Unit 5: Corporate Ethics

Table of Contents

Ethics of Business

What is Business Ethics?

Business Ethics (or Corporate Ethics) is a form of applied ethics that examines the ethical principles and moral problems that arise in a business environment.

It questions the "profit-motive" and asks what, if any, moral obligations a corporation has. It applies to all aspects of business conduct, from the boardroom to the factory floor, and deals with the relationships between a business and its stakeholders.

Key Issues in Business Ethics:

Stockholder Theory vs. Stakeholder Theory

This is the central debate in business ethics. Who does a company (and its CEO) work for?

Theory Proponent Core Idea Argument
Stockholder Theory
(or Shareholder Theory)		 Milton Friedman A corporation's *only* social responsibility is to increase its profits for its stockholders (the owners).

The CEO is an *agent* of the stockholders. Using their money for "social good" (like charity) is a form of "taxation without representation" and is essentially stealing from them.
Motto: "The business of business is business."
Stakeholder Theory R. Edward Freeman A corporation has an ethical responsibility to *all* its stakeholders, not just its stockholders.

A business is not a separate entity; it is part of a community. Its success depends on many "stakeholders":

  • Employees (who want fair wages)
  • Customers (who want safe products)
  • Suppliers (who want fair contracts)
  • The Community (who wants clean air)

The CEO's job is to balance the *competing interests* of all these stakeholders.

Corporate and Social Responsibility (CSR)

What is CSR?

CSR is the practical application of the Stakeholder Theory.

Corporate Social Responsibility (CSR) is a business model where a company holds itself accountable for its impact on society, including social, economic, and environmental factors.

It is the idea that a corporation is a "corporate citizen" with a duty to contribute to societal goals and make a positive impact, beyond just making money. This is now a legal requirement in many countries (e.g., India's Companies Act, 2013, mandates CSR for large companies).

The Pyramid of CSR

A popular model by Archie Carroll organizes a company's responsibilities into four levels, from most basic to most advanced.

[Diagram Placeholder: Carroll's Pyramid of CSR]

A pyramid with 4 levels (bottom to top):
1. Economic Responsibility (Base) - "Be Profitable." (This is the foundation).
2. Legal Responsibility - "Obey the Law."
3. Ethical Responsibility - "Be Ethical." (Do what is right and fair, even if not required by law).
4. Philanthropic Responsibility (Top) - "Be a Good Corporate Citizen." (Actively contribute to the community, e.g., donations, charity work).

  1. Economic: The primary responsibility is to be profitable and economically viable. If the company fails, all other responsibilities are moot.
  2. Legal: The company must obey the laws and regulations of the society it operates in.
  3. Ethical: The company must go *beyond* the law and do what is right, just, and fair. (e.g., paying a living wage, not just the legal minimum wage).
  4. Philanthropic (or Discretionary): The highest level. This is "giving back" to the community through donations, sponsoring local events, or funding educational programs.

The Triple Bottom Line

This is a modern framework for CSR that measures a company's success not just on profit, but on three "bottom lines":

The Triple Bottom Line (TBL) argues that a truly successful and sustainable company must measure its performance in three areas: People, Planet, and Profit.

The TBL model makes CSR a core part of a business's strategy, arguing that long-term *profit* is impossible without taking care of the *people* and the *planet* that support the business.