DQ - Ethics in Leadership
Lesson Five: Corporate Ethics in the 21st Century
Lesson Four discussed some of the most prominent behavioral theories concerning leadership as well as their ethical implications. Lesson Six will introduce some modern concepts of ethics for businesses, including socially responsible investing, corporate social responsibility, and environmentalism.
With changes in public perception over time, the expectations of businesses operating within American society has changed considerably throughout the history of our nation. The classical view on the ethical role of businesses was predicated on the principle of profit maximization: the idea that the only purpose of a business is to maximize the amount of money generated for its owners. Furthermore, anything that runs counter to or distracts from this prerogative is antithetical to the essence of a business. The obligation to obey the law is implied based on the fact that businesses which violate laws typically suffer losses in the form of fines or even forced closure; so compliance with the law is a behavior that is compatible with, and in fact necessary to, the principle of profit maximization.
However, things have changed. Businesses have grown to sizes and degrees of influence that present substantial threats to the welfare of communities, families, the natural environment, etc. and society no longer sees businesses as being responsible only to shareholders (McWilliams & Siegel, 2001). This lesson will discuss the ways in which changes in public perception have reshaped the ethical obligations of businesses in the 21st century.
Socially Responsible Investing (SRI)
One of the biggest ways in which public perception has changed business and industry is through socially responsible investment (SRI) funds. In the business startup world, some investors with strong ethical compasses have chosen to restrict the types of businesses in which they are willing to invest with their capital (Sparkes & Cowton, 2004). Some of these restricted categories are more or less unanimously seen as immoral industries. Others, however, are more controversial.
Alcohol: Obviously not all people abuse alcohol, and not all people view producers of alcohol as immoral. However, many SRI funds exclude alcohol companies because of the tragic effects that alcohol has in contexts such as drunk driving, etc.
Tobacco: Virtually the same arguments that apply to alcohol apply to tobacco, except that tobacco is vilified for its unmistakable role in cancers, emphysema, and early mortality. Thus, SRI funds typically avoid tobacco companies as well.
Gambling: Like alcohol, not all people have gambling problems or see any ethical issue with the gambling industry. However, we do know that gambling is another addictive behavior, and for this reason casinos are typically excluded from SRI funds.
Weapons: Firearms are a heated subject with all of the current political debate surrounding Second Amendment rights and the best ways to address gun violence in America. However, because of the enormously large rates of violent gun-related crime in the United States (compared to other civilized nations), weapons are a non-sequitur for SRI funds.
Nuclear Power: This is perhaps the most controversial category of all. The intentions of nuclear energy companies don’t inevitably entail harm to anyone, and in fact these companies only seek to provide sustainable, environmentally-friendly power to the societies they serve. However, given the tremendous risk that nuclear power plants carry---realized in places such as Chernobyl and Fukushima---SRI funds have generally blacklisted these companies.
Illegalities and Ill-Repute: Above and beyond those categories already discussed, it goes without saying that any companies which are found guilty of illegal conduct such as collusion, price fixing, fraud, etc., or disreputable behavior such poor product safety, unfair labor practices, environmental pollution, etc. will be excluded from SRI fund eligibility, notwithstanding the industries in which they operate.
Evolution of Corporate Social Responsibility
Aside from business investors, businesses themselves have also seen an evolution of the expectations that societies have for their own conduct, and more recent views pressure businesses to consider more than just their shareholders in making decisions.
Classical View: As discussed supra, the historical view of businesses was that their only obligation was to make as much as much money as possible, pursuant to the principle of profit maximization. Arguments in favor of the classical view include that social responsibility dilutes a business’s purpose, that it is unreasonably expensive, and that businesses lack the skills and accountability to address societal concerns (Davis, 1973).
Modern View: The more modern view of businesses is that, because they benefit from the societies in which they operate, they have an affirmative obligation to avoid any behaviors which would degrade the quality of those communities or the people that comprise them. Arguments in favor of the modern view include the importance of public expectations, the benefit of long-term profits if businesses help to sustain the communities from which they profit, the public image value of businesses that act in socially responsible ways, and the fact that self-regulation of social maintenance would mitigate the need for burdensome governmental oversight.
There a variety of ways in which businesses may pursue a course of social responsibility. Philanthropy, donation of money or resources, volunteering, sponsorships for public benefit, and other strategies may be adopted. Additionally, a business may seek to measure its level of social responsibility by a number of different metrics. For example, a business might look to industry standards and try to meet or exceed the efforts of its competitors. Another way would be to look to public opinion and try to address the most urgent concerns of the community in a responsive fashion. Finally, a business might decide to be proactive, and seek out new and uncharted ways of contributing to societal welfare, blazing a trail and going above and beyond the scope of current precedent.
Environmentalism
In addition to social welfare, another subject that has been heavily on the radar in terms of business responsibility is environmental consciousness. Over 95% of scientists today agree that human activity and the burning of fossil fuels is affecting the global climate, and that these effects will be the biggest challenges of the new millennia. Public perception is slowly shifting away from the charlatans who denounced global warming as a hoax for years, and in the direction of reasoned assessment of our actual circumstances. With that in mind, there has been an increased pressure on businesses to do their part in conserving natural resources and reducing carbon footprint, in the interest of fighting back against this runaway greenhouse problem (Dummett, 2006). From this, several different positions in terms of commitment to environmentalism have emerged, ranging in their degree of sensitivity.
The Legal Approach: The legal approach is the least-sensitive environmental approach for businesses, and as the name implies, this is a paradigm under which business obey the laws pertaining to environmental preservation (e.g. the Clear Air Act, the Clean Water Act, EPA regulations, etc.) and nothing more.
Market Approach: The market approach is when businesses base their degree of environmental sensitivity on the level of concern of their customers. If a business’s client base has little regard for environmental concerns, then the business will follow suit. However, as a contrasting example, a significant portion of hotel guests have been found to be moderately concerned about man’s impact on the environment, and so many hotels are actively looking for ways to augment their environmental conservation programs in hopes of appeasing their markets (Wahba, 2008).
Stakeholder Approach: The stakeholder approach goes a step further than the market approach. In addition to considering the views of customers, businesses adopting the stakeholder approach will also look to the concern of other parties involved in their operations, including employees, suppliers, and the community at large.
Activist Approach: The final and most-sensitive environmental position is called the activist approach, and this is where businesses actively look for ways to conserve resources, reduce carbon emission, and improve the environment notwithstanding the views of stakeholders or impacts on the bottom line, but instead because it is the right thing to do.
Conclusion
In this lesson, we discussed some modern concepts of ethics for businesses, including socially responsible investing, corporate social responsibility, and environmentalism. In Lesson Six, we will discuss some of the types of power wielded by leaders, as well as the dichotomy between transactional and transformational leadership.
References
Davis, K. (1973). The case for and against business assumption of social responsibilities. Academy of Management Journal, 16(2), 312-322.
Dummett, K. (2006). Drivers for corporate environmental responsibility (CER).Environment, Development and Sustainability, 8(3), 375-389.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117-127.
Sparkes, R., & Cowton, C. J. (2004). The maturing of socially responsible investment: A review of the developing link with corporate social responsibility. Journal of Business Ethics, 52(1), 45-57.
Wahba, H. (2008). Does the market value corporate environmental responsibility? An empirical examination. Corporate Social Responsibility and Environmental Management, 15(2), 89-99.
