Attitudes toward Business Ethics

TABLE OF CONTENTS

ACKNOWLEDGEMENT

THE WORLD NUMERICAL

ABSTRACT.

TABLE OF CONTENTS

LIST OF FIGURES

LIST OF TABLES

PART ONE: INTRODUCTION
1. INTRODUCTION
1.1 PROBLEM STATEMENT
1.2 OBJECTIVES
1.3 RESEARCH QUESTIONS
1.4 DELIMITATIONS
1.5 THESIS OUTLINE

PART TWO: THEORETICAL FRAMEWORK
2 PROLOGUE FOR BUSINESS ETHICS
2.1 MORALE, ETHICS, AND BUSINESS ETHICS
2.2 CRITIQUE OF ECONOMISM
2.3 BUSINESS : THE QUESTION OF MEANING
2.4 BUSINESS : THE QUESTION OF LEGITIMACY
3 ETHICAL THEORIES & BUSINESS ETHICS
3.1 TRADITIONAL THEORIES
3.2 CONTEMPORARY THEORIES
3.2.1 THE VIRTUE PERSPECTIVE
3.2.2 THE STAKEHOLDER PERSPECTIVE
3.2.3 THE SOCIAL CONTRACT PERSPECTIVE
3.2.4 THE INTEGRATIVE PERSPECTIVE
4 SOCIETY & BUSINESS ETHICS
4.1 THE CORPORATION AND THE INDIVIDUAL
4.1.1 CORPORATE SOCIAL RESPONSIBILITY
4.1.2 CORPORATE CITIZENSHIP
4.2 THE INDIVIDUAL AND THE CORPORATION
4.2.1 ETHICAL DECISION MAKING
4.2.2 ETHICAL LEADERSHIP
4.2.3 MORAL LEADER
4.2.4 INTEGRITY CULTURE & ETHICAL CORPORATE CONDUCT
4.3 SUMMARY

PART THREE: PREVIOUS RESEARCH
5 ATTITUDES OF BUSINESS STUDENTS
5.1 CULTURE
5.2 GENDER
5.3 ACADEMIC LEVEL & AGE
5.4 ETHICS COURSE
5.5 SUMMARY

PART FOUR: EMPIRICAL FRAMEWORK
6 METHODOLOGY
6.1 HYPOTHESES
6.2 RESEARCH APPROACH & DATA COLLECTION
6.3 QUESTIONNAIRE DESIGN
6.4 SAMPLE
6.5 ANALYTICAL APPROACH

PART FIVE: RESULTS AND DISCUSSION..
7 RESULTS
7.1 MORAL DIMENSIONS
7.1.1 CULTURE
7.1.2 GENDER
7.1.3 ACADEMIC LEVEL
7.1.4 COURSE ATTENDANCE
7.1.5 GENDER * AGE
7.2 PRIMARY AND SOCIAL CORPORATE RESPONSIBILITIES
7.2.1 CULTURE
7.2.2 GENDER
7.2.3 ACADEMIC LEVEL
7.2.4 COURSE ATTENDANCE
7.2.5 GENDER * AGE
7.3 WELL-RUN COMPANY & JOB OFFER CRITERIA
7.3.1 CULTURE
7.3.2 GENDER
7.3.3 ACADEMIC LEVEL
7.3.4 COURSE ATTENDANCE
7.3.5 GENDER * AGE
7.4 SUMMARY: HYPOTHESES
8 DISCUSSION

PART SIX: CONCLUSION
9 CONCLUSION
9.1 KEY RESULTS
9.2 IMPLICATIONS
9.3 LIMITATIONS
9.4 FUTURE RESEARCH

BIBLIOGRAPHY

APPENDIX

ACKNOWLEDGEMENT

This thesis is the fruit of many experiences and challenges, intensive discussions and reflections for hours, and relationships to many great people to whom I am more indebted that I can possibly acknowledge. During the last months, the field of business ethics kept me constantly thinking about the world as it is, and how it should be in ideal. Regrettably, this reflection often raised more questions than answers can ever be given. Nevertheless, approaching this topic was extremely valuable and changed my perception about the relation of business and society.

This thesis also marks the end of my academic studies at the Aarhus School of Business. I can truly say that it was an excellent and demanding education that provided me with meaningful insights and great opportunities in a brilliant and familiar atmosphere. Thus, I would first of all like to thank the ASB faculty and staff for their incredible work.

I would also like to express my gratitude to Professor Erik Kloppenborg Madsen for his spontaneous acceptance to supervise this thesis, and his guidance, inspiration and advice during the time of writing this paper.

Furthermore, I am grateful to all professors in Denmark, Germany, and the United States who supported this project, and to each of the 1.538 students who took part in my survey. This research would have never been accomplishable without your time and effort.

I would like to thank my parents for always supporting and encouraging me to cut my own path that led me to so many wonderful places in the world. Without your assistance, these remarkable times would not have been possible.

Last, but not least, I owe my deep gratefulness to the two very special persons in my life. I thank my dear sister Tini for always believing in the things I did, for being there when times were difficult, and for being simply the best sister one can imagine. And I thank my beloved Maja for her encouragement and moral support, and all the patience and understanding that she offered during the time of writing. Her love gave me the strength and faith to accomplish this thesis.

THE WORLD NUMERICAL

illustration not visible in this excerpt

ABSTRACT

Business is essential for the development and well-being of a society. However, business does not exist in a vacuum, but is simultaneously dependent on a number of stakeholders, be it employees, customers, investors, interest groups, or the government. In this sense, an extensive and critical debate about the role and conduct of business, and their associated corporate responsibilities in the community, is taking place among academics and practitioners alike. Thereby, it is essential to consider that the practices of corporations are first and foremost resulting from decisions and behaviors of human beings. Business students in their role as future managers are likely to be faced with critical ethical decisions in their daily work routine. Thus, investigating their moral mindset about aspects of business ethics is of great importance. Therefore, the purpose of this master thesis was first of all to critically reflect the academic literature, and present a theoretical framework that addresses valuable concepts with regard to the good life and the just social coexistence of business and society. In a second step, a comprehensive empirical research was conducted, which studied the attitudes toward aspects of business ethics among 1.271 business students in Denmark, Germany, and the United States, using a self-report online questionnaire. Participants evaluated a wide range of questions regarding the moral dimensions underlying the relation of business and society. They were furthermore asked to specify primary and social corporate responsibilities, to define a well-run company, and to state personal criteria that are relevant for them in a notional job offer situation. Gathered data were analyzed on differences among nationalities, as well as on distinctions within the three countries in terms of gender, academic level, age, and business ethics education. Findings revealed optimistic and critical effects alike. Attitudes differed significantly among the three countries in a high number of aspects. Females showed stronger ethical attitudes than males. The impact of a business ethics course was positive, but varied in intensiveness among the three countries. Similarly, undergraduate and graduate students signified differing effects that intensified with age. In general, business students indicated their importance for social factors, and responsible corporate behavior. However, they prioritized career aspects over social criteria when deciding for a job. Furthermore, environmental aspects were ranked at the bottom of the corporate responsibility list. Overall, a number of previous research findings could be confirmed. As such, the results of this thesis serve as an important source of information about the attitudes of business students, for business schools and companies alike.

FIGURES AND TABLES

LIST OF FIGURES

Figure 1.1: Thesis Outline

Figure 6.1: Empirical Methodology Framework

LIST OF TABLES

Table 6.1: Summary of Demographic Data Sample

Table 6.2: Primary Moral Dimensions

Table 6.3: Additional Moral Dimensions

Table 7.1: Cultural Perspective - Moral Dimensions

Table 7.2: Gender Perspective - Moral Dimensions

Table 7.3: Academic Level Perspective - Moral Dimensions

Table 7.4: Course Attendance Perspective - Moral Dimensions

Table 7.5: Q3.4 - »My business education is preparing me to manage ethical conflicts«

Table 7.6: Gender * Age Perspective - Moral Dimensions

Table 7.7: Summary of Demographic Effects - Moral Dimensions

Table 7.8: Cultural Perspective - Primary Corporate Responsibilities

Table 7.9: Cultural Perspective - Social Corporate Responsibilities

Table 7.10: Summary of Demographic Effects - Primary and Social Corporate Responsibilities

Table 7.11: Cultural Perspective - Priority Shift: Well-Run Company vs. Job Offer Criteria

Table 7.12: Cultural Perspective - Well-Run Company

Table 7.13: Cultural Perspective - Job Offer Criteria

Table 7.14: Gender Perspective: Well-Run Company vs. Job Offer Criteria

Table 7.15: Summary of Demographic Effects - Well-Run Company vs. Job Offer Criteria

Table 7.16: Summary of Demographic Effects for all Survey Segments

Table 7.17: Summary of Hypotheses Testing

PART ONE: INTRODUCTION

»To live in the idea means treating the impossible as though it were possible.«

- Johann Wolgang von Goethe

1. INTRODUCTION

Taking a look at the world numerical table reveals a multitude of problems we are facing at present time. Regrettably, we must notice that business has an important stake in these developments. It seems as if the belief in the market that will provide for enough value if we just »let him do his good deed« (Thielemann 2009: 11) must be revisited. Consequently, we must critically admit that »after examining the good society that capitalism has created - the damage to the environment, the hunger and homelessness that exist even in wealthy areas of the world - can anyone today really believe that the pursuit of self interest has culminated in the common good?« (Freeman & Liedtka 1991: 93). It becomes evident that there is a link in the relation between business and society that is beyond mere profitability. Even Friedman (1993) noted that even though business should »use its resources and engage in activities designed to increase its profits«, it should only act by »conforming to the rules of society, both those embodied in law and those embodied in ethical custom« (ibid: 56), that is »so long as it stays within the rules of the game« (ibid: 60).

Advocators of Friedman’s profit maximization position overlook that the societal rules of the game have changed over time. Economic and social responsibilities do not stand in an either-or relationship. In fact, the challenge for management today is that citizens of modern societies expect companies to achieve both aspects to a great extent (Andriof & MacIntosh 2001). We are seeing that »more and more people, individuals and groups call on all organizations, including business, to be economically, environmentally and socially sustainable; to be accountable and transparent; to be inclusive; to be ethical and more equitable« (Birch 2001: 53). In this sense, companies in their role as corporate citizens (Matten et al. 2003) have responsibilities toward society that go beyond the profit motive by reflecting »the social imperatives and social consequences of business success« (Matten & Moon 2008: 405). Thus, companies do not act in an amoral space, where business decisions are exclusively determined by economic factors of the market (Ulrich 2005). Rather, responsible business conduct is the essence of every good corporate citizen in fostering the public good (Birch 2001).

However, the financial crisis showed that beside all the discussions about more corporate responsibility, there is a distinctive gap between the theory and practice of responsible business conduct. The same banks that regard themselves as responsible corporate citizens, and disclose comprehensive reports about their social responsibility activities (Citigroup 2007, Deutsche Bank 2007), nearly caused the collapse of the global economic system with actions guided by greed, egoism, and arrogance. Although, this critique addresses a particular sector, other prominent companies recently attracted attention for their conspicuous unethical conduct alike. Siemens (2008) and Daimler (2010) were found guilty to be involved in corruption scandals. Shell (2009a) stopped investments in renewable energy in favor for higher returns of other investment opportunities, namely oil and gas, in their portfolio, although the company describes itself as pioneer to solve environmental problems (Shell 2009b). Nokia (2008) closed its production plants in Germany in spite of high profitability. This list could be endlessly continued, and reveals that the entitlement of companies to be good corporate citizens is often compromised for economic values that have negative consequences for the community and society at large. More crucial is to note that all mentioned examples involved management decisions made by people - decisions that certainly had alternative options to engage in.

1.1 PROBLEM STATEMENT

Business is a human activity. As such, it involves decisions that are based on certain moral foundations (DeGeorge 2005). Given the social and ecological problems at present time, these foundations and the role of business in society must be critically revisited from an ethical point of view. Thus, it becomes important to reinforce the role of business ethics in this process of change (Ulrich 2008a). Thereby, business and ethics cannot be separated, but have to be understood as mutually dependent (Werhane & Freeman 1999). While a set of theoretical concepts is elementary for understanding the broader picture, and in providing a normative fundament, it is self-evident that man has to be at the starting point of this development. In this sense, any substantial transformation of business culture requires managers that assume their role as moral leader with ethical awareness and sensitivity (Carroll 2001).

Business students are at the center of this scenario. In their role as stakeholders, they are first and foremost citizens that are affected by corporate decisions in the environment they live in. In many cases, they are also customers of a company. Graduating from university and entering the job market, students take on the role of a third stakeholder group: the employee. Thus, they have certain attitudes and expectations regarding the ethical conduct of business in both of their roles as individual citizens and future employees of a company. Based on this moral mindset, they will not only shape the development of the organization they work for. As employees, they are in a sense the company as members, and thus representatives, of this organization. Thus, it is crucial to emphasize the understanding of their belief system.

1.2 OBJECTIVES

Taking the underlying problem statement into account, this thesis will adopt a two-fold approach that addresses two essential objectives. First of all, it is crucial to critically examine the relation of business and society under the premise of business ethics theory aspects. Therefore, an extensive literature review will be presented that offers the reader with valuable insights in the academic debate about business ethics. The purpose in choosing literature concepts was to highlight approaches that have fundamental substance in addressing aspects with regard to the good life, and the just social coexistence of business and society.

Based on this theoretical framework, a comprehensive empirical study was conducted among business students at both undergraduate and graduate level in Denmark, Germany, and the United States. The objective was to investigate their attitudes toward aspects of business ethics that had been previously discussed in the literature part. Therefore, a self-report online questionnaire was developed as survey tool. Students were asked to evaluate a wide range of questions regarding the moral dimensions underlying the relation of business and society. Furthermore, they were asked to specify primary and social corporate responsibilities, to define qualities of a well-run company, and to state personal criteria that are relevant for them in a notional job offer situation. Gathered data were then analyzed on a cross-cultural level, as well as within these three countries in terms of gender, academic level, age, and business ethics education.

The decision to investigate American, Danish, and German students was based on several facts. First of all, there has been no recent study that included the countries of focus in one investigation regarding attitudes among business students. Thus, this thesis will achieve to close this research gap. Second, Germany is the author’s native country, while Denmark is his educational base. The United States were furthermore included since they are not only the largest economy in the world, but also serve as a pioneer in shaping business ethics theory (Palazzo 2002). Despite the fact that all countries in focus have a similar cultural and economic background, it was assumed that differences in attitudes would still exist. Thus, conducting a cross-cultural research approach seemed valuable to increase the understanding in attitudes of students among and within all three countries for both academic and personal purposes. Thereby, business schools in the investigated countries are provided with insights that can help them to evaluate their curriculum, and to critically reflect their role and responsibility as agents of secondary business education. Furthermore, companies benefit from this research alike. They are presented with an evaluation of their corporate behavior, receive valuable information about what students perceive to be important business aspects, and can learn about the mindset of their future employees.

1.3 RESEARCH QUESTIONS

As indicated, the empirical part of this paper has several focus dimensions that found their way in the following research questions in order to address the overall objective of this thesis. The purpose is to analyze the following:

- How do business students in Denmark, Germany, and the United States evaluate several moral dimensions with regard to the relation of business and society?
- Which primary and social corporate responsibilities do they perceive as important?
- Which corporate qualities do they associate with a well-run company?
- Which corporate criteria are important for them in an assumed job offer situation?

Based on these overall questions, investigating the following specific aspects was regarded as an useful approach:

- Do attitudes differ between all three investigated countries?
- Do attitudes differ between females and males in all three countries?
- Do attitudes differ between undergraduates and graduates in all three countries?
- Do attitudes differ between students that had attended a business ethics course, and those who had not, in all three countries?
- Does age have a significant effect on attitudes in all three countries?

1.4 DELIMITATIONS

This thesis tried with every effort to present a self-contained theoretical framework, and to conduct an elaborate research study. Nevertheless, there are certain constraints in approaching the overall two objectives of this paper. With regard to the literature review, it is noteworthy to state that the scope of theories within the academic field of business ethics is comprehensive and complex, given the several existing perspectives in addressing the topic. Thus, the literature framework does not make a claim to completeness. Rather, it applies a sample of existing theories into a new setting, and provides the reader with an insight in some key aspects of business ethics. Thereby, it is important to state that the presented concepts relating to the overall idea of ethical corporate conduct are mainly driven by Anglo-American authors, and thus may not always relate to the European context. However, given that the fundamental problem of ethical behavior is crucial for every company worldwide, the reader should find these concepts to be also applicable to Europe. Furthermore, this thesis has its main focus on the large corporation. Presented concepts may not always be applicable to small and medium-sized companies, given their scope in addressing extensive responsibilities, political influence, and financial possibilities. Again, it is argued that responsible business conduct is essential for any form of corporate institutions, and thus essential to be considered by all corporate agents.

With regard to the empirical approach, it is crucial to hold that attitudes in the context of this thesis should not be regarded in a strict psychological perspective (Fishbein & Ajzen 1972). Rather, the notion attitude serves as an umbrella term for the beliefs, concerns, opinions, and perceptions that business students have toward aspects of business ethics. Thus, the initial purpose of the study was not to develop an extensive empirical model, but to investigate several aspects of the business and society relation by comprising a number of different question designs.

1.5 THESIS OUTLINE

PART ONE included the first chapter, and has so far presented the introduction to this master thesis, as well as the given problem statement, the objectives, the underlying research questions, and the limitations of this paper. Next, PART TWO addresses the theoretical framework, and is divided in three chapters. Chapter two introduces the field of morality and ethics. It critically discusses the current separation thesis of business theory, and the meaning and legitimacy of business. In chapter three, business ethics theories are covered. It starts by introducing traditional ethics approaches, and then outlines four contemporary theories that address individual, corporate, and regulatory business ethics aspects. Chapter four links the subject of business ethics to the management of corporations. The concept of corporate citizenship is introduced in the first section. Second, the process of ethical decision-making, the idea of ethical leadership and moral leader, and the conception of integrity culture are introduced. PART THREE presents findings from previous researches, which have been conducted among business students in relation to the underlying research questions of this thesis. PART FOUR explains the empirical framework, and comprises hypotheses, research approach and data collection, the questionnaire design, the participant sample, and the analytical approach. PART FIFE elaborates all relevant findings, and makes a statement about the verification of hypotheses. Furthermore, the research findings are discussed in detail. Finally, PART SIX concludes this thesis by summarizing the key results, providing implications for both business schools and companies, and by naming limitations, as well as ideas for future research. In summary, Figure 1.1 illustrates the thesis outline in a graphical schema.

illustration not visible in this excerpt

Figure 1.1: Thesis Outline

PART TWO: THEORETICAL FRAMEWORK

»Economic systems do not develop in a vacuum but emerge in a social and moral context that facilitates and supports their development.« - Rogene A.Buchholz

2 PROLOGUE FOR BUSINESS ETHICS

Those who bear entrepreneurial responsibility in the economy are called to think in broader context. This implies to give oneself account of one’s behavior under consideration of ethical aspects, and to encourage such critical thinking. Reflecting our economic activities requires challenging the prevalent economic practice in terms of comprehensive human objectives and values. One fundamental postulation of ethics is to even engage in ethical thinking. Thereby, new ethical requirements are becoming topical due to the progressing development of economic prospects.

2.1 MORALE, ETHICS, AND BUSINESS ETHICS

Morale, meaning the (good) customs in its Latin origin, refers to the usually implicit »entirety of factual effective social ideals, principles, norms and rules that are valid in a certain cultural conduct of life and that help to evaluate whether behavioral decisions are socially desired or not«, regardless of whether »they can be generalized or not« (Scherer & Picot 2008: 4).

Morality is understood as the fundamental disposition and nature of man »in the sense of his personal claim to moral self-determination, his moral sensitivity, and his moral capacity for discrimination and conscience, as human state irrespective of cultural and historical forms under which it has been cultivated« (Ulrich 2008b: 31).

Ethos is »the subjective moral consciousness through which people define their personal selfunderstanding and the conduct of their lives, and justify the moral principles on which their lives are based, independently of whether they have ethically good reasons or are the victims of ideological self-deception« (Ulrich 2008b: 31). Thus, ethos reflects the »personal conviction as selfconception in regard to identity and legitimacy« (ibid: 31).

Ethics is the discipline of the »systematic review and evaluation of norms and values, and the derived actions« (Scherer & Picot 2008: 4). Ethics critically studies and reflects morality, and is »a systematic attempt to make sense of our individual and social moral experience, in such a way as to determine the rules that ought to govern human conduct, the values worth pursuing, and the character traits deserving development in life« (DeGeorge 2005: 19). It is concerned with »the application of reason to elucidate specific rules and principles that determine right and wrong for a given situation« (Crane & Matten, 2007: 8), and constitutes the »rational moral point of view« (Ulrich 2008b: 31). Ethics does not provide predetermined values, but acts as an orientation guideline for responsible reasoning (Suchanek 2007). The accordant basics of modern ethics concern the good life, the just social life, and responsible action (Ulrich 2008a).

As a human activity, business can be evaluated from a moral point of view (DeGeorge 2005). In its relationship to morality, »business […] presupposes a background of morality and would be impossible without it« (ibid: 10). Therefore, business ethics is »the study of business situations, activities, and decisions where issues of right and wrong are addressed« (Crane & Matten 2007: 5), meaning morally right and wrong in this context. In essence, business ethics concerns theoretical reflection about ethical challenges in day-to-day business, and the conceptualization of individual and organizational responsibility (DeGeorge 2005). The central focus of business ethics addresses how to align the realization and sustainment of corporate profits with ethical requirements that every responsible person or organization is or ought to be conscious of (Suchanek 2007). Thus, business ethics considers the harmonizing of the ethic-justifiable with the economic-feasible (ibid).

2.2 CRITIQUE OF ECONOMISM

Efficiency gains and economic growth hold as elementary criteria of a sound economic policy. Thereby, it is not the market economy that is erring, but its excrescence toward a total market society that submits our whole life, and even politics, to the intrinsic logic of the market (Thielemann 1996). This postulate that forms our economic thinking is also termed economism (Ulrich 2008a). It dichotomizes business facts and moral values in a separation thesis (Harris & Freeman 2008) by neutrally analyzing the economic position, whereby the employed resources are reduced from their value aspects to mere operational ends (Werhane & Freeman 1999). The dogmatization of cost-benefit thinking hinders the view on non-economic means and ends aspects, and declares the economic principle of rationality as all-embracing law of reason for all market actors (Ulrich 2005). In this sense, the normative logic of interhumanity is reduced to a mere logic of reciprocal beneficial tradeoffs, with the homo economicus as the ideal image of man (Kerber 1998).

Reasonably however, the market economy should be embedded in higher aspects of the good life, and the just social life of free and equal citizens (Ulrich 2008a).In this sense, the premise is a civilized market economy (Ulrich 2008b), because economic activity is not a pure end in itself, but a means to an end of the good life (Kerber 1998). As such, business decisions are choices that have alternatives for action or inaction with different affects on society (ibid). Thus, »every economic decision […] is embedded in a believe system that presupposes some basic values or their abrogation« (Werhane & Freeman 1999: 2). Nevertheless, the separation thesis still holds in the common metaphysics of the market (Thielemann 2009), which forms the economic rationality basis of economic liberalism in the market principle, and contains of two paradigms.

On the one hand, there is the illusion that economic necessities, due to market competition, make it nearly impossible to claim ethical standards on the actions of economic actors, since competition does not reward behavior beyond the economic logic (Werhane & Freeman 1999). However, these inherent market necessities, in contrast to real inherent necessities, cannot be equated with natural laws, and thus these necessities can never be coercive (Kerber 1998). Only under the norm of strict profit maximization do value conflicts occur. In practice, this means that »the superficial inherent necessities can be dismissed if we free ourselves from the mental constraints that lie at their roots« (Ulrich 2009: 6). Hence, we need to ask »for good reasons for the existing practice, respectively for the reform of this practice«, which means that we should »envision new starting points for a life- serving politics that restricts those inherent necessities« (ibid: 6), both at the individual and the collective level.

On the other hand, it is often argued that the market already holds morality, since exchange and competition for the purpose of maximized benefits yield to prosperity, and thus to positive outcomes for all market actors (Homann & Lütge 2005). It is the belief in the »beneficial effect of the invisible hand« (Thielemann 2009: 11) that makes profit maximization the universal moral corporate duty, assuming that it benefits the interests of consumers, and the public good in general (Homann & Lütge 2005). In practice, however, we observe the existing prosperity from economic growth to be allocated disproportionately. The market creates not only profiteers, but increasingly actors on the losing end that live on the societal sidetrack in unemployment and poverty (Thielemann 2009). We face a »process of creative destruction« that results from economic growth (Schumpeter 2009: 25). Therefore, it is often stated that »whoever does not adapt his manner of life to the conditions of capitalist success must go under or at least cannot rise« (Weber 2008: 209). As a result, the manifest consequences of economic rationality can be found in the social and ecological problems of our time to a large degree.

These problems illustrate that a two world dichotomy of an economy free of ethics, and an ethics free of economic aspects, cannot exist. Every decision derives from norms that are based on moral aspects, and includes consequences that affect other market actors by causing externalities (Werhane & Freeman 1999). This implies that corporate activities cannot be regarded separately from their impacts on society. Parameters of economic reasoning can only be reflected and reasonably justified in ethical categories (Kerber 1998). Thereby, economic activity inevitably adheres to the question for what, and for whom, a market economy should function in an efficient and rational manner (Ulrich 2005).

2.3 BUSINESS : THE QUESTION OF MEANING

The question of meaning is elementary by asking »which values should be created« (Ulrich 2008b: 186). It emphasizes the beneficial effects of economic activity regarding the good life, and examines whether our economic activities are good for ourselves (Ulrich 2005). The question of meaning is of »teleological-ethical kind, concerning the human fulfillment and cultural motives of rational economic activity in everyday life« (Ulrich 2008b: 186).

The underlying economic function is to supply humans with life-beneficial goods and services (Kerber 1998). Thereby, the economy is influenced not only by technical, but also by cultural and normative parameters (Ulrich 2008a). On the one hand, goods and services are produced based on the division of labor. Thus, the economy is embedded in a community that relies on the principle of mutual solidarity, which implicates that certain rules apply, and must be conformed (Ulrich 2002). On the other hand, the production process causes social and environmental externalities that cannot just be transferred on society, but must be burdened on corporations (Thielemann 2009).

Therefore, today’s elementary question is not only how much progress is good for society but moreover the design of this progress in a socially and ecologically compatible way (Birch 2001). Of particular concern is the sustainability of more and more growth and consumption under consideration of the allocation of social and environmental costs, especially with regard to future generations. We must be aware that a »society which sets as its highest goal the production of private consumer goods will continue to reflect such attitudes in all its public decisions. It will entrust public decisions to men who regard any other goal as incredible - or radical. We have yet to see that not the total of resources but their studied and rational use is the key to achievement« (Galbraith 1967: 282). In this sense, sustainable development is just a trivializing term for what can be denoted as the equal rights of all human beings in respect to scarce natural resources (Ulrich 2009). Sustainability »requires a normative concept which implies the obligation to embed the responsible use of natural resources into a just societal order« (ibid: 5). In other words, it is a matter of justice. Consequently, the question of the meaning of business is accompanied with the question of business legitimacy.

2.4 BUSINESS : THE QUESTION OF LEGITIMACY

The question of legitimacy asks »for whom should values be created« (Ulrich 2008b: 186). It emphasizes on the acceptability and justifiability of the socially legitimate economic activity with regard to a just social coexistence, and examines the influence of economic activity on the just social life (Ulrich 2005). The question of legitimacy is of »deontological-ethical kind, concerned with the normative preconditions and the social rules of rational economic activity based upon them« (Ulrich 2008b: 187). Thus, legitimacy can be understood as »a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions« (Suchman 1995: 574). Hence, legitimacy »deals with the appropriate role of corporations in society« (Palazzo & Scherer 2006: 72).

Suchman (1995) discerns three types of organizational legitimacy: pragmatic, cognitive, and moral legitimacy. Pragmatic legitimacy rests »on the self-interested calculations of an organization’s most immediate audiences« (ibid: 578). The corporation receives support from its key stakeholders and the wider public, if corporate activities provide expected valuable and beneficial consequences (ibid). Thus, the corporation needs to persuade all interests group of its usefulness (Palazzo & Scherer 2006).

Cognitive legitimacy emerges when »the societal context regards an organization and its output, procedures, structures and leader behavior as inevitable and necessary and if acceptance is based on some broadly shared taken-for-granted assumptions« (Palazzo & Scherer 2006: 72). Legitimacy in this case is not so much based on interests or evaluation, but rather on a subconscious level, which results in corporate behavior that adapts to social expectations (ibid).

From an ethical point of view, and with regard to the objective of the good life and just social life, both legitimacy approaches are insufficient, since corporations miss a critical and appropriate analysis of societal change, and merely use their interest groups as means to the end of corporate success. Therefore, it is crucial that corporations act with moral legitimacy. This implies that a company rests its decisions on conscious moral judgments about »whether the activity is the right thing to do«, and constantly reassesses »whether the activity effectively promotes the social welfare, as defined by the audience’s socially constructed value system« (Suchman 1995: 579). Not manipulation or persuasion, but reasonable arguments through explicit public discussion lead to legitimacy.

Legitimate is a claim or action only, if fundamental moral rights of any individual remain intact, and if each one approves this action. Not till then are the outcomes of this action accountable, just, and reasonable to all people concerned (Thielemann & Wettstein 2008). The validity of norms, rules, actions and individual claims can only be justified with sensible arguments in discursive review with all people at stake (Scherer & Palazzo 2007). In principle, all stakeholder are eligible to claim demands that must be embedded authentically in the decision-making process (Noland & Phillips 2010). It is not only the might of the right of the powerful that counts, but also the recognition of claims of those, who hold too little or no power in these processes (Thielemann & Wettstein 2008). Profits are »one out of many potentially conflicting claims, which must thus be ethically weighted against one another«, and therefore »are not the ultimate end of business activity« (ibid: 17). Hence, legitimacy should be considered as »a resource to guarantee the corporations’ continued existence» whereby companies need to accept »the expectations of powerful stakeholder groups as economic restrictions« (Palazzo & Scherer 2006: 72), which will ultimately end in the achievement of earned reputation (Thielemann & Wettstein 2008).

»We cannot connect ethics and strategy unless there is some point of intersection between the values and ethics we hold and the business practices that exemplify these values and ethics.« - R. Edward Freeman

3 ETHICAL THEORIES & BUSINESS ETHICS

DeGeorge (2005) argues that ethical theories attempt to systematize ordinary moral judgments, and to establish and defend basic moral principles. Knowing some of the standard methods of ethical theories is crucial for an individual’s moral reasoning in the process of moral decision-making. Moreover, ethical theories are important as fundament for a critical assessment of current conventional morality. Various ethical theories offer different approaches for evaluating and solving moral dilemmas. However, a complete theory that is ultimately applicable in every situation, especially with regard to complex business situations, cannot exist.

3.1 TRADITIONAL THEORIES

Two dominant approaches of ethics prevailed over the history of philosophy, namely teleological and deontological theories. Teleological theories, from the Greek word for goal (Crane & Matten 2007), hold that »an action is judged as right or good on the basis of its consequences«, where »the ends of an action justify the means taken to reach those ends« (Weiss 2006: 120). Hence, these theories are known as consequentialist theories (Crane & Matten 2007). The two central teleological theories are egoism, with Adam Smith as main contributor, and utilitarianism, linked to Jeremy Bentham and John Stuart Mill (ibid). While egoism states that »an action is morally right if the decision maker freely decides in order to pursue either their (short term) desires or their (long term) interests« (ibid: 93), utilitarianism holds that »an action is morally right if it results in the greatest amount of good for the greatest amount of people affected by the action« (ibid: 94).

Deontological theories, from the Greek word for duty (Crane & Matten 2007), on the other hand do not evaluate the moral rightness of an action’s consequences, but the desirability of its underlying principles (ibid), and are based »on universal principles, such as justice, rights, fairness, honesty, and respect« (Weiss 2006: 124). These theories are known as non-consequentialist theories (Crane & Matten 2007). The two central deontological theories consist of the ethics of duties, with Immanuel Kant as main contributor, and the principles of rights and justice, linked to John Locke and John Rawls (ibid). Kant’s categorical imperative holds that »a person should choose to act if and only if she or he would be willing to have every person on earth, in that same situation, act exactly that way«, where she or he »respects and treats all others involved as ends as well as means to an end« (Weiss 2006: 124). Rights are defined as »certain basic, important, unalienable entitlements that should be respected and protected in every single action« (Crane & Matten 2007: 100), whereas justice is described as »the simultaneously fair treatment of individuals in a given situation with the results that everybody gets what they deserve« (ibid: 104).

Criticism of traditional theories refers to their mostly absolutist nature. In reality, both actions and consequences must be critically evaluated from a moral point of view, while teleological and deontological theories separate them. Both theories contain of universal principles that cannot be applied to every situational framework, because their normative nature does not allow for descriptive adjustment, and does not consider the several aspects and complexities of human life (DeGeorge 2005). While utilitarianism ignores the individual by estimating the greatest good for all, and disregards the fact that some actions are simply wrong, it is also difficult, if not impossible, to quantify utility, and to distribute it in a fair way (Boatright 2006). Kantian ethics, on the other hand, does not consider the outcomes of an action, and is rather complex and optimistic in nature (Crane & Matten 2007). It also misses to define what rights we do have, how much freedom and well-being we need to be rational and autonomous agents, and how we manage trade-offs between individual and societal claims (Boatright 2006).

Furthermore, normative ethical theories can often be found in the literature as two extreme positions. The first approach is ethical absolutism, which consists of universally applicable moral principles with objective qualities (Crane & Matten 2007). The second approach is ethical relativism, which holds that morality is context-dependent and subjective due to personal and cultural circumstances (ibid). Consequently, many academics (see Boatright 2006, Crane & Matten 2007, DeGeorge 2005, Weiss 2006) follow a position of ethical pluralism that »accepts different moral convictions and backgrounds while at the same time suggesting that a consensus on basic principles and rules in certain social context can, and should, be reached« (Crane & Matten 2007: 87). This contemplates that morality is foremost a social phenomenon, which deals with the avoidance of harm, and the creation of benefit for society (Kaler 1999). The following contemporary ethical theories reflect this aspect.

3.2 CONTEMPORARY THEORIES

Contemporary ethical theories are replacements and supplements to traditional approaches, and take a more relativistic position (Crane & Matten 2007). Still, they are extensive in focus and scope, and not less complex than traditional theories. Thereby, American business ethics theories provide the bulk of theoretical publications, and are often regarded as the agenda-setters, not least for the German academic debate (Palazzo 2002). American theories are case-related and decision-focused, detect practical managerial problems, and apply ethical theory solutions (Enderle 1996). However, the relation of ethics and economics is analyzed less systematically (ibid). Often, normative and descriptive approaches mix for a pragmatic problem identification, which is mainly conducted at the micro perspective of business (Matten & Palazzo 2008). German business ethics theories, on the other hand, are more solitary and self-contained in their approach, which often results in academic clashes between the various ethicist schools (Palazzo 2000). German scholars widely rely on practical-normative concepts, which are based mainly on regulatory principles, and require the acceptance of a certain normative position to be universally valid. However, critics call into action with regard to a lack of practical relevance in management implementation (Matten & Palazzo 2008).

The pluralism of theoretical approaches in both countries includes inter alia the ethics of care (Held 2006, Slote 2007), ethical pragmatism (Rosenthal and Buchholz 2000), the ethics of governance (Wieland 2001), or dialogue-oriented ethics (Steinmann and Löhr 2001). In line with this thesis are the following business ethics perspectives that are decisive and proper with regard to the good life and the just social life. Their focus is on the individual, corporate, and regulatory level respectively.

3.2.1 THE VIRTUE PERSPECTIVE

In contrast to the common focus of traditional ethical theories on the principles of action, the action itself, and its derived consequences (Solomon 2006), virtue ethics focuses on the person’s moral character, and therefore asks »what kind of person should we be« (Boatright 2006: 80). The system of virtue ethics, which was laid out by Aristotle who is still the continuing focus for most virtue ethicists, can be differentiated into intellectual and moral virtues, with wisdom as the most prominent intellectual virtue, and honesty, friendship, loyalty, and modesty as major moral virtues (Crane & Matten 2007). If society can be regarded as a grand set of social practices, virtues are »those traits which, at their least, make the society civilized and workable and, at their best, make those who are virtuous and, perhaps, the society itself exemplary« (Solomon 2006: 33).

As one of the famous virtue ethicists, Solomon (1992) in this sense understands the economy as an integral part of culture and society, and thus argues that there is no discrepancy between ethics and economics. He regards the act of human cooperation as a fundament for human survival. Thereby, the intrinsic function of the economy is to enable the good life, and the creation of welfare for all, through the achievement of success in a virtuous manner (ibid). Solomon (ibid) rejects the motive of profit maximization as the highest and only corporate end, since a business performs different practices and thus fulfills diverse societal purposes and functions. Even though economic success is necessary for the survival of the firm, it is equally important that a corporation engages in harmonious and responsible stakeholder relations by paying attention to the way profits are achieved (Crane & Matten 2007). Therefore, economic behavior is based on compliance, fairness, and mutual trust (Solomon 1992). Consequently, »corporations are ultimately judged not by the numbers but by the coherence and cooperation both within their walls and with the larger communities in which they play such an essential social as well as economic role« (ibid: 152).

Solomon (1992) focuses specifically on the role of individuals within the organization, whose duties derive from their institutional embedding. As he interprets an enterprise as collective or culture, Solomon (ibid) undoubtedly understands a corporation as a moral agent that, independent from its individual members, has a value structure and moral responsibility and cannot be reduced to an economic mechanism. The individual is embedded in that corporate culture, obtains its identity from it, and on his part shapes the corporation as a whole. Solomon (ibid: 152) argues that »corporations are made up for people, and the people in corporations are defined by the corporation«. And although »the morals of the executives […] are an important influence on corporate morality […] it is the nature and the power of institutions […] to shape and sanction the morals of the individual« (ibid: 152).

As a result, individual and institutional ethics affiliate to an inseparable whole. In this sense, Solomon (1992) argues that corporate ethical problems can be solved by the individual rather through context-based virtues than through abstract and institutional rules, since the framework of regulations has only limited pressure on the decision-making of management. Business ethics does not only imply restriction and omission, but the pursuit of excellence, and the exceeding of moral minimum requirements (Solomon 2006). Conflicts occurring from the »disunity of virtues« (Solomon 1992: 167) in practice must be balanced and answered for by personal integrity and the ability for good decisions. »Mandatory virtues« (ibid: 197), such as honesty and justice, thereby prevent the risk of ethical relativism that can occur from context-based principles, and would mean the main drawback of virtue ethics (Crane & Matten 2007).

While the concept of virtue ethics corresponds to an rather ideal picture of the economy, and can be viewed as somehow unrealistic due to its normative nature from something that is to something that ought to be, the fundamental idea of personal virtues as characteristics of managers in daily business is essential for the good and just relationship between business and society.

3.2.2 THE STAKEHOLDER PERSPECTIVE

Freeman (1984), with his groundbreaking book, led the way for one of the most important theories in business ethics that has been constantly reviewed and extended by many academics (see Donaldson & Preston 1995, Goodpaster 1991, Matten & Crane 2005b, Noland & Phillips 2010, Phillips 1997, Weiss 2006) ever since. In contrast to the shareholder model, which implies that manager should consider only the interests of the owners who have a share in the company, stakeholder theory considers the fact that »business by its nature is a system requiring cooperation and mutual support among a number of social groups« (Goodpaster & Atkinson 1992: 14). Freeman (1984: 46) defined a stakeholder in an organization as »any group or individual who can affect, or is affected by, the achievement of the organization’s objectives«. More precisely, Crane and Matten (2007: 58) understand stakeholder as »an individual or a group which either: is harmed by, or benefits from, the corporation; or whose rights can be violated, or have to be respected, by the corporation«. Thus, a corporation’s stakeholders are shareholders, employees, customers, and suppliers, as well as the government, competitors, and the civil society at large (Freeman 1984).

Stakeholder theory identifies a complex relationship and responsibility network in which the corporation is embedded, and suggests that a corporation has to integrate its multiple responsibilities within the corporate strategic framework (Freeman 1984). According to Donaldson and Preston (1995: 67), the fundamental basis of the theory is normative, since stakeholders have »legitimate interests in procedural and substantive aspects of corporate activity«. Hence, stakeholder interests are of intrinsic value since »each group of stakeholder merits consideration for its own sake, and not merely because of its ability to further the interests of some other group, such as the shareowners« (ibid: 67). The theory is also explanatory as it »describes the corporation as a constellation of cooperative and competitive interests possessing intrinsic value« (ibid: 67). Additionally, the theory is instrumental by »examining the connections […] between the practice of stakeholder management and the achievement of various corporate performance goals« (ibid: 67), where meaningful and responsible stakeholder management will benefit the corporation in the long-term performance perspective (Weiss 2006). In conclusion, stakeholder theory is managerial, given that »it also recommends attitudes, structures, and practices that, taken together, constitute stakeholder management« (Donaldson & Preston 1995: 67).

Identifying and balancing the competing rights and interests of all legitimate stakeholders is the key challenge, if a corporation wants to fulfill its societal responsibilities (Freeman, 1984). Stakeholder democracy, as suggested by Matten and Crane (2005b), expands the theory by suggesting »to appreciate that democratic influence should not only extend to one stakeholder group but should include some degree of participation for all stakeholders of the organization and a fair and simultaneous treatment of all their individual interests« (ibid: 9). The authors argue that »stakeholder democracy consists of firm-stakeholder relations based on self-governing and voluntarism« (ibid: 10), whereby stakeholders are treated »not just as means but also as an end in themselves« (Evan & Freeman 1993: 10). This »will also affect all areas, functions and departments of the business« (Matten & Crane 2005b: 10).

The term democracy is problematic though, since in its original political denotation, democracy is already complex, ill defined and fuzzy, and open to different meanings and renditions (Matten & Crane 2005). Thus, a translation into a coherent justificatory framework within a business context is a question of interpretation (Phillips 1997). Furthermore, the identification of stakeholders, and the management of conflicting demands exists (ibid). Interest conflicts often arise between various stakeholder groups that have different power, influence, and impacts on corporate decisions. Balancing these disparities requires fair and responsible corporate governance. Therefore, stakeholder theory is essential to the good life and the just social life for two reasons: it considers the externalities of corporate behavior on societal members, and helps to manage the conflict between economic interests and moral soundness.

3.2.3 THE SOCIAL CONTRACT PERSPECTIVE

Donaldson and Dunfee (1995) take their starting point by assuming that universal ethics, such as utilitarianism and Kantianism, do not reflect on the artifactual character of business, given the differences in rules and structures of business that vary noticeably between companies, industries, and cultures. Hence, an ethical theory that aspires to identify more than just core universal values, and which aim is to embrace the complexity and dynamic of human decision making, must consider the assumption that humans assent specific societal agreements within their culture (ibid).

Derived from classical and social contract theory, Donaldson and Dunfee’s (1994) approach of an Integrative Social Contracts Theory (ISCT) seeks to connect normative and empirical business ethics research in one contractarian approach, which focuses on normative judgment making and integrates societal agreements. The structuring idea is that of a normative hypothetical macrosocial contract, used as a heuristic device that is combined with empirical, implicitly existing contracts on the microsocial level. The macrosocial contract is understood as a concept of normative hypernorms, such as respect for human rights and the environment. It is valid for all actual contract agreements, and defines the moral boundaries. Microsocial contracts come off on different economic levels, and must be conformed within these boundaries. »The social contract approach we detail holds that any social contract terms existing outside these boundaries must be deemed illegitimate, no matter how completely subscribed to within a given economic community« (Donaldson & Dunfee 2000: 436).

Donaldson and Dunfee (1995) assume that contractual partners have two fundamental desires. First, they want to fulfill their individual economic needs, and second, they want to participate in economic communities that reflect their personal and cultural values. In order to achieve these desires, humans enter into tacit microsocial contracts that result in implicit obligations and responsibilities, and contain values, norms, and implicit behavioral expectations (ibid). These basic rules are necessary to ensure a maximum of moral self-determination due to reasons of efficiency, and decisions which are made under extreme uncertainty (Donaldson & Dunfee 1994).

Contractual partners express their agreement either explicitly or implicitly through conformable behavior. Therefore, ISCT allows for substantial moral free space, where norms must be grounded in informed consent, and agreed and lived by the majority of contractual parties in order to be authentic. However, a microsocial norm is legitimate only if it is also compatible with the underlying hypernorms (Donaldson & Dunfee 1994).

Violation of these contracts due to free-rider problems are sanctioned through peer pressure and loss of reputation (Donaldson & Dunfee 1995), Hence, ethics in the economy arises from selfimposed, with informal penalties adherent rules (Dunfee 1991). Since hypernorms, as integral part of microsocial contracts, should be consistent with the personal values of the contracting parties, »compliance is part of their personal utility function« (ibid: 39).

Donaldson and Dunfee do not criticize the market system as such. What they aim for is a critical ethical reflection of the given moral free space of economic behavior (Donaldson & Dunfee 2000). Thus, it is apparent that the theory is complex and ambiguous. Defining priority norms involves many theoretical and practical difficulties, and may reach the limits of empirical social research. Gathering reliable data about the behavior of contractual parties is very difficult. In this sense, informal sanctions have a drawback of being random, cannot always be controlled, and consequently cause principal-agent problems. Furthermore, defining norms under the ISCT framework may lead to a relativistic justification of corporate ethical practices. While the contractual parties agree on a certain microsocial contract, the consequences of their behavior may harm external parties, which are not part of the agreement. Hence, a problem of defining a priority order of norms does exist.

Yet, ISCT can be assumed for contract parties on all societal levels and is not limited to corporate stakeholder relationships (Donaldson & Dunfee 1994). Therefore, it is a valuable concept for the aim of the good life and the just social coexistence of business and society.

3.2.4 THE INTEGRATIVE PERSPECTIVE

Ulrich (2008a) developed a comprehensive approach of business ethics for the purpose of a civilized market economy, including three sites of morality: the economic citizen level, the regulatory level, and the corporate level. His starting point is a critical reflection of the dichotomy of economic and ethical rationality in the separation thesis (ibid). Ulrich (2005) argues that the economic functionality of the market emerges as pseudo-rationality, due to the increasing social and environmental externalities, which affect more and more people. Thus, strict profit orientation, justified by economic necessities and market constraints, does not hold as mere corporate goal (ibid). Legitimate profit orientation is morally bounded, and requires the consideration of the moral point of view in all corporate activities (Ulrich 2008a). In this sense, the corporation emerges as a virtual public organization, faced with stakeholder demands, and required to justify the legitimacy of corporate action, which must be critically reflected in ethical norms (ibid). Consequently, Ulrich describes his approach as transforming the concept of economic reason from a utilitarian to a communicative ethics, based on the Habermasian discourse ethics (ibid).

Focusing on the corporate level, Ulrich (2008a) integrates two aspects of corporate responsibility: the (market-oriented) corporate ethics, and the (society-oriented) republican business ethics. Corporate ethics refers to the integrity of an organization’s market behavior, based on an integrated ethical corporate strategy. Ulrich (ibid) contends for a meaningful value added conception of corporate business, for effectual corporate policies and governance, and a consistent integrity management system. Republican business ethics focuses on the joint responsibilities a corporation has both within its industrial sector, and on the wider socio-political level with regard to the standards and legitimacy of the regulatory framework (ibid). In order to be conceived as good corporate citizen, the corporation must fulfill both responsibilities in a meaningful discourse with all relevant stakeholders (ibid).

At the economic citizen level, Ulrich (2008a) requests the economic actors to assume their responsibilities in all of their upright citizen roles, thus as deliberate consumers and investors, as well as critical-loyal organizational members in their working environment, and as citizens of their community and country. In this sense, economic citizens are not only economic agents, but also moral persons (Ulrich 2005). They should integrate their sense of responsibility to take part in the res publica, meaning the »public interest and concern for sharing civic virtues in a sound and fair co-existence of free and equal citizens« (ibid: 103). Ulrich (ibid) argues that, based on this republican ethos, responsible economic citizens are pursuing their private interest only in the light of its legitimacy and the underlying principles of the res publica.

Furthermore, Ulrich (2005) contends that economic citizen’s ethics and regulatory ethics are mutually attended. In democratic societies, citizens authorize national governments, which, on their part, shape and regulate the political and economic order. Ulrich (2008a) applies the ordoliberal idea of a superordinated vital policy with a subordinated competition policy in a two- tiered conception of good regulatory politics. The central point in vital policy is to embed the market economic system »within a higher order of things which is not ruled by supply and demand, free prices and competition«, by focusing on the »ethical aspects of the service of life« (Ulrich 2009: 9). Competition policies, albeit accepting the existence of open markets and effective competition, are imposed within the scope of vital-political standards for vital ends (ibid). In essence, Ulrich argues that the »horizon of a socio-economic development in the service of life could consist in a literally civilized market economy that is consequently embedded into a fully developed civil society - as a means for the good life and living together of free and equal citizens« (ibid: 10).

Ulrich’s approach is certainly ambiguous, and to some sort ideal in its ideas. Unfortunately, it is also almost exclusively theoretical in nature, providing only a few practical guidelines or solutions. Although Ulrich correctly refutes the separation thesis to establish his integrative model, reality holds a different picture. The market, seen in a competition context, contains of strategic operation interdependences with unequal power relations, opportunism and free-rider problems, and moral hazard situations. Moreover, in claiming for permanent legitimacy of corporate action, and demanding ethical assessment of the entire organizational and operational framework, Ulrich’s postulation for the primacy of ethics over the inherent logic of the market requires a societal and political framework, which encourages and bolsters those companies that really want to make a difference. Thus, we may need a fundamental change in our cultural and economic belief-system, with dedicated citizens and managers championing the change process, and a global institutional framework guiding this development. However, given the asymmetrical distribution of power and influence between citizens, corporations and politics, Ulrich’s approach is visionary, but perhaps too good to be true.

»Business receives its license to operate from society and ultimately it is accountable to the society for what it does and how it does it.«

- David Birch

4 SOCIETY & BUSINESS ETHICS

While the previous chapter presented the theoretical side of business ethics, the following part aims at linking the theory to the management level of corporations. Remarkably, the academic debate about corporate citizenship thereby integrates substantial business ethics theory ideas, which makes this approach valuable for managerial implementation of ethical aspects. However, the role of the individual decision maker is crucial with regard to the ethical conduct of corporations. Hence, the discussion in this chapter will consider ethical aspects both at management and manager level.

4.1 THE CORPORATION AND THE INDIVIDUAL

The question whether a corporation can be regarded as a moral actor, and thus can be held accountable, and which concrete social responsibilities it would have in that case, is an integral part of academic debates. Corporations, like the individual, are treated as legal, though artificial, persons under the law, and hence are legally responsible (Crane & Matten 2007). Simultaneously, they hold responsibilities beyond the law. In its individual dimension, the corporation is regarded as an agent created by the community it is embedded in, while it also is a community in itself given its organizational dimension (Buchholz & Rosenthal 2006). As with all communities, a distinct culture and, more important, a certain ethics exist within a corporation (Solomon 2004). This corporate culture is distinctively and irreducibly social, with own rules, values and perceptions (ibid). Consequently, the purpose and conduct of each corporation is ascribable to human intentions based on internal corporate decision structures (French 1979), whereby corporate actions have not only economic but also environmental and social impacts on society (Birch 2001). Due to externalities it cuases, the corporation can be held morally responsible, given it is »a moral person within the dynamics of community life«, while similarly being »a community embodying the dynamics of community life« (Buchholz & Rosenthal 2006: 236). Thus, as Kolstad (2007: 144) argues, it is first of al necessary to ask »what a company is responsible for, and then implement these responsibilities, whether they increase profits or not«.

4.1.1 CORPORATE SOCIAL RESPONSIBILITY

The broader range of obligations that corporations have toward society beyond maximizing profits and shareholder value (Friedman 1993) are embedded in the conceptual framework of corporate social responsibility (CSR). Dating back to the 1950s with the groundwork of Bohen’s book (1953), CSR has grown in significance as a dynamic phenomenon with considerable debate among academics and practitioners (Carroll & Shabana 2010). While various definitions and theoretical derived constructs have emerged (Frederick 1998, Garriga & Melé 2004, Jones 1980, Matten & Moon 2008, McWilliams & Siegel 2001, Wood 1991), Carroll’s four-stepped categorization of CSR (Carroll 1979, 1991) still holds as the most cited reference model, where he defines CSR as »the simultaneous fulfillment of the firm’s economic, legal, ethical and philantrophic responsibilities« (Carroll 1991: 43).

CSR reflects corporate actions that »appear to further some social good beyond the interests of the firm and that which is required by law« (McWilliams & Siegel 2001: 117). Corporations sharing that vision understand that their operations create some »flow-on effect« in terms of externalities for stakeholders inside and outside the organization (Andriof & McIntosh 2001: 15). Responsible corporations consider these effects with respect, and incorporate stakeholder demands in their decision-making process (Carroll 1991). Carroll and Shabana (2010) explicate this idea based on growing academic and managerial support for taking a business case approach of CSR. The authors argue that corporations integrating CSR strategically receive competitive advantage, increased legitimacy, and enhanced reputation. In consequence, they can improve their financial performance by better social performance, which is often attempted to be demonstrated empirically as well (Margolis & Walsh 2003, Orlitzki et al. 2003).

On the contrary, Matten and Moon (2008: 405) criticize that a universal definition of CSR is not easy, given that it is »an essentially contested concept, being appraisive, internally complex«, with »relatively open rules of application«, and »overlapping with some, and being synonymous with other, conceptions of business-society relations«. Kolstad (2007: 137) holds that if firms apply CSR simply as a business case, meaning a shift from ethical to performance orientation, CSR itself »is not the ultimate end for corporate action«, but merely »a means to the ultimate end of increasing shareholder returns«. More critically, Palazzo and Scherer (2006: 74) argue that corporations on the cognitive and pragmatic legitimacy level use CSR merely as a profit strategy approach to receive their moral legitimacy, and thus »the neoclassic rhetoric remains salient«. Furthermore, pluralization and globalization of modern societies erode cultural homogeneity, whereby national regulatory regimes are losing ability and influence to harmonize corporate behavior with societal demands (ibid). Some academics (Logsdon & Wood 2002, Matten et al. 2003, Scherer & Palazzo 2007) consequently call for a more politically oriented conceptual framework, namely corporate citizenship.

4.1.2 CORPORATE CITIZENSHIP

Corporate citizenship (CC) is very much driven by practitioners, with corporations self-identifying as good corporate citizens (Microsoft 2009, Shell 2009b, Volkswagen 2009), and together with other citizens being a part of community (Matten et al. 2003). CC adopts the idea of CSR that corporations, like citizens, are »members of society, with obligations and constraints as well as privileges« (Logsdon & Wood 2002: 158). However, CC is expanded in a framework to conceptualize also the political role of corporations in society (Matten et al. 2003). In this sense, CC proves as a powerful heuristic for the analysis of both the social and political responsibilities of corporations (Matten & Crane 2005). The term citizenship is thereby used as developed in political science, and applied to business organizations as a rather metaphorical term (Moon et al. 2005, Wood & Logsdon 2008).

Matten and Crane (2005) hold that citizenship in a liberal tradition comprises social, civil and political rights for the individual. Social rights provide the individual with the »freedom to participate in society«, whereas civil rights provide »freedom from abuses and interference by third parties«, with both rights being rather passive in character (Matten & Crane 2005: 170). In contrast, political rights entitle the individual to »take part in the process of collective will formation in the public sphere« (ibid: 170). Due to an eroding national context of governance (Palazzo & Scherer 2006), corporations act as social change agents (Bies et al. 2007) and, based on a social contract between business and society, replace government as counterpart of citizenship (Matten & Crane 2005). Thus, Matten and Crane (2005: 171) argue that »…corporations and citizenship come together in modern society at the point where the state ceases to be the only guarantor of citizenship«, with corporate citizenship as legitimate term to characterize this situation.

In a remarkable conceptual framework, Matten et al. (2003) categorize CC in three dimensions: the limited, the equivalent, and the extended view. The limited view focuses on the voluntary philanthropic role of corporations in the community, similar to the forth and top layer of Carroll’s (1991) CSR model. It stood and still stands for the common understanding of CC, whereby firms give back to society out of mere self-interest in order to build up social or reputational capital, and hence to improve the corporate bottom line (Matten et al. 2003). The equivalent view puts CSR and CC on the same level, making both terms interchangeable. Carroll himself causes confusion in applying the same definition to CC (1998) as he did before to CSR (1991) and in a sense merely rebrands the CSR concept. It seems apparent, both the limited and equivalent view do not hold clear evidence for why CC as a new and distinct terminology would be meaningful (Matten et al. 2003).

Therefore, Matten et al. (2003) suggest the extended view as a third dimension of CC that goes beyond the previous CSR conception by drawing substantially on the political CC concept. Matten et al. (2003: 115) argue that »because of elements of institutional failure crucial to the functioning of the notion of liberal citizenship, corporate involvement in citizenship moves from a voluntary form of behavior to an unavoidable occurrence which ultimately results in a necessary reconceptualization of business-society relations«. Birch (2001) emphasizes this position, stating that for the goal of sustainable capitalism, holistic corporate citizenship is not just about sustainable business in economic terms, but a sustainable development of society. In essence, CC is about »a changing business ethos« that requires »systemic cultural change« (ibid: 54).

Matten and Crane (2005) contend that a nation-state government fails either when it ceases to administer citizen rights, has not yet administered them, or administration of these rights is beyond the government’s reach. Through their power and influence or by being already active in the territory concerned, corporations step in to attend to citizen rights on local, national and global levels, and become provider of social rights, enabler of civil rights, and channel for political rights (ibid). They fill governance vacuums to replace the welfare state, and shape political processes in society. They decide for outsourcing policies and foreign direct investments, and influence oppressive regimes to protect and improve civil and social rights. They even become reformers or creators of transnational institutions, if rights are associated with supranational or deterritorialized entities (ibid). Bies et al. (2007: 788) consequently argue that corporations acting as social change agents are not only an empirically reality, but moreover are »becoming a political reality as well«.

The UN Global Compact as one of the most important initiatives demonstrates this development in its idea, principles and scope (Williams 2004).

Logsdon and Wood (2002) extend the CC approach to a global corporate level. In a conceptual transition from individual citizenship to global business citizenship, they define a global business citizen as »a multinational enterprise that responsibly implements its duties to individuals and to societies within and across national and cultural borders« (Logsdon & Wood 2005: 56). Their view is based on the moral assumption of world citizenship, holding that every individual has universal and inherent natural human rights, namely economic, social, and cultural rights that exist irrespective of overarching governance structures (Logsdon & Wood 2002). The authors argue that »there is now a common awareness of cross-cultural conditions and a common language of rights that helps to shape the social, political, and economic forces of the world« (ibid: 164). A good global business citizen accepts its position in a network of stakeholder relationships, and encourages the corporation to »maintain policies, processes and structures that are consistent with the company’s expressed mission and values across all cultures« (Wood & Logsdon 2001: 95). The authors thereby incorporate the idea of universal hypernorms (Donaldson & Dunfee 1995) that guide absolute and uniform corporate policies, and distinct local norms that necessitate corporate responsiveness and adaptability in all business decisions, defined and constituted in a corporate code of ethics (Logsdon & Wood 2005).

Though the idea of CC is certainly one of the most valuable concepts regarding the government- business-civil society interaction, both in considering the vision of the good life and the just social life, and the necessity of societal and environmental sustainability, it also has some drawbacks. Matten and Crane (2003) argue that, in the age of globalization, corporate accountability must be put on top of the economic, social and political agenda of societies. With businesses to some extent replacing functions that once were hold by the government, and governments being accountable to citizens for their policies, corporations should also be approved or discharged of their responsibilities through an electoral process. The recent financial crisis indicated that such mechanisms do not yet exist, which leaves the questions of »who should control the corporation« (Mintzberg 1984) behind, and further intensifies the discussion about corporate transparency and accountability (Moon et al. 2005). Other authors (Bakan 2005, Klein 2005, 2008, Korten 2001) critically add that corporations already have extensive power and influence, which they use to impose their materialistic values and ideologies on society. Due to that unequal power relation between large businesses and individual members of society, »stakeholders have no or only limited access to legitimate coercive powers vis-à-vis corporations and must rely upon industry self- regulation« (Wood & Logsdon 2008: 56). Moreover, given the lack of global regulatory regimes, especially in less democratic-developed countries, multinational corporations still use their corporate power to intensify »a race to the bottom in terms of worker rights, product quality and value, and environmental protection« (ibid: 56). Similar to CSR, many corporations use CC merely as altruism in a self-interested business case perspective, and turn the »virtue of necessity« into a »virtue of strategic advantage« (Windsor 2001: 47). Thereby, they give themselves a virtuous image that is deceptive (Bakan 2005). Most evident, it is important to hold that corporations are managed by the people who work in them. Birch (2001: 55) in this sense argues that for holistic CC it is indispensable to change the culture of internal corporate behavior in a way that »every decision that is made at every level of an organization is measured against deeply rooted (sound moral) principles«. As the next part will demonstrate, this requires ethical awareness and moral leadership.

4.2 THE INDIVIDUAL AND THE CORPORATION

The ethical judgment of individuals, meaning »the extent to which one believes that a certain alternative is ethical or not ethical«, is likely to be influenced by both deontological and teleological evaluations in most situations (Vitell et al. 2003: 64). Given that corporate actions contain ethical elements, it is the individual employee who in the process of ethical decisionmaking makes corporate responsible behavior a reality. Thus, it is necessary to analyze ethics and corporate responsibility also on the individual level.

4.2.1 ETHICAL DECISION MAKING

Jones (1991: 367) defines an ethical decision as a »decision that is both legal and morally acceptable to the larger community«, and thus involves issues of good and bad that benefit or harm others. Again, this indicates that every decision situation is already moral in nature, given that it is also likely to be characterized by choice between alternatives (Crane & Matten 2007). Therefore, it is crucial to determine the psychological process, through which an individual in his role as moral agent arrives at a decision. Academics often base their research work on Jones’ (1991) synthesized four-stage framework that holds as the most descriptive model for the cognitive process involved in ethical decision-making (O’Fallon & Butterfield 2005).

Step one in this model refers to moral awareness, meaning that a person first of all needs to recognize and identify the situation as an ethical dilemma (Jones 1991). The second step relates to moral judgment, where the individual assesses all alternatives, and decides which behavior is ethically right or wrong (ibid). In step three, the individual establishes moral intention for ethical behavior, thereby prioritizing moral values over other values (ibid). Finally, ethical behavior is committed according to the established moral intention (ibid).

In principle, the nature of the ethical issue shapes the entire decision-making process (Jones 1991). Moral intensity, referring to collective »characteristics of the issue itself« (ibid: 371) by capturing »the extent of issue-related moral imperative in a situation« (ibid: 372), influences every component of ethical decision-making and behavior. Jones (ibid) argues that the magnitude of consequences, meaning the sum of harms done to victims through a moral act, the number of people affected by the consequences, and the social consensus about the ethical assessment of these consequences, strongly impact the level of moral intensity (ibid). Other impact factors are the probability that the moral act will take place and cause harm, and the temporal immediacy of act and consequences. Furthermore, Jones holds that physical, psychological, cultural, or social proximity plays a big role in how people perceive and evaluate the consequences for victims of a moral act. As Jones observes, »people care more about other people who are close to them than they do for people who are distant« (ibid: 376).

For a more meaningful analysis of the ethical decision-making process, it is necessary to consider individual and situational factors as powerful parameters influencing the ethical decision-making process (Crane & Matten 2007). Whether and how an individual recognizes and solves an ethical dilemma depends not only on characteristics that are given by birth, or acquired by experience and socialization (ibid). Also, situational factors that apply to the specific context, such as social, cultural, economic, and organizational norms and structures, have a fundamental impact on individuals’ ethical sensitization and behavior (Jones 1991). Beside cognitive aspects of human character, emotional and affective aspects have a very important influence on how the individual perceives ethical dilemmas, and behaves in corresponding situations (Sweeney & Costello 2009). Furthermore, the individuals’ identity, the role one plays in a given context, and the extent of ethical self-perception, are affecting the motivation and commitment for engaging in ethical reasoning and conduct (ibid).

4.2.2 ETHICAL LEADERSHIP

The second step in Jones’ (1991) model, which refers to the cognitive development of moral judgment, has been considered as the most important among researchers (O’Fallon & Butterfield 2005). Clearly, individuals need to know which behaviors are ethical and which are not, in order to adapt their behavior to ethical criteria. This applies not only for aspects of personal life, but also for the role of individuals as employees of a corporation. Whilst various factors form a person’s behavioral intentions, it is the corporation to a great extent through its structure, policies and culture that determines the rules and principles of behavior of its employees (Maak & Ulrich 2007). »Organizational factors«, as Jones (1991: 391) agrees, »are likely to play a role in moral decision- making and behavior at two points: establishing moral intent and engaging in moral behavior«, which refers to the third and forth step of his model. Since the corporation is a community made of »people working together for common goals« (Solomon 2004: 1026), the ethical outcome of corporate conduct can be referred to the inclusiveness of ethical criteria in decisions made by these people on all organizational levels, regardless of market constraints (Maak & Ulrich 2007). Consequently, the realization of more corporate responsible conduct has to start at the executive level, discussed in the notion of ethical leadership (ibid).

Gini (2004: 12) argues that »without the backing, encouragement, and support of leadership, the best of intentions and ideas will wither on the vine and not become part of the ethos and culture of the organization«. However, it seems challenging to set up a deeper, universally accepted understanding of what the notion of leadership really contains. Though the coverage of academic literature regarding this subject is vast, it is also complex because »[n]ext to economic theory, never has so much been written on the same topic - resulting in so little agreement on the most elemental propositions in the field« (Gini 1997: 323). In most academic publications, leadership is analyzed rather from a functional perspective, focusing on instrumental means and ends, such as organizational efficiency and performance, group effectiveness and cohesion, or coaching and motivation (Maak & Ulrich 2007). However, the link to the morality, ethicalness, and righteousness of these means and ends is missing very often (Carroll 2001). Thus, if mainstream leadership concepts do not address moral factors enough, then what is the essence of ethical leadership?

[...]