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Business Environment

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Title: Business Environment


1
Business Environment
  • Lecture 9 The Ethical Aspect of Business
    Environment
  • Milena Malinowska

2
Definitions
  • Leading business companies engaged into serious
    malpractice during the 1980s-90s as well as late
    2000s
  • After the 1970s the notion corporate social
    responsibility gained serious momentum, as
    governments, international organizations and
    societies raised their voices against corporate
    greed
  • CSR involves the adoption of best business
    practices that respect human rights, the
    environment, labor and product standards and
    anti-corruption
  • Can the business be ethical ?
  • http//www.youtube.com/watch?vGggyVO21hw8

3
Top business malpractice environmental disasters
and human rights violation (1980-90s)
  • Exxon Mobile oil spills in the Niger Delta
  • Union Carbide factory explosion in Bhopal
  • BP oil spills in Mexico Gulf
  • Texaco Ecuadorian Chernobyl
  • Caterpillar selling bulldozers to the Israeli
    army for Palestinian home demolition
  • Coca-Cola worlds most abusive and
    discriminatory company
  • Chevron owner of Texaco, devastating human
    rights violation in Burma
  • Dow Chemicals outrageous environment pollution
  • Ford Motors 10th largest world polluter

(Source http//www.globalexchange.org/corporateHR
violators)
4
Top business malpractice Financial fraud (2000s)
  • Enron Americas most innovative company over
    reported revenues to 100 billion. The company
    went bankrupt in 2001, which led to net loss for
    its shareholders amounting to 60 billion
  • Bernie Madoff sentenced to 150 years in jail
    for financial frauds amounting to 17 billion
  • Bank bail-out by governments UKs Northern Rock

5
The emergence of CR
  • Factors shaping the social role of business
  • Increasing need to regulate the performance of
    MNCs
  • IT used to control business more effectively
    (stringent rules on financial reporting and
    monitoring of activities in the 3rd world)
  • Legal standards on environment and human rights
    protection, health and safety at work
  • Awareness of society (increasing need to build
    good company image)
  • Growth of third sector (NGOs)

6
Aspects of CR
  • Corporate Responsibility is a concept whereby
    companies integrate social and environmental
    concerns in their business operations and in
    their interaction with their stakeholders on a
    voluntary basis (EU Commission, 2011)
  • It is the commitment of business to contribute
    to sustainable economic development by working
    with employees, their families, the local
    community and society at large to improve their
    lives in ways that are good for business and for
    development (WB, 2011)
  • The business is increasingly being expected to
    engage in activities that preserve the
    environment and human rights and to promote
    adequate corporate governance

7
(2) Aspects of CR
  • Corporate citizenship refers to managing the
    companys wider influence on society and the
    benefit of company and society (WetherlyOtter,
    2011)
  • Perceiving the business as a citizen, implies
    that it has moral obligations and civic
    responsibility to the other members of society
  • http//www.corporate-citizenship.com/what-we-do

8
(3) Aspects of CR
  • Business ethics is based upon the following
    principles
  • Ethical values of business
  • Application of values to business (codes of
    ethics)
  • Ethical policies (corporate governance)
  • Ethical theories deontological and utilitarian
  • The application of ethical norms to business
    behavior leads to socially acceptable practices
  • Adam Smith People of the same trade seldom meet
    together the conversation ends in a
    conspiracy against the public, or in some
    contrivance to raise prices (The Wealth of
    Nations, 1776)

9
Perspectives on CR
  • Friedman and the free-market view
  • What does it mean to say that business has
    responsibilities? Only people have
    responsibilities
  • (The Social Responsibility of Business is to
    Increase Its Profits
  • The New York Times Magazine, September 13, 1970)
  • The primary goal of business is profit (no moral
    obligation)
  • Social goals are governments obligation
  • Social / community projects entails economic
    costs for the business
  • Lower dividends and wages
  • Outside the scope of managers duties

(to the article http//www.colorado.edu/studentg
roups/libertarians/issues/friedman-soc-resp-busine
ss.html)
10
(2) Perspectives on CR
  • Stakeholder theory about CR
  • Stakeholder is any individual who affects or is
    affected by the business actions, decisions,
    policies and practices
  • Taking into account the complex interests of main
    stakeholder groups leads to effective CR
  • The four main areas Pyramid of CR by Archie
    Carroll

11
The nature of CR
  • Types of responsibility
  • Agency business values and their effect on the
    environment
  • Accountability to particular groups of
    stakeholders
  • Liability moral responsibility to the wider
    community
  • Motives for CR
  • Self-interest bad image might lead to loss of
    clients
  • Mutual interest business has both power and
    obligation solve problems it has/will create
  • Shared responsibility sense for the common
    good, based on dialogue

12
Steps to successful CR
  • CR should be applied to practical situations and
    problems. The comprehensive process includes
    several steps
  • Data gathering being informed about
    shareholders
  • Value clarification and management identifying
    and defending company values
  • Responsibility negotiating when the major
    stakeholder groups are indentified,
    responsibility should be negotiated and shared
  • Audit publishing social and environmental
    reports (in addition to financial ones)

13
UN Global Compact 10 Principles
  • Human rights
  • Principal 1 Businesses should support and
    respect the protection of internationally
    proclaimed human rights and
  • Principal 2 make sure that they are not
    complicit in human rights abuses.  
  • Labor
  • Principle 3 Businesses should uphold the freedom
    of association and the effective recognition of
    the right to collective bargaining
  • Principle 4 the elimination of all forms of
    forced and compulsory labor
  • Principle 5 the effective abolition of child
    labor and
  • Principle 6 the elimination of discrimination in
    respect of employment and occupation.   
  • Environment
  • Principle 7 Businesses should support a
    precautionary approach to environmental
    challenges
  • Principle 8 undertake initiatives to promote
    greater environmental responsibility and
  • Principle 9 encourage the development and
    diffusion of environmentally friendly
    technologies.   
  • Anti-corruption
  • Principle 10 Businesses should work against
    corruption in all its forms, including extortion
    and bribery. 

(Source http//www.unglobalcompact.org/AboutTheGC
/TheTenPrinciples/index.html)
14
OECD guidelines to MNCs
  • Recommendations (to the 42 member governments of
    OECD) for responsible business conduct
  • General policies (major should do)
  • Extensive recommendations on
  • Disclosure
  • Human rights
  • Employment and industrial relations
  • Environment
  • Combating bribery, bribe solicitation and
    extortion 
  • Consumer interests
  • Science and technology 
  • Competition 
  • Taxation  

(Source http//www.oecd.org/dataoecd/43/29/480043
23.pdf)
15
EU Commission
  • The EU Commission has history of extensive CSR
    development and strong encouragement for MS to
    adopt relevant national policies
  • EU strategy 2011-14 for CSR
  • Enhancing the visibility of CSR and disseminating
    good practices
  • Improving and tracking levels of trust in
    business
  • Improving self- and co-regulation processes
  • Enhancing market reward for CSR
  • Improving company disclosure of social and
    environmental information
  • Further integrating CSR into education, training
    and research
  • Emphasizing the importance of national and
    sub-national CSR policies
  • Better aligning European and global approaches to
    CSR

(Source EU Commission - A renewed EU strategy
2011-14 for CSR, 2011)
16
Examples
  • In 2007, 78 US top companies donated 3.8
    billion in cash to social initiatives
  • Wal-Mart Stores - 301 m
  • Bank of America - 211 m
  • Exxon Mobil - 173 m
  • Citigroup - 146 m
  • Johnson Johnson - 127 m

17
The BG context
  • In 2006, the UNGC and Bulgarian Charities Aid
    Foundation ran a survey on CSR in BG
  • 121 medium sized and big companies (100 employees
    or more) took part
  • only 7 had a separate department for community
    work (the foreign ones follow practices from
    Western headquarters)
  • overall CSR was not part of the long-tern company
    agenda (sporadic donations prevail)
  • Cooperation with NGOs is very low

18
The empirics
(Source CSR within the BG context, 2007)
19
(2) The empirics
(Source CSR within the BG context, 2007)
20
Consolidated democracy
  • Larry Diamonds explanation on developed
    democracy entails three developed and reinforcing
    arenas
  • If one of them fails to function properly,
    obstacles to democracy are conveyed

21
BG context explained
  • 2 out of 10 people were voluntary members in any
    kind of NGOs (2008)
  • 9 of the NGOs in BG are actually functioning
    (2008)
  • 75 of the state ministers and 90 of the mayors
    owned an NGO (2000-2007)
  • The legal framework does little to incorporate
    NGOs in national legislation
  • Since 2007 the EU has poured 24 million as aid
    to Bulgarian NGOs
  • Bulgarians usually perceive NGOs as business
    organizations, cleaning corrupt activities, or
    quasi-state structures, which have pointless
    existence

22
The EU impact
  • In 2003, President Parvanov officially launched
    the UN Global Compact in BG
  • It links together 120 companies that voluntarily
    apply the 10 principles
  • In 2010, the Association Global Compact Network
    Bulgaria was established by 20 leading companies
  • www.unglobalcompact.bg
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