Divine Word College of Vigan, Ilocos Sur, Philippines
Abstract
The purpose of common
business ethics is to harmonize and to lessen conflicts in business
transactions around the world. Since the world is a global village or global
community because of the globalization, thus it is an urgent need to have
common cultural values which include moral values, and business ethics as
guides of behavior in business transactions. Theories of business ethics such
as normative business ethics could be used as common business ethics principles
as guides for business decision making around the world. However, not all
understand what those values are. Determining what the common moral values are as
guides in business transactions would be difficult one but it is not
impossible. It can be the job of WTO and the UN to formulate moral norms to be
applied in all business transactions around the world.
Key words:
business
ethics, descriptive ethics, normative ethics, stockholder, stakeholder, social
contract.
Introduction
The writer has been
discussing about relativism and universal morality in his first paper that was
published by Asian Education Research Association Journal last 2010. The
writer’s point was that the world is becoming one village because of the
technology and policy changes in business and trade. Communication and movement are not limited
and restricted as before. Through Social Media, people are connected from one
end of the world and to the other end of the world. Business also follows. Free
trade agreement between countries makes it possible that the whole world is a
market place for everyone in the business. The market of certain products is
not limited to domestic market but including the whole world. What needed is
capital and the market is open. Such trend should be a lead to formulate or
think of common or universal moral standard and universal business ethics
(Abun, 2010).
It has been a question
in the mind of the writer that: how will
people understand each other if they are holding on their own culture or
practices when they are dealing with each other in other parts of the world? In
terms of communication, it may be easy to answer, that we can use the same
language which is English to communicate with each other in business
transactions. But the problem is what values do we apply when we are
transacting business with other people in other parts of the world? Whose
values are to be adopted in business transactions? This question will
instill a feeling of inferiority and superiority, in the sense that the values
of one country are better than the other. Such concept would not rest well to
the one whose values or whose cultures are not considered to be better. It is here people come into conflict when one
cannot accept that his values or culture are not good or lower than the other.
We have been talking
about inclusivity. Inclusivity requires a change of attitude on the way how we
look at others. When we are holding on the idea of “we are better than others”,
then the tendency is to look down on others. Those who are considered not good can
be excluded from the group. While inclusivity looks at other as equal in all
aspects and consequently the right behavior would be to embrace others whoever
they are. Creating a harmonious world would require such behavior, a new ethic
on how we see others, not as outsiders but all are insiders.
Relativism theory would
go against any idea to harmonize the world to become one village on the basis
of living one value or one culture. Relativism is not a single doctrine but a
family of views whose common theme is that some central aspect of experience,
thought, evaluation, or even reality is somehow relative to something else. For
example standards of justification, moral principles or truth are sometimes
said to be relative to language, culture, or biological makeup. Although
relativistic lines of thought often lead to very implausible conclusions, there
is something seductive about them, and they have captivated a wide range of
thinkers from a wide range of traditions (Stanford Encyclopedia of Philosophy,
2003). However, relativism encourages polarization or division because it
maintains its exclusiveness. In this case, the judgment of what is right and
wrong or good and bad would be based on a particular culture of a place or a
situation or a judgment of a person. People consider their own values or
culture to be the standards of behavior and refusing to take into
considerations the values or culture of other people. Holding on such ethic
would not help to harmonize the world as one village but encourages dichotomy.
Going along with globalization, and the trend of global village, global
community, the world needs common values as the standards of practices among
members of the community.
Thus it is urgent to
call for universal morality or ethics. Universal morality is relying on the
belief that human being inherently good and is capable of knowing what is good
and bad. Natural law would tell us that any adult and rational people are
capable of knowing what is good and bad. All rational adult people have
knowledge of basic goods. There are several arguments that can be cited as the
argument of natural law that it is naturally knowable by all human beings, it
is naturally authoritative over all human beings (Stanford Encyclopedia of
Philosophy, 2002). Thus, it is not being dictated by culture or experience but
it is inborn in the person to possess such natural knowledge. Universal
morality argues that there are many practices or beliefs around the world that
are considered universal which are accepted by all rational being. In such a
case, the only thing that human can do is to inventory those beliefs or values
and make them as common guide for human behavior in dealing with each other.
Global business ethics
would not be a fabrication of pure human reflection if not based on the concept
of universal morality which is based on the natural law. Global business ethics is an important agenda
that need to be forwarded in the globalized world. People doing business in the
global village need common values or beliefs as standards of behavior in doing
business. This is to say that there must be common ethical values to be adopted
by all people around the globe in conducting business.
The purpose of this paper
is to find the common ground for global business ethics, a universal business
ethics. To achieve such purpose the writer reviewed several books on ethics,
business ethics and globalization. The ideas presented are purely literature
review.
Understanding
Globalization
Globalization is a term
used to describe the changes in societies and the world economy as a result of
open borders and increased cross border trade, investment and cultural
exchange. Naturally such trend will interconnect the world and create a global
mass culture and form a one village which is a global village or global
community. This is facilitated by technology. Because of the technology, the
countries that are far from each other become closer. Transportation and
telecommunication brings the world into one village. Social media create the
world into one community and speak one language: English. It is not farfetched
to create one culture, one mind, one attitude, one values and one behavior. As
Luke Martel (2010) said that culture has heavily shaped globalization and
globalization has a lot to do with transnationalisation and intermingling of
cultures and local cultures responses to global cultures. But the fear here is
whose culture will be dominant? Because of such fear, there is a hesitance from
the local people to welcome the entry of other people or business into their
territory. But whether we accept or not, a country cannot be remained isolated
but it has to open itself if it wants to join the rest of the world. Some join
with hesitation because they are not prepared but some are happy because they
are prepared. Therefore, our views on globalization should not focus only on
economic globalization but also cultural globalization.
The fear of
globalization is apparent. Why? Because it structured by power, inequality and
conflict. As Luke Martel (2010) pointed out that some are agents in
globalizations more than others, particularly those who are not prepared and
some are more integrated and others are excluded. Some are more influential or
more dominant than others which may be considered as not global. Neoliberalism
imposed on parts of the world by the West leading to negative consequences. Or
American imperialism played out through the media, exploitive multinational corporations
or military power, etc. However, despite of those fears, it cannot be denied
that globalization has some positive news. The globalization can spread the
wealth, equalizing opportunity for all, bringing an intermingling of cultures
in a new cosmopolitan and the generalization of positive values, universal moral
values and universal human rights. This is what the writer wants to achieve and
emphasize in this writing. Achieving these objectives will definitely harmonize
the world and form a global village as a global community.
Globalization is not
just a natural process of development but it is a premeditated design by the
industrial world to expand the market of their product. It is believed that the
need or demand of one country cannot be supplied by one country alone but other
countries can supply the need of other countries. This situation creates
interdependency among countries. As a consequence of such interdependency,
organizations like WTO, GATT, AFTA, etc are created. WTO would talk about what
things or product one country can supply to another country. Negotiations are
done between countries and trade agreements are made. Quotas in terms of number
of products to enter a certain country are determined during the negotiations. Besides
quotas, countries also decide about the tariff on the product or service enters
a certain country whether lower tariff or no tariff at all. In this case
countries can have a common agreement on tariff which is called GATT (General
Agreement on Trade and Tariff). In Asia, countries made agreement which is
called AFTA (Asian Free Trade Association). Countries that are joining AFTA agree
to eliminate tariff and free flow of goods within member countries.
Through the help of the
Breton Woods institution such as IMF, World Bank and the international
organizations such GATT, WTO the globalization is spreading faster and faster.
In the post World War II environment, fostered by international economic
institutions and rebuilding programs, international trade and investment
dramatically expanded. By the 1970s, the effect of the flow of trade and
investments became increasingly visible, both in terms of benefits and the
disruptive effect (New World Encyclopedia). People could see different products
in the market coming from different countries. The products that was only
present in the imagination, now it is all in the market.
Following the concept,
we apparently have no doubts about the economic benefits of globalization. It
apparently makes life easy and easier becoming richer. However, we should not
be that innocent and naive to swallow everything about globalization. It is
just like a cake, which looks attractive and inviting but deep inside it
contains sugar that damage your health if you are not careful. By theory,
globalization should benefit all people because it can produce greater overall
economic value. It means that all should receive equal benefit. However, not
all are participants in the globalization are agents, some are agents or player
and others are viewers. Now, how can economic value are shared equally? Within
such powerless situation, the spectators are only relying on people who
dominate the market to embody the virtue of sacrificing themselves to serve the
higher purpose of the good of all. It is a hope and that’s must be the ultimate
goal of globalization. Not fulfilling such aim would mean resistance to
globalization.
The unequal share of
economic output of globalization creates a fear or suspicions from those who
are not market player. The feeling toward the market player is the same like a
feeling toward colonialism. Developing countries feel that globalization is a
form of new colonizations, expansion of imperialism. Such perception is
nothing new. Hannah Arendt (1950) as cited Keladu (2014) argued that expansion
as a permanent and supreme aim of politics is the central political idea of
imperialism. The imperial
expansion was driven by the social and economic interests. Economics becomes the motive of the states to expand their political power. In
so doing, the states concern more with accumulating
wealth than with the well-being of citizens. This phenomenon is known as the colonization of the political, in which the state turns away from its
responsibility to the public matters and submits itself into the forces or
imperatives of the social.
This
is the common perception of developing countries about globalization and this
fear is addressed to the G 8 countries representing the colonizers. Such kind
of fear is being reinforced by the arrogance of multinational corporations that
seem to trample local values and local economies. The Western, secular value
system of the major economic actors is seen as neo-colonial affront to people
with non-western religious and cultural values. How can they be blocked and
temper their greed?
Thanks to World
Commission on the Social Dimension of Globalization (2004). The members of this
Commission came from different countries and they formulated the purpose of
globalization. The commission has redirected the noble purpose of globalization
which is globalization for people. The Commission emphasized that globalization
must be fair and creating opportunities for all. No one should be excluded and
each one or country is a team player. At least this can temper the greed of
powerful industries in the world not to squeeze everything, such as natural
resources from developing world only for themselves and nothing left for local
people.
The member of
the Commission said has established guidelines to be followed by all countries
that are entering the global market and these guidelines are drawn based on
universally shared values such as respect for human rights, individual dignity,
one that is fair, inclusive, provide opportunities for all and tangible
benefits for all countries and people. The document further emphasizes that
globalization must be fair for all, specifically respecting for the rights,
cultural identity and autonomy, decent work, gender equality, empowering local
communities, protecting environment, fair rules, recognizing the differences
among nations, sharing responsibility in helping countries that are excluded
from globalization, greater accountability to people and deeper partnership
with international organizations, governments, parliaments, labor, civil
society and many others.
Descriptive
and Normative theory of Ethics
Descriptive Ethics
Descriptive
ethics concern the factual description and explanation of moral behavior. It is
a non-normative approach, in the sense that judgments or decisions are made
based on the situation or context when the decision is made, not just applying
the accepted rules to the situation as recommended by normative theory (Hasnas,
1998, Graaf, 2006). As Parker (1998)
argued that descriptive ethics in current business ethics is often centered on
concepts like choice and the moment of decision making is made. The conscious decision
is to some the end-point of business ethics, because it is, as Parker (1998)
writes, the moment where judgments are translated into some kind of practice.
That is the point where ethics can determine behavior. Many scholars who
believe strongly in using one of the classic moral theories within business
ethics would focus on managers and how they should make individual choices.
Implicitly it is assumed that the conscious decisions of managers determine
what actions organizations undertake.
Conscious
decision involves analysis of problem at hand before making a decision. It
means that there are no available rules or standard in place to be taken
immediately to be followed in making decision but the one who makes the
decision has to analyze the problem first before choice action is made. Thus
the judgment on a certain act whether is good or bad, depending on the result
of the investigation. Consequently, judgment to a certain issue may not be the
same everywhere. Stealing may not be considered bad after all depending on the
findings and also depending on how the culture says on such issue.
Descriptive
theory of ethics would lead to ethical relativism. In general, the term
‘relativism’ refers to many different ideas. For example, in anthropology, it
sometimes connotes, among other things, the rather uncontroversial notion that
anthropologists should strive to be impartial and unprejudiced in their
empirical inquires. In moral philosophy ‘relativism’ is usually taken to
suggest an empirical fact. As a matter of empirical fact, there are deep and
widespread moral disagreements across different societies and these
disagreements are much more significant than whatever agreements there may be (Stanford
Encyclopedia of Philosophy, 2014). The truth or falsity of moral judgments, or
their justification, is not absolute or universal, but is relative to the
traditions, convictions, or practices of a group of persons.
Following such
argument would indicate that moral relativist says that there is no absolute
morality that is applied to all people. Morality depends on the culture,
society, situation and even individual judgment. What cultures says it is good,
and then it is good. In this case, morality is different from one culture to
another culture, society to society and even from one individual to another
individual person. No one cultures or individual person or institution dictates
what is good and what is bad, what is right and what is wrong. Each culture,
each society and individual persons possess the truth and the knowledge of what
is good and bad, what is right and what is wrong (Abun, 2010).
Relying on such
theory, definitely decisions are made based on the analysis of the situation or
problem and what the culture says about such situation or problem related to
its morality. Beside the culture, even individual person can have their own
assessment to the situation or problem and can make their own judgment to its
morality. It becomes complicated because not everyone is holding on the same
values. In this case morality is not to be applied the same to anyone and everywhere.
Each culture or society or group, each one will have different norms or
standards of what is good and bad. Imagine living in such a kind of situation.
Take an example
of a philosopher who is talking about individual morality. David Hume (1983)
argued that morality comes from the individual impressions which are our
feelings of approval or disapproval and are caused, according to Hume, by our
ability to sympathize. Sympathy is a natural propensity to share the
feelings of other human beings. This sympathetic faculty is the source of moral
impressions and consists in a psychological mechanism whereby one person
experiences the sentiments of another through an act of the imagination. Moral
impressions, the product of sympathy, are sentiments with their own, uniquely
identifiable phenomenological qualities, distinguishable from other feelings of
pleasure or displeasure. Definitely impression is different from one person to
another person and thus judgment of what is good and bad would also be
different from one person to another person.
Following the
argument of moral relativism, it would suggest that business transactions may
not be the same everywhere. Each country should have their own moral standards
to be applied in business transactions. No one culture or individual or
business group would dictate other group or individual from other places to
follow their practices. Consequently conflicts, misunderstanding, come in
because each group or individual person would insist their own practices as the
best to be followed.
Normative Ethics
Normative ethics
intends to find out which actions are right and wrong, or which character
traits are good and bad. Normative ethics is normative in that they have either
moral principles as standards of right action or virtues as standards of good
character in terms of which right action can be known eventually (New World Encyclopedia).
Under normative ethics we discuss deontological ethics which talks about rules
on standard of behaviors and virtue ethics which talks about virtues that
should be possessed by a human. If a man act according to those virtues, then
he/she is called a virtuous man/woman or moral or immoral.
Thus normative
ethics would suggest that life must follow certain rules. It tells us how
things should be in respect to some issues. It attempts to provide a general
theory that tells us how we ought to live. It does not attempt to tell us what
moral properties are, and it does not attempt to tell us what specific things
have those properties. Normative ethics just seeks to tell us how we can find
out what things have what moral properties, to provide a framework for ethics. In the normative ethics, there are three
categories of ethics such as virtue ethics, deontology and consequentialism.
Virtue ethics concentrates on the character of the person such as courage,
honesty, compassion, temperance, etc. A person should possess those characters.
A person who possesses such virtues would be considered virtuous person. An act
that is against the character of a person is considered bad. Thus virtue ethics
would tell us that we should always act in ways that manifest our virtues. Virtue ethicist tell us that it is the agent’s character traits and motives (i.e.,
whether the virtuous person would do act A) that makes the action
morally permissible or not. While deontology would concentrates on the act. It
states that there are certain acts that are intrinsically good and bad which is
good and bad in themselves. Example; killing is considered bad in itself, no
matter whatever reason why the person is killing. Stealing is considered bad in
itself, even though the person was stealing because he would like to survive.
Committing fraud is bad in itself no matter whatever reason behind the fraud.
Finally consequentialism focuses on the consequence of the act.
Consequentialist holds that we ought always to act in the way that brings about
the best consequences. It doesn’t matter what those acts are; the end justifies
the means. All that matters for ethics is making the world a better place
(Stanford Encyclopedia of Philosophy, 2006).
Those three
normative ethics are the norms of our life, the principles or rules on how we
should live our life, how we should act. These norms would tell us that humans
must possess virtues and they should act based on those virtues. When they act,
they should into considerations why they should act, their intention and the
consequence of their act. Human should always act as a virtuous person, with
good intention and for the benefit of great majority. Never do things for self
interest.
One well-known
philosopher of the normative ethics is Emmanuel Kant. Immanuel Kant’s
well-known proposition is categorical imperative (CI). It is a deontological
ethical theory, which means it is based on the idea that there are certain
objective ethical rules in the world to be followed. It is our duty to follow,
to implement, whether we like it or not. It is not because it is the right
thing to do and you want to do it but it is our duty to do it. Helping the sick
is our moral duty to do. If we do not help the sick, then it is bad,
immoral. “Deontology” comes from the Greek word
“deon” meaning duty – in other words, deontologists believe we have a duty to
act in certain ways, in accordance with moral laws capable of reasoning in the
same manner and on the same level. One of the primary points of Kantian
ethics is a respect for person which is basically states that we must never treat another human being as a
means to an end – this idea lies at the core of Kant’s ethical thinking
(Stanford Encyclopedia of Philosophy).
In line with his
categorical imperative (CI), he argues that we can only do or act to a certain
problem if we allow other people also to act or do under the same situation or
circumstance which is called maxims. When we are hungry and we find out that
there was no choice to survive except to steal bread from the store of the
neighbor. This action could be considered moral if we allow other people too to
steal under the same circumstance. Next is that, we imagine the situation in
which all people are hungry and steal, and then imagine the situation where all
people are stealing. Then, imagine too, if other persons steal our food when
they are hungry, would we accept it? If the answer to those questions are no,
then we should never do such action despite of the consequence of that act. If
the answer is yes, then we should do it despite of the consequence.
Thus, through
such argument Kant believes that there are acts that are good and bad in
themselves and we have a duty to obey, to follow either to do it or to avoid it
despite of the consequence. We have no choice but to do it. Kant believes that
all rational people have the capability of knowing what is good and bad and
they have a duty to follow. Killing is bad and Kant believes all rational
people everywhere know that killing is bad and thus they have to avoid it, even
though they kill for self defense. When they kill for self defense, it is still
considered bad.
Beside Kant, in line with deontological
argument, John Stuart Mill presented utilitarianism as a guide for an action.
It is also called Utility, or the Greatest Happiness Principle. Utilitarianism
holds that actions are right in proportion as they tend to promote happiness,
wrong as they tend to produce the reverse of happiness. By happiness is
intended pleasure, and the absence of pain; by unhappiness, pain, and the privation
of pleasure. But the question remains to be asked: what things it includes in the ideas of pain
and pleasure; and to what extent this is left an open question. But these
supplementary explanations do not affect the theory of life on which this theory
of morality is grounded- namely, that pleasure, and freedom from pain, are the
only things desirable as ends; and that all desirable things are desirable
either for the pleasure inherent in themselves, or as means to the promotion of
pleasure and the prevention of pain (Mill, 1863).
Drawing idea
from such argument, we are left clueless when we try to understand what he
means with the Greatest Happiness Principle. To understand the Greatest
Happiness Principle of Stuart Mill, it is important to understand Jeremy
Bentham's famous formulation of utilitarianism which is known as the
"greatest-happiness principle". John Stuart Mill was influenced by
Jeremy Bentham. Now, what Jeremy Bentham meant by Greatest Happiness Principle?
Jeremy Bentham argued that one must always act so as to produce the greatest
aggregate happiness among all sentient beings, within reason. It means that the
Greatest Happiness of majority or collectiveness, not only individual
happiness. Pursuing one's own happiness at the expense of social happiness
would not be moral under this framework. Both Mill and Bentham have differences
in terms of what kind of happiness they meant. Mill argued that it must be
higher happiness or pleasure which is intellectual and moral happiness or pleasure,
while Bentham treat all kind of pleasure equal. Mill argued that intellectual
and moral pleasures (higher pleasures) are superior to more physical forms of
pleasure (lower pleasures).
Following the
line of argument of Immanuel Kant and John Stuart Mill we have the idea that
there are actions that inherently good and bad and there is no other way of
turning them into good or bad. Example: killing is inherently bad and there is
no other way to turn killing into a good act. If someone is killing someone
else, it is bad and he should be punished. Fraud is inherently bad and there is
no way of making fraud good. Thus the rule or the norms along this line is not
to kill and not to commit fraud. In line with the utilitarian argument, we are
told about the consequences of our actions if our actions can bring happiness
to the greater majority of people. We are allowed only to act if we know for
certain that the act is for the greater happiness of the greater majority.
Normative Theories of Business Ethics
The word
normative is an adjective which comes from "norm." In a philosophical
context, and the word norm usually means standard, or rule, or principle. It
means that line of reasoning can be assessed against these rules and judged
correct or incorrect. We have mentioned the categorical imperative of Kant and
the Greatest Happiness Principle of Utilitarianism as normative theories of
ethics. The idea of normative theories of Business Ethics is in line with the
normative theory of ethics. There are
three normative theories of business ethics which are stockholder theory, stakeholder
theory and social contract theory. Decisions that the business
man/woman makes should follow the line of reasoning presented by normative
theories of ethics.
Stockholder Theory
To understand the stockholder theory of business
ethics, we need to understand the nature of business. Business is organized by a group of people or
stockholders. They form capital to put up a business and entrust it to the managers
who manage the business. The main concern of a manager is to realize the
objective of the stockholders. The managers are tasked to manage the business
as mandated by the stockholders or investors. The managers have duty not to
divert business resources away from the purpose authorized by the stockholders
and only to follow the directions of the stockholders.
Stockholders advance money to the business managers
on the condition that it will be used in accordance with their wishes. If the
managers accept the money on this condition and then proceed to spend it to
accomplish social goals not authorized by the stockholders, they would be
violating their agreement and spending other people’s money for others without
their consent which is wrong. This would be considered as treating others as
means to his/her own end which is violating the Kantian Principle of respect
for persons (Hasnas, 1998).
Commonly the
objectives of the stockholder are financial returns on their investment.
Managers’ duty is to maximize profit for the owner. Such idea is drawn from the
idea of Milton Friedman (1962). Milton
Friedman argued that that there is one and only one social responsibility – to
use its resources and engage in activities designed to increase its profit
so long as it stays within the rule of the game which is to say, engages in
open and free competition, without deception and fraud. From such statement, it is clear that Milton
Friedman did not rule out that the only purpose of business is profit at all
cost but there is a limit in making profit: follow the rules of engagement
and no deception and fraud. It does not instruct managers to do
anything at all cost to increase the profitability of the business. It allows manager to pursue profit through
legal and non-deceptive means and no fraud.
Analyzing the statement of Milton Friedman, we get
the idea that the main purpose of business is making money but not for common
welfare of people that are affected by the business. Following legal
requirements and ethical standards are only means to achieve profit. However,
despite of that particular focus, from Milton Friedman, we still get the norms
on how to do business transactions which is to follow the law and ethical
standards. The line of thinking of Milton Friedman is somehow followed by Adam
Smith. In his invisible hand theory, he argued that the purpose of business is
indirectly to promote the general interest. For each individual by pursuing his
own interest he frequently promotes that of society more effectually than when
he really intends to promote it. He further argued that it is both unnecessary
and counterproductive to exhort business persons to act directly to promote
common good. Thus from such argument, we can conclude that there is no
justification for claiming that business persons have any social
responsibilities other than legally and
honestly maximize profits of the firm. However, indirectly from pursuing
profit, it will be also improving the common welfare of the society in return
(Hasnas, 1998). Following the argument we can also say that there is nothing
wrong to pursue one’s interest because by pursuing it, he/she is pursuing
common interest of the public indirectly. When a capitalist establish a
business, he/she employees many people and these people can earn income and
improve their life.
Stockholders
theory is derived from both argument, Friedman and Smith. Despite the heavy
criticism on the stockholders theory, we learn the ethical norms of doing
business which are pursuing profit within legal boundaries and ethical
principles. Next is drawn from the idea of Smith that the purpose of business
is indirectly to promote the public welfare. By pursuing his/her own interest,
she/he also indirectly promotes public interest. Public interest is the
consequence of private interest. Following such argument, it means that there
should be no business purely for self interest. Thus, free market is not
necessarily bad because it also promotes public interest according to their
argument.
Stakeholder Theory
As against the stockholder theory which focused on
the stockholders’ interest, stakeholder theory tries to balance the interest of
sides, the stockholders and the stakeholders. Stakeholder theory holds that
effective management requires the balanced consideration of and attention to
the legitimate interest of all stakeholders defined as anyone who has a stake
in or claims on the firm. Stake holders may include stockholders, customers,
employees, management, and local community who can affect and be affected by
the business. It asserts that a business financial success can be best achieved
by giving the interest of the business’ stockholders, customers, employees,
suppliers, management and local community proper consideration and adopting
policies which produce the optimal balance among them ( Goodpaster, 1991,
).
Stakeholder theory argues that regardless of whether
stakeholder management leads to improve financial performance, managers should
manage the business for the benefits of all stakeholders. It views the business
not as a mechanism for increasing the stockholder’s financial returns but as a
vehicle for coordinating stakeholders interest
and sees management as having a balanced relationship not only to the
stockholders but to all stakeholders.
Management must give equal attention to the interest of all stakeholders
(Hasnas, 1998). Thus, in its normative
form, the stakeholder theory does imply that business have true social
responsibility.
Under stakeholder theory, management’s function in
business is not to maximize the firm’s financial returns of the investor or stockholders
but to ensure its survival by balancing the conflicting claims of multiple
stakeholders. This can be done by acting
in accordance with two principles of stakeholder management. First
is the principle of corporate legitimacy. It states that the
corporation should be managed for the benefits of its stakeholders. The right
of these groups must be ensured and the group must participate in decisions
that can affect them. Second,
the stakeholder fiduciary principle which states that management bears
fiduciary relationship to stakeholders and to the corporation as an abstract
entity. It must act in the
interest of stakeholders and in the interest of corporation to ensure the
survival of the firm.
Management’s obligation to the stakeholders is
derived from the normative ethic theory of Immanuel Kant’s principle on respect
for persons. Kant argued that every human being is entitled to be treated not
merely as a means to the achievement of others but as a being valuable in his
or he own right, that each person is entitled to be respected as an end in
himself or herself. Going along such theory, it is clear that management should
treat their stakeholders with respect and should not use their stakeholders for
the interest of the stockholders. Thus, it is therefore, stakeholders, in order
not to be violated, should be represented in the decision making process
(Freeman & Reed, 1983)
Social
Contract Theory
Under social contract theory, the businesses are
obligated ethically to enhance the welfare of society by satisfying consumer
and employee interest without violating any of the general canons of justice
(Hasnas, 1998). Social contract is an
agreement between society and an artificial entity in which society recognizes
the existence of the entity on the condition that it serves the interest of
society in certain specified ways. Hobbes (1588-1679), Jean-Jacques Rousseau (1712-1778 ), John Locke (1634 – 1704) imagined what
life would be like in the absence of the government: in the state of nature and
ask what conditions would have to be met for citizens to agree to form one. The
obligation of the government is derived from the terms of this agreement (http://www.lawteacher.net/contract-law/essays/the-social-contract-theories-of-thomas-hobbes-and-john-locke.php,).
Following the line of thought of the argument of
social contract, let us imagine the
situation in which there are no complex business organizations but only state
of individual production, and proceeds by asking what conditions would have to
be met for the members of the society to agree to allow businesses to be
formed. In the contract, there is always terms and conditions, and there is
always giving and taking. Thus the ethical obligations of businesses toward the
members of society are derived from the terms of this agreement. Thus the
social contract theory posits an implicit contract between members of society
and businesses in which members of society grant businesses the right to exist
in return for specified benefits.
In granting businesses the right to exist, the
members of the society give them legal recognition as a single agent and
authorize them to own and use land and natural resources and to hire members of
society as employees. Besides, what demand would the society require from the
business in return as benefits from authorizing the existence of the
businesses? The business would be required to enhance the welfare of society,
minimizing the disadvantages and remaining within the bound of the general
canons of justice (Hasnas, 1998).
Under social contract, there are terms and
conditions for the contract to binding as specified by Hasnas (1998) and these
are:
- The social welfare of the members of society.
The social welfare term recognizes that the member
of society will be willing to authorize the existence of a business only if
they gain by doing so. There are two benefits that member of the society stand
to gain from the businesses: as consumers and employees. As
consumers, first, people should gain benefits from
businesses by providing an increased economic efficiency by maximizing the
advantage of specialization, improving decision making resources and increasing
the capacity to use and acquire expensive technology and resources. Second,
business provides stable levels of output and channels of distribution. Third, provide increased liability resources
from which to compensate injured consumers.
As Employees,
people can benefit from the existence of business by receiving increased income
potential, diffused personal legal liability for harmful errors, and the
ability to participate in income allocation schemes (Donaldson, 1995).
People’s interest as consumers and employees can be
harmed such as polluted environment, depleted natural resources and alienated
from the product of their labor, suffer from the lack of control over working
conditions and dehumanizing working conditions.
How to Prevent and protect consumers and employees?
The social welfare terms requires
that the businesses act: first, to benefit consumers by
increasing economic efficiency, stabilizing levels of output and channel of
distribution and increasing liability resources (in case of disasters as a
result of operation, can the company repair the damage?) .
Second,
to benefit employees by increasing their income potential, diffusing their
personal liability and facilitating their income allocation.
Third,
is minimizing pollution and depletion of natural resources, the destruction of
personal accountability, misuse of political power as well as workers
alienation, lack of control over working conditions and dehumanization.
b b. The
justice terms.
The justice term recognizes that the members of
society will be willing to authorize the existence of businesses only if
businesses agree to remain within the bounds of the general canons and justice
such as avoid fraud and deception, show respect for workers, avoid practices
that systematically worsens the situation of a given group in society.
Thus, the social contract theory holds that managers
are ethically obligated to abide by both the social welfare and justice terms
of the social contract. Clearly, when fully specified, these terms impose
significant social responsibilities on the managers of business
enterprise.
Finding
Common Ground for Global Business ethics, a Universal Business Ethics
The writer is a
believer in the moral universality of Immanuel Kant. The writer became
convinced of universal moral values when he is reflecting on the conflicts that
are happenings right now. Mostly of conflicts are caused by cultural values differences
such as religion and part of it is moral values differences. Those values
affect the mind, perception, attitude and behavior of each person. It affects
the relationship in everyday life and in business transactions. It creates
division, disharmony. If the world is emerging becoming one village, the
researcher could not imagine a village inhabited by people who are living
different values. Within such scenario, possible conflicts can happen every now
and then.
Common moral values
would be translated into common business ethics which can harmonize business
transactions all over the world. It is along this concern; the Commission on
Social Dimension of Globalization (2004) proposed a stronger ethical framework.
The Commission emphasized that globalization must be based on universally
shared values and respect for human rights. Such recommendation came as a
result of observation that globalization has been developed in ethical vacuum
where market success and failure have tended to become the ultimate standard of
behavior and where the attitude, “winners take all’ becomes standard of
behavior and it weakens the fabric of communities and societies. The
recommendation of the Commission on Social Dimension of Globalization of UN is
just what universal morality as presented by Immanuel Kant.
Winners take all
attitude is the attitude of capitalists in which they emphasize the value of
competition. In the competition, only the strongest survive and the weakest has
to leave the business. In this case, money is the game of the day and rules the
market. If the market continues to operate this way, then the old problem such
as the gap between the poor countries and rich countries, poor people and rich
people will never be solved. Rich countries continue to dominate their presence
in the market, they dictate the market, dictate the laws, and dictate the
government of developing countries to serve their interest. And IMF and World
Bank as their instrument to colonize the developing countries continue to
pressure the poor countries to change their economic policies according to what
the rich countries want. The world would never be harmonized. Thus globalization
in the UN’s understanding which is creating opportunities for all failed
completely is just what universal business ethics and universal morality are
trying to propose. Lingering fear of new colonization through the presence
of multinational companies continues to dominate the mind of poor countries and
it can lead to resistance of the presence of multinational companies.
Removing such
fear, WTO at DOHA round negotiating process tried to generate some positive
developments for the trading system, one of which is the focus on a better
understanding of the linkages between trade and poverty and the need for
complementary measures to assist the poorest countries to benefit from global
trade opportunities, including “aid for trade.” But this positive aspect of the
process is greatly outweighed by the negatives. It is still not known whether
the Doha Round will eventually be brought to closure, but whatever the outcome
deep concerns are warranted about the consequences of the Doha Round for the
future of the multilateral trading system (Zedillo, 2006). Lingering fears seem
to be real despites the talk on how to help other countries because the
powerful countries continue to insist their agenda and pushing the poor
countries to accept their proposal, while these countries are not open to the
proposal of poor countries. Issue on protectionism remains unresolved at one
side and issue on open trade is at another side. Rich countries and poor
countries enter into a battle zone standoff. Suspicions from both sides prevent
to come up with common agreement. Why such standoff happened? The rich
countries push for another talk but the poor countries are hesitant to welcome
the proposal. It was because developed countries had failed to deliver on commitments
they had made under the previous Uruguay
Round or that
certain WTO provisions had, in practice, proved to be counterproductive. Then
there were those, like the European Union, that agreed to the round but in the
end would do the utmost to resist a firm commitment to undertake serious
reforms in the key area of agriculture.
The bottom line
of these failures is because of self-interest. The principle of fairness,
justice, equality is not the norms in the negotiations but is just pure self
interest. Advancing self interest agenda would always bring division, not
harmony. It is on this concern; there is a need to reaffirm basic ethical
values in public life and business transactions. There is a need to call for
ethical globalization. Cohesive societies should build on shared values which
create a moral framework for private and public action. Up to this point,
globalization has not created a global society based on shared value but it is
pure interactions between people without holding a common ethical values. Each
one is using their own moral values in the negotiations and business practices.
The writer has
been arguing that holding on ethical relativism would not help to harmonize the
society. Ethical relativism is a result of descriptive theory of ethics. The
writer believes that true harmony can only come after common understanding has
been established and both parties live the same values or culture. Ethical
relativism could not create such dream because the relativists believe that
there are no such things as a common ethical values or moral norms. For them
moral norms are different from one place to another, one country to another and
even among individuals. In other words, morality and truth are relative (Abun,
2010).
Moral
universalism could help solving misunderstanding. Universalists believe that
there are moral norms or values are universal. It is called universal because
all adult rational people around the globe are accepting those values as good.
Though those values are not written in a certain book as handbook but there are
written in the mind of all people since their birth. In the sense that even
they are not taught about those values, they already know that those values are
good and bad. This is what we call natural law, the law of nature (Abun, 2010).
Among the
normative theory ethics, the writer endorses the theory of Immanuel Kant of
Categorical Imperative. In the Categorical Imperative, there are acts that are
already good and bad in themselves and these acts are known as good and bad
everywhere. They are universal. And thus it is human duty to obey and implement
or to avoid them. If human beings fail to do it, they could be judged as
immoral and if they fail to avoid it, then they are immoral. Thus the Maxim
principle should be used in determining the rightness and wrongness of the
actions. In this case a person can only act if that person wills that other
people everywhere can do the same under the same situation (Stanford
Encyclopedia of Philosophy, 20014)
The same case is
with business ethics. There are acts that must be commonly accepted as standard
of behavior or practices around the globe. Stealing, frauds, deception,
unfairness, are several examples of commonly accepted universal values and they
are called bad values and they should not be practiced. In this case, following
Kant’s argument in the categorical Imperative, all agents in the transaction
must avoid it no matter whatever the consequences of not doing it. There are
also several examples of moral values
that are accepted as good everywhere such as helping others, those who are in
need or sick, justice, fairness, love, respect for dignity, privacy, and many
more and these values must be practiced no matter whatever the consequences of
doing it ( Stanford Encyclopedia of Philosophy, 2004).
Conclusion
Following the
line of argument that we have presented, starting from globalization, and then
theory of ethics, normative theory of business ethics, we come to a point that
the world need common moral values to live. The world is one village and one
village must be operated by the common moral values in order to create a
harmony. Those values are guiding principles in human conduct in whatever they
do, either in business or other activities that involve another party.
However, the
difficulty is to determine those values, as common moral values to be applied
in business transaction. Who are assigned to determine those values and write
and disseminate those values to all people around the globe? It might be a tough job but it can be done.
The world has UN and WTO and it must be their duty to harmonize the world by
establishing common or universal moral values, universal business ethics as a
guide in human conduct.
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