CF women to work productive part time hours. E) Managing and developing CF women requires three things: 1) Managing maternity. You must be willing to be flexible in allowing the employee to set her own date of return. The one thing which is inarguable is that NOT doing so means foregoing her valuable experience and knowledge. That alone should be worth some further investment to protect and retain. 2) Provide the flexibility needed. Mothers have responsibilities which are not easily accounted for by schedules. Assuaging this need can amount to simply allowing a flexible 3 schedule, say an hour or two off to shuttle to day care or make doctor's appointments. The wired workplace can also allow you to work from home when necessary, a valuable convenience for a new mother. On the opposite end of the spectrum, being flexible can also mean part-time return to work or alternative work schedules. 3) Provide the family supports needed. This includes not only maternity leave and flexibility, but also providing parental leave for men, flexible benefits, and most importantly, assistant with child care. Neither Mothers nor Fathers work well when they are worried about who is minding the baby. Child care could and perhaps should be offered as an employment benefit much like health care or life insurance. IV. Does Schwartz defeat sexism? A) What question is Schwartz answering? The article begins by noting that women are: 1) more costly to employ than men, and 2) more likely than men to divert from the go-getter, highest level executive career path. From the human resource perspective, women cost more money and return at a lower rate. Schwartz then attacks both of those claims by attempting to widen the scope of consideration, but she does not do so without argument. Schwartz asserts that much of the cost of hiring women can be reduced, just as the rate of return can be increased. Her recommendation is for employers to be flexible and to provide additional services such as halftime or part-time employment, and perhaps subsidized childcare at the office. With time, she says, the rate of return will increase. Another argument against sexism, using sex as a BFOQ, is that companies now need women executives in ways they did not before. As the Boomers bubble moves on through the demographic stages, there are not enough talented men in the possible executive pool to fuel the needs of business. Thus, the sexist company is over-looking one important cost of sexism, a coming shortage in the all male rising executive pool. Sexist companies and hiring agents will find their sexism to be self-defeating as the diverse companies out compete the sexist companies. But is this the right way to phrase the question? Does this defeat the moral problem of sexism or does it simply say that sexist hiring managers are also strategically stupid because they do not recognize all of the relevant costs. This seems to be a contentious strategic argument aimed at defeating an arguable immoral conclusion. Is sexism defeated by showing it to be strategically unwise? Does that demonstrate it to be immoral? B) Even worse, it seems Schwartz comes dangerously close to denying what she asserts in the very first sentence "The cost of employing women in management is greater than the cost of employing men." Doesn't the argument at A tell us that it's more expensive to NOT hire women than it is to hire women? Which is it, that it women are more costly or not more costly? Luckily, all is not lost. Call M the cost of employing men. Call W the cost of employing women. Thus: W > M. Sexism is also costly since, by A above, sexist companies will miss out on the necessary resource of women managers. Call S the cost of being sexist, since sexist firms miss out on the benefits provided by female executives. Thus: S > W > M. Women cost more to employ than men, but when we consider the whole picture, sexism costs more than employing women. 4 C) Are sexists stupid? Of course, Kantians say yes (after a fashion) since it is irrational to treat people as mere means, and sexism fails to recognize the full humanity of women. For the rest of us, saying that sexists are both morally wrong and strategically wrong is at least contentious. This all turns on showing that sexism is indeed more costly than developing women as executives, with or without kids. Also, without the commitment to profit maximization, it ain't a moral argument at all. That is what Schwartz is really saying, that the hiring manager who keeps track of stats on executive development is looking at the wrong stats, or is deeply confused about what maximizes profits. Is that an argument about what is wrong with sexism and why you should not be sexist in hiring, or is it an argument about why it is unwise with regard to profits to be sexist in hiring? D) What's the right question? But suppose the strategic argument goes against Schwartz. Suppose the stats show that women fall off the executive track and return less often to work. What argument can we muster to show that even if women cost more money to employ, firms should be blind to this stat? Consider how statistics can demonstrate all sorts of morally suspect premises that we don't allow firms to use, e.g. insurance costs based on race. Women earn $.77 for every $1.00 earned by men in the same position with the same qualifications. Women do not get equal pay for equal work. This number falls when we analyze it from race as well…$.71 for African American women and $.58 for Latin American women. An economist might explain this as follows: Firms have access to the very same statistics as Schwartz. Economic maximizing rationality dictates that perfectly rational person would pay less for labor that they believe will provide fewer benefits. Schwartz seems to be denying that the statistical analysis is complete in the market. All of the firms that constitute the market that returns only $.77 must be wrong in order for Schwartz to be right. The right question is "Should firms be blind with regard to sex even if it costs them more money to do so?" And there is a very good response to this that Schwartz does not analyze, though some parts of it are available in her article. If $.77 is explained by childbearing, then women are paying a disproportionate share of the necessary good of somebody having children. It is not that kids are interesting life projects like climbing Mt. Everest. The bearing and raising of children is a primary good, as Rawls would put it, since even if you don't want to have kids, you need somebody to do it. Somebody is raising the doctor you will need in old age, and somebody is bearing and raising the entire work force that business will need in the future. If women pay more for kids by losing out on both jobs and pay for the jobs they do get, then the burdens and benefits of children are not borne equally by all people. Thus firms should not take into negative consideration, firms should be blind to the fact that an employee or potential employee is a woman. If we allow firms, legally or morally, to consider sex as a BFOQ even if the stats back this up, then we are allowing women to bear an unfair share of the burden of raising children, a necessary good for us all. Questions to Consider: 1. Can Ellen Moore succeed in the Accounts Control position her boss offered, but then retracted? Is Ellen more costly and more risky in that position than an as yet unrevealed male counterpart? Is Ellen's boss saying that sex or gender is a B.F.O.Q? 2. In the other case, isn't George asserting that sexual preference is a B.F.O.Q.? If that is what both boss's are asserting, then is that a reasonable and morally acceptable conclusion? 5 3. Schwartz begins by asserting that women are more costly to employ than men, and that women are a more risky investment as well since they tend to plateau or resign more often than men. Given that *fact of life*, she claims that the pursuit of profits demands that employers take those risks or else they will be outperformed by others who do. How good is this argument? Does it defeat the sexist? Does Schwartz succeed in convincing us that Ellen's boss is both morally and strategically confused? 4. Suppose we take Schwartz's argument one step further. Suppose we consider the possibility that a business should be blind with regard to sex or gender, and should be blind with regard to sexual preference? Can we find a reasonable argument in support of that claim?
Global Business Ethics vs. Ethics: Is There a Difference? • In theory: very little. • In practice: context shapes practice in new & interesting cases. • We sometimes don’t know what we believe until challenged – “put your money where your mouth is.” Global Business Ethics by Two Hard Concepts • Lying & bribery: easy in conversation. • Deceptively simple. • Clear, concise, precise definitions free from defeaters & counter-examples are difficult. • Why lying & bribery? • Cultures vary upon definitions & applications. • Objective principle approach -> cross-cultural definition that “works” well in the field. Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Italian federal corp. tax rate approx. 31.4% but similar to other systems ends there. • Italian IRS (IIRS) assumes corp. never tells the truth & corp. deflate income by 30-70%. • IIRS assumes corp. yearly income always increases, corp. never operate at a loss, & IIRS issues invitation to discuss upon receipt of filing. • Corp. hire commercialista to discuss & negotiate fee for services includes a bustarella to IIRS agent. • Moral status of declarations & payments? Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Lie? – declare €30 mil. instead of €100 mil. • Bribe? – pay bustarella to IIRS agent. • American banker in Italy though objectively: – Refused to lie & submits Americanized return. – Italians apply 3x markup & issue invitation to discuss. – Refuses to bribe through commercialista & simply pays his initial assessment. – Receives notice disallowing int. on dep., resulting in tax bill 15x his initial assessment. – Personally accepts invitation to discuss. – Resolution: cost bank 3x IIRS GAAP taxes & LOST HIS JOB! • How we struggle with vagueness & ambiguity! • Embrace relativism? Horrid logical consequences. Taxes in Italy: How to “Lie” and “Bribe” With Impunity • Objective moral theory: lying & bribery should be wrong for one & all. – A lie in NYC or Delhi is a lie in Rome. – Bribing a public official in Tokyo is wrong, as is bribing a public official in Rome. • Wasn’t the banker morally correct, objectively speaking? Depends on definitions. • What is a lie? Much > than speaking falsely. • What is a bribe? Much > than payments to officials. • Definitions are required. Philosophically precise definitions are not easy. Lying: What is it? • Philosophers disagree. Kant is badly confused! • After Kant, somewhat ignored in moral philosophy – late resurgence. See Thomas Carson’s Lying & Deception. • Contra utility, lying is presumptively wrong, & must not be consequential. Thin/Descriptive Taking Killing Speaking falsely Thick/Moral Stealing Murder Lying • When is it wrong to lie? Always, Sometimes or Never? Lying is Presumptively Wrong • Prima facie wrong: weakest of wrongs. – Easiest to justify violation. – Breaking promises, singular intrusions to privacy. • Presumptive wrongs: strong moral prohibitions. – Still justifiably over-ridden or trumped – Most moral prohibitions “live” or reside here. – Violence, stealing, &murder can be justified. • Absolute wrongs: strongest moral prohibitions. – Can NEVER be correct or acceptable to violate. – Genocide. • Kant’s view? Always, sometimes or never? • Kant: The American banker got it right!...but got fired! Always Wrong to Lie: Kant’s Absolutism on Lying • In the Groundwork, Metaphysics of Morals, Lectures on Ethics, & even in On the Supposed Right to Lie From Philanthropy Kant is decidedly ABSOLUTIST about lying. • For Kant, lying is never justified & always wrong! This is a tortured & tortuous view. • Lying: always self defeating – violates CI 1 • Kant begins with the thin/thick distinction: – Falsiloquiums: to merely speak falsely. – Mendacium: to wrongfully speak falsely against the rights of the auditor to the truth. Kant’s Absolutist Argument on Lying • • • • Kant: suppose you are mugged at gunpoint. Thief’s nefarious intention & ends = no right to the truth. Thus falsiloquium – “I have no money” is OK! But not so fast. No rights qua mugger, but… – – – – You need to be believed to save your money. You won’t be believed if everyone lies to muggers. Also, all humans have a right to a community of truth. That right is violated by speaking falsely when you make yourself understood to be telling the truth. – Even thief is a human being – part of a community of truth. – Thus you must speak truthfully to the person mugging who has rights qua human. • Violations of community of truth: preajudicium humanitatis. Kant’s Absolutist Argument on Lying • Violations of community of truth: preajudicium humanitatis or prejudicial against humanity…crimes against humanity. To tell a lie to a mugger! • What of the Gestapo officer at the door? • Kant: Still human, thus still preajudicium humanitatis. • I am not making this up! • The crime against humanity is directing evil people! • Shouldn’t Kant have said “Lying recognizes CI 2, while telling the truth fails CI 2!” • Thus, reason demands the occasional lie, especially to protect innocents – Philanthropy. Never Wrong to Lie: Albert Carr’s Argument on Poker’s Game Ethics • Carr: American banker misunderstood games. • Business: game, like poker – acceptable “lies”. • "By conscious misstatements, concealment of pertinent facts, or exaggeration - in short by bluffing“ business people seek to influence others. • American banker: troubled or guilty? Remember the impersonal nature of games and their special ethics. • Limits to lying in business? The laws of business. • Do we really need another venn diagram? The law is simply no excuse for moral principles. Never Wrong to Lie: Albert Carr’s Argument on Poker’s Game Ethics • Analogy breaks down: lying includes false speech. – Chips speak: players don’t need to speak to bluff. – If they speak, neither false nor intended to be. • Games change the moral landscape, e.g. boxing, cricket & rugby, but that’s because we consent to play. • In poker, all players consent to play. • Do all business players consent? – Libertarians: yes. Marxists: no one does. – Reasonable position: depends, or most but not all. Sometimes (or Usually) Wrong to Lie: Package & Carson • Package: wrongful intentional, stated falsiloquiums. Liar attempts to use another as mere means – violates CI 2 – Thick • Criticism: Cart before horse – lying is neutral & basic. It is used to generate judgments of other acts. – Perhaps, but also true of murder or any thick terms. • Criticism: Against considered moral judgment & common usage. – Common usage can be imprecise & even incorrect. See the considered judgments on lies & utility Sometimes (or Usually) Wrong to Lie: Package & Carson • Carson: a statement speaker does not believe but warrants to be true. – Thin • Lies are a way of advertising what you don’t believe for your own ends or gain. • Breach of trust between speaker & auditor, not all humanity! • Immorality of lies directly proportionate to degree of warrant speaker offers as true. Higher the warrant, higher the wrong – breach of trust. • What do theses definitions say of our American Banker? • See http://orion.it.luc.edu/~tcarson/LIE-NOUS.pdf Are Italian Tax Returns Lies? • Package: No! Not a lie – maybe false, but not wrongful. No violation of CI 2. • Why? Italian gov’t has invited negotiations, consenting to the process. Also, Telling the truth holds you “cully to integrity” (Hume). • Carson: Yes! Warranting 30% as true when you know it to be false is lying. • Carson: BUT, not wrong. Warrant of 30% taken seriously by neither both speaker nor auditor! • Banker was being absolutist about lies. Is the Bustarella a Bribe? • Direct translation is bribe, but good translation? • Old view on bribery: – Bribes are payments to do something wrong. A pays B to perform wrongful act. • Rejected: too broad. Catches all criminal enterprise as bribery. • Carson’s new view: – Bribes violate obligations to employers. A pays B to perform wrongful act that violates obligation to C. • Voluntary obligations vs. non-voluntary duties. Is the Bustarella a Bribe? • N.b. Carson’s new view: – Bribes violate obligations to employers. A pays B to perform wrongful act that violates obligation to C. • A: Banker/Commercialista, B: IIRS Agent, C: IIRS. • What is IIRS agent’s job? How is she obligated? • Since IIRS is aware of system, accepting bustarella is allowed by IIRS as compensation to employees. • Thus, bustarella is not a bribe…what is it? What is the Bustarella? • Grease or facilitating payment: to speed routine actions, e.g. processing paperwork & mails. – excludes decisions by official to award business to a company. See Lockheed Martins payments to Japanese defense ministers. • Purpose of grease payments amendment is to allow firms to meet local payment/wage structure. N.b: consult an attorney re: facilitating. • Different countries pay officials in different ways & that is neither bribery nor extortion! When Should I Follow Host Country Practices & When Not? • Query of International Business Ethics: What is the moral floor for behavior across borders? • DeGeorge’s Double Standard: Foreign investors have higher bar than domestic. Morality demands more! • Incipient capitalism has real problems: – Strong prohibitions for all: murder, theft, violence & slavery. – What of bribery, extortion & graft, trademark violations? • • • • Distinction : 1) praise & blame vs. 2) right & wrong Domestic firms: blame free - cannot survive otherwise Foreigners can survive otherwise, thus still bound. Ought implies can! Danger of the Naturalistic Fallacy • Naturalistic fallacy: normative conclusion never follows descriptive premises. • Remember: is & ought are distinct! • Example: Social Darwinism 1. In nature, the strong dominate the weak & only the fittest survive. 2. Therefore, in society the strong should dominate the weak & only the fittest should survive. • Validity needs missing premise. Danger of the Naturalistic Fallacy • Naturalistic fallacy: normative conclusion never follows descriptive premises. • Remember: is & ought are distinct! • Example: Social Darwinism 1. In nature, the strong dominate the weak & only the fittest survive. 2. Nature should guide society. 3. Therefore, in society the strong should dominate the weak & only the fittest should survive. When Should I Follow Host Country Practices & When Not? • Thomas Donaldson & Thomas Dunfee Integrated Social Contracts Theory (ISCT) • A contract based alternative to stakeholder theory. Firm: nexus of contractual relationships. • Social groups have a right to a moral free space, & self-determined social contracts. • Floor: moral minimums or hyper-norms are met. • Rough conclusion: So long as local practice meets hyper-norms…respect local practice & follow local norms. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • Following Thomas Hobbes’s social contract theory, selfdetermination & agreements are important. • Norms-1: Indicators of social agreement verified by sociology, e.g. Americans embrace the death penalty. • Norms-2: Normative or moral principles verified by arguments, e.g. the death penalty is unjust. • ISCT rejects the latter: philosophers & professionals continue to argue about: – Cultural relativism/Ethical Imperialism: blind export of home practice. – Absolutism: morality demands identical behavior around the world. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • Neither CR nor Absolutism complex, ambiguous, context driven, situated human activity: global business • Philosophers (the professionals) disagree re: morals by argument but we need global moral requirements. • Even philosophers like Michael Walzer say: “there is no Esperanto of global ethics.” No one way to morals. • And rights won’t cut it. Whole traditions, such as Buddhism & Confucianism, didn’t use rights talk & it’s morally repugnant to exclude these views. • Nobody knows what Norms-2 are but we can determine Norms-1 so start there. Why Hyper-Norms Instead of So-Called Objective Moral Principles? Three Principles for shaping ethical behavior in global business: 1. Respect for hyper-norms, which determine the absolute moral thresh-hold for all business actions by agreement. 2. Respect for local traditions. 3. The belief that context matters when deciding what is right and what is wrong. Why Hyper-Norms Instead of So-Called Objective Moral Principles? • No unanimity on all principles, though views convergence. The golden rule exists in nearly all moral traditions. • A sampling of shared principles: – – – – – – Kant: Refrain from harm to others. Western/Christian: Do unto others as you would have done to you Confucian: What you do not wish for yourself, do not do to others. Buddhist: Hurt not others in ways that you yourself would find hurtful. Islamic: That which you want for yourself, seek for mankind. Hindu: One should never do that to another which one regards as injurious to one’s own self. – Utility: Help others when you can. – Confucian: Since you yourself desire standing then help others achieve it, since you yourself desire success then help others attain it. What Are Hyper-Norms? The parts of the overlapping consensus. Respect for Human Dignity. Respect for Basic Rights. Good Citizenship. (Virtually) All traditions. Hindu Utility Kant Confucian When Should I Follow Host Practices? 2 Tests for Conflicts 1. Conflict of Relative Economic Development: Would the practice be acceptable at home if my country were in a similar stage of economic development? • If yes, then follow practice. If no, then reject. • Hypothetical: Host country engages in slavery. • Did your home country accept slavery at a similar stage in it’s economic development? • Compare to 1850 U.S. When Should I Follow Host Practices? 2 Tests for Conflicts 1. Conflict of Relative Economic Development: Would the practice be acceptable at home if my country were in a similar stage of economic development? • Thus, you may employ slave labor since they used to back home? Absurd! • But, what’s blocking this result? Hyper-norms? • We allow export of science & medicine so we should allow export of moral developments. When Should I Follow Host Practices? 2 Tests for Conflicts 2. Conflict of Cultural Traditions: It is permissible to follow practice only if you can answer no to both: 1. Is it possible to conduct business successfully without violating local cultural practice? 2. Is the practice a violation of hyper-norms? • Hypothetical: Japanese gifts & Spanish siesta. • Business: in Japan virtually impossible without gifts, in Spain less possible w/o siesta. When Should I Follow Host Practices? 2 Tests for Conflicts 2. Conflict of Cultural Traditions: no to both: 1. Is it possible to conduct business successfully without violating local cultural practice? 2. Is the practice a violation of hyper-norms? • There are no hyper-norms considering gifts or long lunches & naps. • Thus, respect gift giving & siestas. • Notice how hyper-norm appeared again! • Redundant? How do hyper-norms work? A Closer Look at Hyper-Norms Norm-1 Social Norms: Morals by Agreement VS. Verified by Statistical Evidence ACCEPTED: Just ask the crowd! (Self-determination is important) Norm-2 Moral Principles: Morals by Argument Verified by Abstruse, Contentious Argument REJECTED: Nobody can tell us what these are! A Closer Look at Hyper-Norms Hyper 100% OR LESS Accepted Rejected Norm STATISTICAL INDICATOR OF AGREEMENT 100% STATISTICAL INDICATOR OF AGREEMENT What Are Hyper-Norms? 100% Agreements – Overlapping Consensus Respect for Human Dignity. Respect for Basic Rights. Good Citizenship. Sound familiar? Kant’s Moral Rights! Hindu Utility Kant Confucian Hyper-Norms? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace If it walks, swims & quacks like a duck… Hindu Utility Kant Confucian Hyper-Norms or Rights? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace If it walks, swims & quacks like a duck… Hindu Utility Kant Hyper-Norms or Rights? Kant’s Achtung & 1st Cat. Imp. 2nd Formulation Cat. Imp. Cosmopolitian Perpetual Peace Hindu Kant A thing is what it is & not something else. ISCT accepts foundation is needed, so why reject in name but embrace in logic & force? By Definition: No Hyper-Norms Only Localized Agreement Confucian Hindu Utility Kant Christian When Should You Follow Host Country Practices & When Not? • ISCT: on the right path & reached a decent conclusion. • Faltered on morals by agreement. • Improvement: Define “hyper-norm” by reference to morals by argument, or reasonable moral principles. – – – – Hyper: Strong, greater than, excitable, improved. Norm: More or moral principle. Strong Moral Principle Such as Basic Rights, Respecting Human Dignity, and Being a Good Person. When Should You Follow Host Country Practices & When Not? • Query of international business ethics: What is the moral floor for behavior across borders? • Reasonable conceptions of moral principles. • Ignore host country practices when they violate reasonable conceptions of strong moral principles. – Reasonable conceptions of moral principles: Virtue, Utility, or Kantian Deontology. YOU DECIDE! When Should You Follow Host Country Practices & When Not? • What of actions that don’t violate moral principle, are profitable, but violate local cultural norms? • Contract to max. profits demands violating local cultural norms IF profitable – probably won’t be for long. • Or get a new job if you don’t like being a jerk. When Should You Follow Host Country Practices & When Not? When consistent with reasonable, strong moral principles. When inconsistent with reasonable, strong moral principles. Profitable Not Profitable Follow Local Cultural Mores Ignore Local Cultural Mores Ignore Local Cultural Mores Ignore Local Cultural Mores Professionalism & Moral Trumps • “Don’t be an imperialist jerk!” is a virtue claim. • Virtue trumps profits if virtue > important than contracts/promises : Subjective. • Contracts/promise trump cultural practices so profits are obligatory unless… • Reasonable moral principles trump both contracts/promises & cultural practices. • We all need a theory of reasonable moral principles. Parting Thoughts on Wisdom • Ethics is about no less a subject than how we ought to live, and we live our lives through business. Business meets our needs, fulfils our desires, & is one way bring meaning to our lives. • I hope you have found some knowledge and are on your way to new moral wisdom. • Chinese Proverb: One conversation with a wise person is worth ten years of study. • Find someone wise to talk to. Look around. They are everywhere. Questions for Discussion • Reflecting on your own experience, is lying a thick or thin term? • When is it wrong to lie & why? • Is bribe a thick or thin term? • Can you bribe a child with sweets to convince her to take her medicine? • If we agreed with ISCT in international ethics, what would really be in the overlapping consensus & be a hyper-norm? What moral principles are agreed on by ALL societies? Questions for Discussion • Suppose Donaldson & Dunfee are correct that local practices should matter somehow, but given the contract/promise to profits how should they matter besides character or personal value claims? That is, can you support them with something stronger than “Don’t be a jerk! Give the workers a siesta or the supplier a gift?” • Suppose D&D are not correct about hyper-norms. What actions would reasonable, strong moral prohibitions rule out regarding profits?
Business Ethics – Lecture 8 I. Merck & Co. Inc. II. Freeman's Stakeholder Theory of the Corporation A) In Whose Interest? Ed Freeman, noted business ethics scholar of the Darden School of Business Administration, has developed a theory of the normative dimensions of corporations. His theory is an answer to the question "For whose benefit and at whose expense should the firm be managed?" As I'm sure some of you are aware, a common answer to this question is stockholders or shareholders. Management has been charged with the responsibility of maximizing wealth or returns to those who own the company. This is the normal conception of the fiduciary relationship between management and the owners. Management by contract, or by an employment agreement, has been entrusted with running the company for the purpose of guarding and maximizing the owner's interests. In the case of corporations this is cashed out in terms of who owns the stock. For moral theory and business ethics, the problem with the normal stock or shareholder analysis is that it offers no guidelines or principles for restricting the maximizing of profits when maximizing profits conflicts with moral principles. On a certain unreflective view of the special relationship between management and stockholders, it is possible for management to be morally obligated to maximize shareholder wealth or value even when doing so violates an ethical principle held by the manager, society, or a principle nobody holds but arguably should hold. What Freeman wants to do is expand the notion of the obligations of managers to include a fiduciary or trustee relationship to persons other than the stockholders. He uses the term "stakeholder" to refer to anyone who has an interest in the operations of the firm. B) Who are the stakeholders? Good question. Stakeholders are those who have an interest in the decisions of the firm. Goodpaster analogizes "interest" to "stake" from a poker game. It means that the stakeholder has something to gain or something to lose when the managers make decisions A brief, though probably not exhaustive, list of stakeholders follows: 1) Owners 2) Management 3) Community 4) Customers 5) Employees 6) Suppliers. Owners have an obvious stake in the way the business is run, it's their money management is playing with. Management, like other employees, are compensated and continue to be compensated when the business does well. The community, be it the town or the whole world community, has a lot to gain or lose as it is their resources which the business will consume and they also have an interest in the business continuing. Customers gain value in the form of goods and services and have an interest in better rather than worse products. Employees receive all sorts of benefits and have a big stake in the continuance of those benefits. Suppliers run their own businesses and also have a large stake or interest in continued beneficial exchange. 2 Freeman's main idea is that all of these interests count for something when management makes strategic decisions. Stakeholder's interests, from owners through suppliers, must be taken into consideration when management considers options and executes decisions. Stakeholder theory turns on the idea that management is not only entrusted with protecting the rights and interests of owners, but is also entrusted with protecting the rights and interests of all the other stakeholders as well. Freeman writes that “stakeholders” can be taken in at least two ways: 1) The wide definition – any person who is affected by or can affect the outcome of a decision by the corporation and management. For some large enterprises, this could mean nearly everybody on the planet. That is a wide and varied group of interests and stakes. 2) The narrow definition – any person or group of persons who are vital to the survival and success of the corporation. This is a much smaller group. To be included as a stakeholder, the group must be those whom the corporation requires for continued survival – these people are necessary for the life of the enterprise. C) Weights and Priority of Interests. The question of the priority of interests arises very quickly once you understand the stakeholder approach. Freeman is very clear in not allowing one group of stakeholders to count for more than any other group: "The stakeholder theory does not give primacy to one stakeholder group over another, though there will surely be times when one group will benefit at the expense of others." Owners are paid dividends and stock prices are maintained not simply because owners interests are primary, but because the support of the stock price is necessary to the survival of the firm and is in the best interests of all stakeholders. In the section we read, Freeman notes three possible approaches for establishing a priority of interests through what he calls possible normative core theories: the Doctrine of Fair Contracts (DFC), Feminist Theory, and Ecological Principles. Freeman favors DFC and elaborates principles which would govern the formation of contracts and agreements. It would be unfair, and thus unjust, to allow one stakeholder's interests to count for more than another stakeholder's interest. The redesigned idea of the corporation will capture our ideas about fairness and justice by ensuring a basic equality among stakeholders. Freeman's justification for the six ground rules is an expression of Rawlsian ideas about fairness and contractual agreements. Freeman has us imagine what people behind the Veil of Ignorance in the Original Position (OP) would want contracts and arrangements to look like in order to achieve fairness in the prioritization of interest among stakeholders. From behind the Veil in the OP, persons would choose the following ground rules or principles for the contractual arrangements which govern corporations, their charters and possibly their statements. If you did not know your position on the list of possible stakeholders, then you would want incorporation documents and contracts to be arranged according to the following rules: 1) Principle of Entry and Exit - contracts must have clearly defined entry, exit, and re-negotiating conditions. 2) Principle of Governance - procedures for changing the rules and re-negotiating agreements must have unanimous consent of all parties concerned. No one group can be voted out by any other group or groups. 3) Principle of Externalities – any third parties to a contract who may bear costs in the agreement must have the option of becoming a participating party to the contract. Any third party who is 3 affected by the way a corporation is run must be allowed to becoming a participating member of the contract. 4) Principle of Contracting Costs - all parties must share in the costs of the contract. 5) The Agency Principle - an agent who acts on behave of the corporate body must act on the interests of all stakeholders. 6) Principle of Limited Immortality - corporation will be managed as if it can continue to serve the interests of all stakeholders until such a time as the interests of all stakeholders is the "empty set." D) The ground rules are supposed to guide actual stakeholders in devising a corporate charter or constitution. As such the laws about corporations would have to reflect or enable us to use these principles for writing corporate charters. Freeman offers three more principles for the law with regard to corporations: The Stakeholder Enabling Principle - Corporations are to be managed in the interests of all stakeholders - employees, financiers, customers, and communities. The Principle of Director Responsibility - Directors are charged with the duty of care to direct the corporation in accordance with the Stakeholder Enabling Principle The Principle of Stakeholder Recourse - Any stakeholder may bring action against the directors for failing to perform the required duty of care. In other words, the law of corporations should be re-written to hold managers accountable not only to owners and stockholders, but to vital stakeholders as well. Other stakeholders should have the right to have their claims addressed in the courts, but not merely as third parties to the contract between management and owners, but as participating principals in a fiduciary relationship. For Freeman, stakeholders should also have a legal claim if managers fail to act in accord with the interests of some stakeholder group as the managers should be seen as equally responsible to the stakeholder’s interests and as the same kind of responsibility owed to owners. III. Freeman’s Decision Procedure A) Note well what is missing from this picture so far. All of the groups listed on even the narrow version of stakeholders are a pretty disparate set. What makes the problem even worse is that many of those groups have opposing interests. For example, Owners would love to pay the employees less and work them more. Employees often have just the opposite desires – work less for more money! Community members would like the corporation to shoulder more of the burden of externalities to the business e.g. cleaning the environmental damage from production facilities, while the owners and the corporation is often in favor of keeping costs external to their efforts. According to Freeman, we have all these different rules, a la Rawls, regarding how we should re-conceptualize and re-configure the law regarding corporations, but what decision procedure does he advocate for the manager at the ground level? Does Freeman want Dr Roy to use the Utility calculus as his decision procedure? Certainly not! But what decision procedure should the intelligent reader glean from this article? 4 B) Well, on page 46, I think he answers this question. “…inequalities among stakeholders are justified if they raise the level of the least well off stakeholder.” (italics added) So, a management decision is justified, for the Doctrine of Fair Contracts approach, if it raises the level of the bottom group of stakeholders. N.B. how different this is from Rawls’s difference principle, which requires the state, as a matter of justice, to MAXIMIZE the level of the least well off group in society. This is quite a difference. Benefiting or raising the level of some bottom group is a much less stringent standard than one which requires you to MAXIMIZE benefits to the least well off group. Think about like this: Imagine the least well of member of some group of stakeholders are the janitors and other relatively unskilled employees of a corporation. Freeman would say a manager’s decision is justified if it raises the pay of the janitor. Perhaps we should assume that the ground level manager is not to test their decisions via this principle, but rather that corporate decision and procedural manuals should prescribe behavior according to this version of Freeman’s Difference Principle. Contrast that with a straight application of Rawls’s Difference Principle to this problem: a decision is justified if it MAXIMIZES the salary of the janitor. The two parties would be arguing over how much of a raise is required to justify an action, where Rawls requires a much higher standard than Freeman in this article. C) The final question here, one that I will leave to further discussion, is whether or not such an application of the machinery of the Original Position to the corporate setting is properly Rawlsian. Remember that Rawls is theorizing about how to make the operation of any state just, by thinking about the requirements of justice in a one state world where citizens enter and leave through birth and death only. Rawls, and perhaps Rawlsians, would think we’ve skipped a few steps by applying some version of the Difference Principle to the corporation directly. Rawls would prefer to use the OP to determine societal principles of justice, then use said principles to write constitutions, then use constitutions to write both the criminal and civil laws, then use the civil law to write the law of corporations and then, finally, use the law of corporations to write incorporating documents for firms. That’s a long process that we have attempted to circumvent, but perhaps not without good reason! IV. More Moral Theory A) Duties and obligations qua human v. qua manager or employee Any good moral theory makes a distinction between: 1)Duties - these are the normal moral restrictions on our behavior, like prohibitions against lying, cheating, stealing, killing, raping, maiming and other forms of harm. Some duties are also positive duties to others, where positive means that they require some positive action from you, not just refraining from acting. Some positive duties include duties of justice, rescue and appropriate beneficence. Duties are NON-VOLUNTARY. They bind you and your behavior whether or not you accept them voluntarily. 2) Obligations - by contrast, obligations are voluntary restrictions or commitments placed on you by acceptance, usually through agreements of contracts. For example, I have an obligation to repay a loan, or deliver a particular product (wine, CDs, computers, whatever), based on my agreement to do so. Prior to the agreement, I was not obligated to send checks to the bank nor to deliver a case of wine to some random buyer. Obligations are fixed, they are dischargeable in the way delivering upon a contract is dischargeable. 5 For our purposes, duties are usually stronger than obligations, if they contradict. Think of obligations as layered over your normal duties. You can't contract or agree to do something which is itself immoral. This negates the possibility of there being a contractual obligation to do the wrong thing. B) Required v. supererogatory actions. Required actions are those which it would be wrongful to not perform. For example, I am required to pay my share of justified taxes. To fail to pay those justified taxes would be wrongful since I am failing to meet my duty to justice. Supererogatory actions are above and beyond this call of duty. Donating extra money to the worthy projects of the state, like adding $100 to my tax check to be spent on the School Lunch Program, is more than what I am required to do. It is a morally better action than just paying my share of taxes, but it is not required. V. Friedman's Skepticism A) Friedman begins by noting that morality adheres between individuals. He asks the question "What does it mean to say that 'business' has responsibilities?" His initial answer is pretty good: that only people have responsibilities, not businesses. So, Friedman argues, if we are to make any sense of the question posed, then we must understand the way in which businesspersons have responsibilities and to whom they are owed. The answer he favors is that people in business, employees and managers, have only a direct responsibility to owners. This is the fiduciary relationship we see in Freeman and Goodpaster. Friedman says that managers and employees have a (fiduciary) responsibility to: "conduct the business in accordance with [the owners] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." emphasis added Friedman’s deference to custom or law is a bad move, and you should know why by now. Friedman argues that the above is the only responsibility you have qua manager. Any others you may have qua person are a different story for Friedman. Business people certainly have them, but they have them as principals (I would say persons), not as agents in a fiduciary relationship. Acting against the above directive must be to act against the maximizing of profits for the owners. Following any non-fiduciary obligations or duties while acting in a fiduciary role is literally "spending other people's money." By doing so you are engaging in taxation of the owner's money and deciding how that tax should be distributed. This is a rhetorical move with some flourish – remember the Boston Tea Party! “No taxation without representation!” was one of the battle cries of the American Revolution. Spending other people’s money is treating the property of other people as though it were your own property. Friedman’s stronger point would be this claim – that managers in socially responsible firms are engaging in conversion. This has a stronger name…Friedman is calling such managers, like Freeman’s followers, _________. Note well how a great deal turns on how you interpret the italicized portions of the above quoted passages. If you think there are duties which bind someone in a position of management, as both Freeman and Goodpaster think, then even Friedman's formulation of the responsibilities of managers qua managers are significant. 6 B) Taxing and spending the wealth of others is the province of democratic processes, not managerial fiat, asserts Friedman. To tax the wealth of others by diverting corporate funds to projects which do not maximize profits is both stealing and undemocratic as you are subverting the political process. In the first place, it is not so obviously taxation as Friedman alleges. Yes, it's withholding certain amounts of money some possibly moral purpose, and that is taxation "in effect." But it would need to be taxation simpliciter for Friedman's arguments from "taxation without representation" to apply. In addition, it is not so clearly unjust to violate a profit maxim, certainly not just because it violated democratic processes. If diverting funds to reduce environmental emissions and engaging in workfare or something like that can be defended on principled moral grounds, principles which anyone who understands the argument must also realize the priority of morality to even the vaunted democratic process, then the diversion of funds is not so obviously unjust, even if it does violate a contract. Violating democratic processes is not necessarily unjust. Occasionally, the democratic process can get things wrong from the point of view of justice – Slavery, Jim Crow, the disenfranchisement of women. C) Friedman also argues that a corporate executive is a poor judge of the effects of her actions on larger issues, such as inflation. Perhaps so, but it does not seem to be a difficult task to judge the effects of one's actions on the environment with the case of say, burning low-sulfur coal, or dumping less than the legal maximum of herbicides into the water table, or not developing a wild-life preserve for oil-production. The effects of these actions seem plain, as do the effects of work-fare as engaged in small or large communities. There are that many more people employed than would otherwise be employed. Friedman entirely ignores these "consequences" and focuses on the much more complicated consequences of price control with regard to inflationary pressures. All of this is a non-starter if you are a deontologist of any variety. D) The argument against stockholders calling on other stockholders is perplexing. When the argument works to his advantage, Friedman defers to democratic principles and processes. What does he mean by "against their will"? If the stockholders vote to defer or forego profits in favor of any social end, then what complaint can Friedman have? The democratic vote determined the course the corporation was to follow. If his previous argument is applied ceteris paribus, then he would have no right to complain of the outcome of the stockholder's vote. But when the democratic vote would not go in favor of his conclusion he denies the vote it's normative power. This is inconsistent. E) Friedman also argues that the doctrine of social responsibility is frequently a cloak for the real goal of maximizing profits. Businesspersons can say they are acting in the interests of some other social end, but this is in effect fraud. The moving cause for their action is revenue and profits and they would not act towards the other desirable social end unless it was profitable. Acting for a socially desirable end is either: 1) Profitable and then why engage in the morally questionable practice of subterfuge, or 2) Not profitable and then the businessperson is spending other people's money, which is patently unjust by all of the above arguments. Friedman claims that such subterfuge as pursued in 1 is tantamount to fraud and it harms the foundations of a free society. In addition to the first-order moral judgment of fraud, if businesspersons succeed in convincing people of the validity of non-profit motives then the 7 government will step in and start controlling the market which will lead to the general decay of free-trade and democracy itself. Hence he claims that such actions are suicidal behavior on the part of "socially responsible" businesspersons. This is usually referred to as a slippery slope fallacy. The claim that substituting non-profit for profit motives will lead to the decline of the free-market is specious and unwarranted. VI. Questions to Answer 1. What should Dr. Roy Vagelos do with the potential preventative Merck has for River Blindness? What would a utilitarian say, and what would Kant say? 2. What is a stakeholder, and what is the difference between narrow and wide conceptions of stakeholders? 3. How does Freeman use Rawls to defend stakeholder theory? Does Freeman then advocate Rawls's Difference Principle as a decision procedure for managers? Would such a suggestion be appropriate for Rawls? 4. What does Freeman tell Dr. Roy to do? Why? 5. Milton Friedman takes a dim view of development of Ivomec for humans. According to Friedman, when and why should Dr. Roy develop a preventative for River Blindness? 6. On Friedman's view, what are the limiting factors for the promise to shareholders? Are these reasonable limits?
Our Story Thus Far: • Deontology & rights provides the best decision procedure essential for evaluating conduct. • Disputes in business are primarily over property rights to profits. These disputes are depend on… • Contracts transfer wealth, goods & services. • Business practioners, business scholars, & business ethicists complain that virtue, utility, & rights need a tailored fit. • Business ethics, the field, is a systematic attempt to tailor moral theory to context of business. Business Ethics: An Oxymoron? • Oxymoron: combination of contradictory words, e.g.: fresh frozen, jumbo shrimp, pretty ugly. But business ethics? • Strong Separation Thesis (SST): Ethics does not apply. All is fair in love & war & business. • Weak Separation Thesis: People tend to ignore ethical restrictions in business. • SST is moral skepticism & denial of MPV • WST may be true. Ask a human behavior scholar. • Business people are no better or worse than anybody. Most people are business people! Corporate Ethics: In Whose Interest? At Whose Expense? • “What should I do?” in a corporation. • What is the purpose of the corporation? Usual answer: maximize profits. • What are the moral limits profits? • When do other people matter? • Assumption: ceteris paribus, the same limits apply to non-corporate actors. Case: Merck & River Blindness • 1978, Researchers at Merck hypothesize that Ivermectin, anti-parasite agent for livestock, could have substantial human applications in preventing river blindness. High chance of scientific success but virtually no market. • River blindness (onchocerciasis): affects > 85 mil. poor people in developing countries. • Onchocerca volvulus parasite larvae transmitted through black fly bite, then mature to worms in nodules under the skin. How bad is river blindness? • Worms up to 2 ft. long, live 12 to 15 years & produce larval microfilariae cause severe itching & suicide. Later stages: larvae invade the eyes causing blindness. • So prevalent in affected areas that itching & blindness > 45: developmental stages like puberty & baldness…only if you avoid suicide to alleviate the itching. • No good options: spray the rivers, kill the ecosystem. Relocation destroys the agricultural communities. • Ivermectin – a boon to affected people, but a profits looser. No price point for drug. • Merck has the resources… They can do it. Merck’s Resources & the Drug Business in 1978 • To end 10 year drought in new products Merck spent $1 bil. in 3 years to produce: – – – – Clinoril: arthritis pain reliever. Mefoxin: general antibiotic ointment. Timoptic: glaucoma drug. Ivomec – anti-parasitic drug for livestock. • Doing OK: ’78 sales - $1.98 bil., net income - $307 mil. Sales and Income up nearly 3x from ’69. • But not great since: from “Eureka!” to shelf, new drugs cost $200-300 mil., 1 in 15-20 succeed, 10-20 year research cycle. Merck’s Mission • George W. Merck in a speech at the Medical College of Virginia – “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.” • Merck’s business: alleviating human suffering. Final Case Facts to Consider • Source of Ivomec? Random soil samples Japanese golf course! • Ivomec performs well against Onchocerca cervicalis in horses & should against Onchocerca volvulus in humans. • Tolerated in large mammals but cross-species conjecture is just that. Needs testing, but < $300 mil! & > 1 in 20! • Researcher William Campbell formally request Head of R&D Dr. Roy Vagelos to pursue human testing. • Any efforts likely prove unprofitable! But Vagelos concerned that denial will renege upon promise of George W. Merck to employees & public to alleviate human suffering. • From which profits will never fail to follow? Where will they come from if the victims of river blindness have no money?!! What Should Dr. Vagelos of Merck Do? • Merck is a for profit company, thus they are not required to develop Ivermectin for humans. • But think of the good they can do! • And think of the Merck mission & philosophy of alleviating suffering! • Talk about schizophrenic morality…it speaks with many voices. What is the Purpose of the Firm? • Firm, company, or corporation is formed by the owners to make money. • The purpose of the firm is to maximize profits. • This is the position defended by many, and justified by economist & sometime philosopher Milton Friedman. • Read Capitalism and Freedom (1962) & “The Social Responsibility of Business is to Increase Its Profits” in the New York Times (1970). Milton Friedman on Profits & the Purpose of the Firm • His view is in the title “The social responsibility of the business is to increase profits.” Read it online. • The purpose of the firm, the “What should I do?” for managers? Simple: maximize profits. • If managers deviate, even for good, charitable, philanthropic, or eleemosynary ends, then they are “spending other peoples money.” This is taxation without representation & deeply unjust! • The limits to profits? Law and ethical custom. Friedman’s Limitations on Profits PROFITS LAW Shaded area: NOT MORALLY ACCEPTABLE! ETHICAL CUSTOM OUTPUTS Purpose: Return Maximal Profits. Limitations: Law & Ethical Custom Are the Law & Ethical Custom Good Moral Limitation? • Law as moral limitation? NO! • Distinction between law & morality LA MA CA MA • Legally acceptable ≠ morally acceptable. Actions may be legal but immoral. • Custom as moral limitation? NO! • Culturally acceptable ≠ morally acceptable. Actions may be customary, but immoral. • E.g. slavery & the derivative markets. Slavery & The Horse Tack Business in U.S. in 1850 • Horse tack is saddles, bits, bridles, etc. • Friedman demands max. profits. • Should you expand from tack to collars, chains, & whips for the slavery market? • Friedman is committed to yes – no law or ethical custom against it! • But morality dictates not making any money on the horrible injustice of slavery! Fails the CI 2 by failing to recognize that humans should not be whipped & chained as slaves, nor should you profit. Friedman’s Limitations on Profits PROFITS LAW & EC MORAL Prohibitions OUTPUTS Purpose: Return Maximal Profits. Limitations: Law & Ethical Custom Out With the Old, In With the New • Old View: Stockholders are the rulers of the firm and must be respected above all others. Managers are fiduciaries for one principal: OWNERS. • New Views: Somebody besides owners matter. • R. Edward Freeman wants to re-imagine, re-vitalize, & re-conceptualize managerial capitalism to improve it, but maintain conceptual coherence & clarity. “Repair like a ship at sea, one plank at a time.” • Freeman (1994) wants “a theory about who or what really counts.” Freeman’s Stakeholder Theory • In whose interest and at whose expense: Stakeholders! Definition: • Wide View: any group or individual who can affect or be affected by the corporation – Rejected: Too unwieldy & too encompassing Freeman’s Stakeholder Theory • In whose interest and at whose expense: Stakeholders! Definition: • Wide View: any group or individual who can affect or be affected by the corporation – Rejected: Too unwieldy & too encompassing Stakes Humanity Incorrect! Humanity Stakes Correct! Freeman’s Stakeholders Defined • Narrow View: any group or individual who is vital to the survival and success of the Stakes Humanity corporation • Stakeholders include: – Owners, Managers & Employees. – Customers, Suppliers & Contractors. – Community Correct! • All are VITAL. Remove one group & the machine that creates value grinds to a halt…then everybody looses. Freeman’s Stakeholders Justified: Rawls to the Rescue • • • • • • • Owner Manager Employee Customer Suppliers Contractors Community Freeman’s Stakeholders Justified Veil of Ignorance • Owner • Manager • Employee • Customer • Suppliers • Contractors • Community Freeman’s 6 Stakeholder Ground-rules Freeman’s Difference Principle Freeman’s Stakeholder Groundrule Principles for Corporations 1. Entry & Exit: P.O.E.s must be clearly defined. 2. Governance: changes to charters must have UNANIMOUS consent of all stakeholders. 3. Externalities: those who bear positive costs are stakeholders. 4. Contracting Costs: all parties share costs. 5. Agency: agents must serve all stakeholders. 6. Limited Immortality: until stakeholders Ø! Use these rules to write corporate charters & to bind managers. Freeman’s Difference Principle as Decision Procedure • Freeman wants to capture the “liberal notions of autonomy, solidarity, and fairness as articulated by John Rawls” • Freeman’s Difference Principle: inequalities among stakeholder are justified if they raise the level of the least well off stakeholder. • N.b.: Rawls’s maximizes, Freeman raises. Freeman is much less demanding than Rawls. Freeman’s Limitations on Profits PROFITS Shaded area: NOT MORALLY ACCEPTABLE! ~ Raise Bottom Stakes OUTPUTS Purpose: Return profits to owners, but manage in the interests of all stakes. Limitations: That which doesn’t raise the level of the least well off stakeholder. Stakeholder Analysis at Merck • What does the re-imagined stakeholder capitalism say to Dr. Roy & Merck? 1. Identify stakeholders – those vital to success. 2. Identify the least well off stakeholder. 3. Survey options & determine which increase the level of the least well off stakeholder. 4. Decide which option (of 3) you should act upon. – BUT, all options increase the level of the least well off! Are Victims of River Blindness Stakeholders? • Are they necessary to the survival and success of the firm? Can Merck get along without them? • Yes…unfortunately. Not customers, not contractors…not even community members. • Principle of Externalities: they bear negative or opportunity costs, not positive costs! They lose an opportunity to be saved from river blindness. • Perhaps derivative or secondary stakes. • Merck: promises to employees re: research…but medicine for the people must be profitable. Profits & Ivermectin For Humans? 1. Pure profit drugs: baldness cures, botox, cosmetics. 2. Profitable drugs that alleviate suffering: cancer, allergy & heart disease medications. 3. Drugs that only alleviate suffering: rare genetic disorders & river blindness prevention drugs. NO SALE! 1 2 3 What Happened to the Revolution? • By an ordinary language use of “I have a stake in this”, the people threatened by river blindness should get a chance at a prevention drug. • But this stakeholder ethics can’t give them a chance. • Tragically, they are not narrow stakeholders. Freeman & Friedman agree on restraint & that’s not revolution. • For Utility, this is an easy question! Give till it hurts! But, there’s good reasons against Utility & against the similar wide view of stakeholder ethics. • Utility & the wide view are too revolutionary. They leave capitalism behind, not re-conceive it. A Third Option via a Resolved Paradox • Kenneth Goodpaster (1991) raises & resolves the stakeholder paradox – a puzzle disguised as a contradiction, e.g. the paradox of hedonism. • The Stakeholder Paradox: “It seems essential, yet in some ways illegitimate, to orient corporate decisions by ethical values that go beyond strategic stakeholder considerations to multi-fiduciary ones.” • Translated: “Neither Milton Friedman nor Ed Freeman are completely correct.”N.b.: Goodpaster is assuming a functional difference between the two. • Resolution will bear fruit! Stakeholder Paradox • M. Friedman’s Single Fiduciary Owners: Special.  Non-owner stakes: mere strategic implements. • R.E. Freeman’s Multi-Fiduciary Owners: Not special - 1 among many equals.  Non-owner stakes: source of moral concern. • Paradox: neither is wholly correct! Stakeholder Paradox Resolved: Take the Good Points from Each! • M. Friedman’s Single Fiduciary Owners: Special. • R.E. Freeman’s Multi-Fiduciary Non-owner stakes: source of moral concern. Fiduciary Stockholders Stakeholders Non-Fiduciary Please, Define: Non-Fiduciary Moral Relationship • Goodpaster: Nemo Dat Principle (NDP): “Nemo dat quod non habet” literally “nobody gives what he doesn’t have.” • NDP: Investors cannot expect of managers (more generally principals cannot expect of their agents) behavior that would be inconsistent with the reasonable ethical expectations of the community. • “Reasonable” saves us from Cultural Relativism! Reason 1. Ethical Expectations of Community (EEOC). 2. Reasonable EEOC. 3. Reasonable Ethical Expectations. NDP limits profits by 2 < (2&3) Not all communities meet reason. 1 EEOC 2 3 Reasonable Ethical Expectations • What does this sound like? • KANT! Morality based on reason. • Limiting factor: 2nd Formulation of the Categorical Imperative. Treat people as ends, not mere means. • Maximize profits until or unless it treats people as mere means, not ends. Reasonable Limitations on Profits PROFITS Shaded area: NOT MORALLY ACCEPTABLE! Violates CI 2 OUTPUTS Purpose: Return as much profits to owners as possible, but do not Limitations: Treating people as mere means Business Ethics Depends on Normative Ethics • Which is why you sat through sessions 4-7! • Seriously though, the dialectic lead is to reasonable ethical expectations: 1. Virtue 2. Utility 3. Deontology • Decide for yourself! • What rights or principles are in play at Merck? Reasonable Moral Principles & Merck • Keep promises to maximize profits. • Utility: Too easy & too demanding. Reasons for suspicion. • Virtue: Would a good person break this promise? • Kant: does not funding violate CI 2? Threatens to treat stockholders as mere means. • Consider: Dividend ’78=$1.72 on 85.7 mil. shares • $3 mil. to fund Campbell’s proposal reduces dividend by $.035 per share…on $147.7 mil! • Hold on that number! Duties of Rescue & CI 2 • Rescue the drowning person when… – Little cost to you. – Great benefit to them. – Specially situated to do so. • Failing to do so violates CI 2 • OR simply fails a weak deontology where consequences sometimes matter, especially in cases like this! If Merck Were One Person…& Since They are Many… • Not spending $3 mil.: greedy (Vice) or worse given: – – – – Great need > 85 mil. Chance of finding precious, rare compound (soil samples!) Great benefits to others (sight & life) at comparatively little cost, Even though protected intellectual property on the compound. • A single person who refused violates CI 2 – fails to respect victims as anything other than mere means. • Given the cost is spread out to $.035 a share, it’s even worse for a corporate setting – 85.7 mil. Shares, mostly institutional investors! Lots & lots of people! • Thus Merck must give something! • $3 mil. is arbitrary….but far from what happened! What Actually Happened: Mectizan Donation Program • Merck funded initial trials & tried to recoup from WHO, UN, etc. & failed. • Funded more extensive trials & failed to recoup. • Death of a thousand cuts: ever closer to the great prize – a great drug ready to distribute. • On their own $$$, Merck developed, tested, manufactured, distributed through channels they designed & implemented Mectizan. • Then they gave it away! $174 mil. in 2001. In 21 years & 1,000,000,000 treatments @ $1.50 per pill 1x year! • http://www.mectizan.org/ Sightless Among Miracles • Copy of oversize bronze sculpture comm. by Merck for their world headquarters in New Jersey in 1995. This copy at Carter Center. Beyond the Call of Duty • At the very least, Merck should allow university & non-profit researchers access to intellectual property. • Enforcement violates CI 2 • The stockholders never complained. • Maybe they agreed funding met reasonable moral standards as prohibitions on maximal profits. • A small problem remains. Remember Vioxx? Everybody Knows Vioxx, Nobody Knows Mectizan • MDP still a profits loser: didn’t leverage goodwill against mistakes. • Vioxx development contemporaneous with MDP development. • Merck should give up intellectual property, but maybe not change their business model out of area of expertise. Drugs, not distribution networks. Post hoc, ergo, propter hoc? • Still, $174 mil. is supererogatory or heroic. • But you need normative ethics to see why. • The separation thesis is bunk & we all need moral theory. We just never know when. Review • Friedman’s stockholder theory: profits first, not above all else. • Friedman limits obligations to profit via law & ethical custom. These function poorly as moral limitations. • Freeman places a general equality among stakeholders & requires that managers increase the least well off. • Those groups vital to the success of the firm are Stakeholders. • Stakeholder difference principle has problems in application. • The stakeholder paradox can be resolved with an application of normative ethics – reasonable moral principles. • Yet again, moral principle: foundation in moral action. • In general, moral principles of duty trump obligations to profit. Questions for Discussion • How far off the mark is Milton Friedman? • Stakeholders can come in many forms. Can stakeholders be legitimate and illegitimate on Freeman’s view? • On your view, can they be illegitimate? • What do you mean when you say stakeholder? • We all use the word “stakeholder” so how revolutionary is Ed Freeman’s view? • Can you think of a case where Freeman departs from Friedman in practical application? • What principle is a reasonable limiting principle for profits? References • Milton Friedman’s Capitalism as Freedom (Chicago, IL: University of Chicago Press, 1962) & “The Social Responsibility of Business is to Increase Its Profits”, New York Times Magazine (New York, NY: Sept 13, 1970). • R. Edward Freeman in “The Politics of Stakeholder Theory: Some Future Directions”, Business Ethics Quarterly (1994, Vol. 4, No. 4). Freeman’s development of the theory exists in many articles and monographs. I urge you to seek them out. • Kenneth E. Goodpaster in “Business Ethics and Stakeholder Analysis”, Business Ethics Quarterly (1991, Vol. 1, No. 1) • “Sightless Among Miracles” http://www.freedompark.org/

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Running head: CASE STUDY QUESTIONS

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Case Study Questions
Student’s Name
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Date

CASE STUDY QUESTIONS

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Question 1:
Host country's cultural traditions
It is important to understand the culture of other people, especially when dealing with
multinational business. By understanding is a way of appreciating other people and by so doing
such people will always have high respect and dignity on the business; as a result, there will
experience a smooth coordination and proper running and operation of the business. Therefore,
there are a number of occasions when one will have to comply with the culture of the host nation
when carrying their business.
The first occasion is when manufacturing brands of goods that fit people from within.
Cultural is crucial elements when manufacturing goods, especially in a new community. Some
communities do not consumer certain form of products when made in a certain style. Some
communities to do not consumer some goods due to their strong traditional beliefs; while some
people will not consume certain goods due to the production process that was used in the
production of such goods. Some society might not consumer certain goods due to their strong
religious believes regarding such types of goods. Some communities will not be consumer of
goods due to wrong handling in the process of making such types of goods. Therefore, it is
important to comply with the culture of the host nation before making decisions on the
production processes. Since the company might incur a lot of losses when locals will refuse to
consume those products due to the reasons named above.
On the same note, one will have to comply with the culture of the host nation when
carrying their business at the time of marketing. Every nation has its own mode or the culture of
marketing their goods and services. Some communities will prefer traditional form of marketing
while other will prefer a modern way of marketing. Therefore, as a new entrant, will have to

CASE STUDY QUESTIONS

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comply with the culture of the host nation when carrying out marketing programs to fit the
marketing culture of the host nation; this will be beneficial to the firm since might spend less
than expected or it might be costly ...

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