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B368 Business Issues and Ethics

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Title: B368 Business Issues and Ethics


1
B368 Business Issues and Ethics
  • Group 7
  • Tutorial 3
  • C.S. Lai
  • Dec. 2012

2
Welcome! todays agenda
  • Review of last tutorial 20 mins.
  • Unit 4 Corporate issues and business ethics
  • Shareholders 60 mins.
  • Break 10 mins.
  • Employees 60 mins
  • TMAs 15 mins.
  • QA, Your Suggestions 15 mins.

3
Tutorial 2 - Summary 1
  • Business ethics is related to the social role of
    the corporation
  • Confining corporations to commercial activities
    too limited
  • Different perspectives and their relevance in
    European context
  • CSR
  • Stakeholder theory
  • Corporate accountability
  • Effects of globalization on role of corporation
  • Corporate citizenship is latest concept in the
    field

4
Tutorial 2 Summary 2
  • Discussed the various stages of and influences on
    ethical decision-making in business
  • Presented basic model of decision-making
  • Outlined individual and situational influences on
    ethical decision-making
  • Suggested that some individual factors such as
    cognitive moral development, nationality and
    personal integrity are clearly influential
  • Suggested that in terms of recognising ethical
    problems and actually doing something in response
    to them, it is situational factors that appear to
    be most influential

5
Traditional ethical theories
  • Generally offer a certain rule or principle which
    one can apply to any given situation
  • These theories generally can be differentiated
    into two groups

Motivation/ Principles
Action
Outcomes
Consequentialist Ethics
Non-consequentialist Ethics
Source Crane and Matten (2007)
6
Typical Perspective
7
Pluralistic Perspective
8
Framework for understanding ethical
decision-making
9
Stakeholder theory of the firm a network model
10
Overview
  • The nature of shareholder relations to the
    corporation
  • Analysis of the rights and the duties of
    shareholders
  • Specific ethical problems and dilemmas arising in
    the relation between companies and their
    shareholders
  • The ethical implications of globalisation on
    shareholder relations
  • The notion of shareholder democracy and the
    accountability of corporations to their
    shareholders and other stakeholders
  • The differences in shareholder roles and
    corporate governance in various parts of the
    world
  • Perspectives on how shareholders can influence
    corporations towards sustainability

11
Shareholders as stakeholders
  • Understanding corporate governance

12
Crucial problem separation of ownership and
control
  • Peculiarities of corporate ownership
  • Locus of control
  • Fragmented ownership
  • Divided functions and interests

13
Rights and duties in firm-shareholder relations
  • Rights of shareholders
  • The right to sell their stock
  • The right to vote in the general meeting
  • The right to certain information about the
    company
  • The right to sue the managers for (alleged)
    misconduct
  • Certain residual rights in case of the
    corporations liquidation
  • Duties of managers
  • Duty to act for the benefit of the company
  • Duty of care and skill
  • Duty of diligence

14
Corporate governance
  • Corporate governance describes the process by
    which shareholders seek to ensure that their
    corporation is run according to their intentions.
    It includes processes of goal definition,
    supervision, control, and sanctioning. In the
    narrow sense it includes shareholders and the
    management of a corporation as the main actors
    in a broader sense it includes all actors who
    contribute to the achievement of stakeholder
    goals inside and outside the corporation

15
Corporate governance a principal-agent relation
Principal Shareholder
Seeks profits, rising share price, etc.
Agent Manager
Seeks remuneration, power, esteem etc.
  • Features of agency relations
  • Inherent conflict of interest
  • Informational asymmetry

16
Shareholders relations with other stakeholders
comparison of corporate governance regimes in
Europe
17
Ethical issues in corporate governance
18
Activity
  • Being a manager / employee in your company, do
    you see any potential conflicts of interest
    between you and the shareholders of your company?
  • How would you handle these potential conflict of
    interest?

19
Executive accountability and control
  • A separate body of people that supervises and
    controls management on behalf of shareholders
  • Dual structure of leadership
  • executive directors are actually responsible for
    running the corporation
  • non-executive directors are supposed to ensure
    that the corporation is being run in the
    interests of the shareholders
  • Anglo-Saxon model single-tier board
  • European model two-tier boards, lower tier
    executive directors, and upper tier
    supervisory board

20
Executive accountability and control
  • The central ethical issue here is the
    independence of the supervisory, non-executive
    board members
  • No directly conflicting interests ensured by
  • Typically drawn from outside the corporation
  • No personal financial interest in the corporation
  • Appointed for limited time
  • Competent to judge the business of the company
  • Sufficient resources to get information
  • Appointed independently

21
Executive remuneration
  • Fat cat salary accusations
  • E.g. average CEO salary in Britain 6.5m
  • E.g. average annual pay rise for CEOs 11
  • CEO increases outstrip shareholder returns
  • Ethical problems with executive pay
  • Performance-related pay leads to large salaries
    that cause unrest within corporations
  • Influence of globalisation on executive pay leads
    to significant increases
  • Board often fails to reflect shareholder (or
    other stakeholder) interests

22
Ethical aspects of mergers and acquisitions
  • Acceptable if results in transfer of assets to
    owner who uses them more productively
  • Central concern is managers who pursue interests
    not congruent with shareholder interests
  • Executive prestige vs profit and share price
  • Hostile takeovers - concern when shareholders do
    not want to sell
  • Intentions and consequences of mergers and
    acquisitions
  • Restructuring and downsizing

23
The role of financial markets and insider trading
  • Speculative faith stocks
  • dot-com bubble (companies not made any profit
    but worth billions on the market)
  • Ethical issue bonds based entirely on
    speculation without always fully revealing amount
    of uncertainty
  • Insider trading
  • Insider trading occurs when securities are bought
    and sold on the basis of material non-public
    information (Moore 1990)
  • Ethical arguments (Moore, 1990)
  • Fairness
  • Misappropriation of property
  • Harm to investors and the market
  • Undermining of fiduciary relationship

24
The role of accountants
  • Bridge asymmetric information distribution
    between shareholders and corporate actors.
  • Tasked with providing a true and fair view of
    the companys financial situation
  • Problematic aspects of auditors job
  • Auditing companies that then go bust
  • Cross-selling of consulting services to audit
    clients
  • Long-term relationships with clients
  • Size of the accounting firm
  • Increase in competition between auditing firms

25
Activity
  • Some of you are studying Accounting or working in
    the audit firm. Assuming youre the partner of
    the audit firm, how would you handle the
    situation if you see irregularities in the books
    of your client?
  • What are the ethical issues involved?

26
Reforming governance
  • Some important shortcomings in present systems of
    governance in many countries
  • Main tool of reform in Europe is codes of
    corporate governance which deal with
  • Size and structure of board
  • Independence of supervisory or non-executive
    directors
  • Frequency of supervisory body meetings
  • Rights and influence of employees in corporate
    governance
  • Disclosure of executive remuneration
  • General meeting participation and proxy voting
  • Role of other supervising and auditing bodies
  • Legal basis and power of these codes varies
    dramatically
  • US response Sarbanes-Oxley

27
Shareholders and globalisation
28
Global financial markets
  • Global financial markets are the total of all
    physical and virtual (electronic) places where
    financial titles in the broadest sense (capital,
    shares, currency, options, etc.) are traded
    worldwide
  • Ethical issues raised
  • Governance and control
  • Speculation
  • Unfair competition with developing countries
  • Space for illegal transactions

29
The Tobin Tax
  • Effort to impose control on global markets Tobin
    Tax tax on foreign currency transactions
  • Not make impossible but impede international
    currency speculation
  • Robin Hood Tax
  • Two main problems with tax
  • Global enforcement
  • Does not differentiate between desirable and
    undesirable transactions

30
Combating global terrorism and money laundering
  • Deregulated social spaces are invitation for
    illegal financial activities
  • Money laundering estimated up to 1.5
    trillion/year
  • IMF recommendations for banks to help reduction
    of money laundering
  • Know your customer
  • Prevent criminals getting control of key
    positions in banks
  • Identifying and reporting unusual/suspicious
    transactions
  • Raise general awareness for regulators and staff

31
Shareholders as citizens of the corporation
32
Shareholder democracy
  • Idea that a shareholder of a company is entitled
    to have a say in corporate decisions
  • Supported by legal claim based on property rights
  • Can shareholders be a force for wider social
    accountability and performance?
  • Three issues to consider
  • Scope of activities
  • Adequate information
  • Mechanism for change

33
Two approaches to ethical shareholding
Ethical investment
Stakeholder activism
Multi-issue concerns
Single-issue focus
Strong financial interest
No financial concerns
Seeks engagement
Seeks confrontation
Avoids publicity
Seeks publicity
Source Sparkes (2001)
34
Shareholder activism
  • Buy shares in company for right to speak at the
    AGM
  • Voice concern and challenge the company on
    allegedly unethical practices
  • Possibility of broad media attention by
    disrupting the meeting
  • Issues
  • Gets involved with the enemy
  • Only an option for reasonably wealthy individuals

35
Ethical investment
  • Ethical investment is the use of ethical, social
    and environmental criteria in the selection and
    management of investment portfolios, generally
    consisting of company shares

36
Ethical investment Examples of positive and
negative criteria for ethical investment
  • Negative criteria
  • Alcoholic beverages production and retail
  • Animal rights violation
  • Child labour
  • Companies producing or trading with oppressive
    regimes
  • Environmentally hazardous products or processes
  • Genetic engineering
  • Nuclear power
  • Poor employment practices
  • Pornography
  • Tobacco products
  • Weapons
  • Positive criteria
  • Conservation and environmental protection
  • Equal opportunities and ethical employment
    practices
  • Public transport
  • Inner city renovation and community development
    programmes
  • Environmental performance
  • Green technologies

37
Ethical Investment
Top 10 stocks held in European ethical investment
funds 2002
Position Company
1 Nokia
2 Johnson Johnson
3 Vodafone
4 GlaxoSmithKline
5 ING
6 Vivendi
7 Shell
8 Pfizer
9 BP
10 Home Depot
38
Shareholding for sustainability
39
The Dow Jones Sustainability Group Index
  • Best-in-class approach
  • Companies accepted into index chosen along
    following criteria
  • Environmental (ecological) sustainability
  • Economic sustainability
  • Social sustainability
  • Criticisms of index
  • Depends on data provided by the corporation
    itself
  • Questionable criteria used by index
  • Focuses on management processes rather than on
    the actual sustainability of the company or its
    products

40
Co-operatives as sustainable form of corporate
ownership?
  • Co-operative are businesses that are owned
    neither by investors nor by their managers but
    are owned and democratically controlled by their
    workers or their customers
  • Not set up to make profit but to meet the needs
    of their members
  • Spanish Mondragon co-operative
  • Striking contribution to sustainability

41
Summary
  • Principal-agent relationship between managers and
    shareholders
  • Divergent interests and unequal distribution of
    information institutionalises some fundamental
    ethical conflicts in governance
  • Shareholders have considerable opportunities to
    use their power over supply to influence
    corporations to behave more ethically
  • Shareholders can play a role in driving
    corporations towards enhanced sustainability by
    their investment decisions at the stock market

42
Overview
  • The specific role of employees among the various
    stakeholder groups
  • Core ethical topics of employees rights and
    duties
  • Ethical issues and problems faced in
    business-employee relations
  • The duties of employees and the companys
    involvement in enabling employees to live up to
    their duties
  • The notion of corporate citizenship in relation
    to employees
  • Basic issues and problems of managing employees
    in the different cultural and national contexts
    necessitated by globalisation
  • The implication of sustainability for workplaces
    and for specific working conditions

43
Ethical issues in the firm-employee relation
44
Management of human resources an ethical
problem between rights and duties
  • The term human resource management and its
    implications have been a subject of intense
    debate in business ethics
  • Humans treated as important and costly resource
  • Consequently, employees are subject to a strict
    managerial rationale of minimising costs and
    maximising the efficiency of the resource

45
Rhetoric and reality in HRM
Rhetoric Reality
New working patterns Part-time instead of full-time jobs
Flexibility Management can do what it wants
Empowerment Making someone else take the risk and responsibility
Training and development Manipulation
Recognizing the contribution of the individual Undermining the trade union and collective bargaining
Teamworking Reducing the individuals discretion
46
Rights of employees as stakeholders of the firm
47
Duties of employees as stakeholders of the firm
Employee duties Issues involved
Duty to comply with labour contract Acceptable level of performance Work quality Loyalty to the firm
Duty to comply with the law Bribery
Duty to respect the employers property Working time Unauthorized use of company resources for private purposes Fraud, theft, embezzlement
48
Discrimination
  • Discrimination in the business context occurs
    when employees receive preferential (or less
    preferential) treatment on grounds that are not
    directly related to their qualifications and
    performance in the job
  • Managing diversity prominent feature of
    contemporary business
  • Extensive legislation
  • Institutional discrimination discrimination
    deeply embedded in business

49
Women in top management positions Female
Directors in FTSE 100 Companies 2000-2005
Source Singh, V. S. Vinnicombe. 2005
50
Sexual and racial harassment
  • Issues of diversity might be exploited to inflict
    physical, verbal, or emotional harassment
  • Regulation reluctant
  • Blurred line between harassment on one hand and
    joking on the other
  • Influenced by contextual factors such as
    character, personality, and national culture
  • Companies increasingly introduced codes of
    practice and diversity programmes (Crain and
    Heischmidt 1995)

51
Equal opportunities and affirmative action
  • How should organizations respond to problems of
    discrimination?
  • Equal opportunity programme
  • Generally targeted at ensuring procedural justice
    is promoted
  • Affirmative action (AA) programmes deliberately
    attempt to target those who might be currently
    under-represented in the workforce
  • Recruitment policies
  • Fair job criteria
  • Training programmes for discriminated minorities
  • Promotion to senior positions

52
Reverse discrimination
  • In some cases, people suffer reverse
    discrimination because AA policies prefer certain
    minorities
  • Justification for reverse discrimination
  • Retributive justice past injustices have to be
    paid for
  • Distributive justice rewards such as job and pay
    should be allocated fairly among all groups
    (Beauchamp 1997)
  • Stronger forms of reverse discrimination tend to
    be illegal in many European countries

53
Employee privacy
  • Four different types of privacy we may want to
    protect (Simms 1994)
  • Physical privacy
  • Social privacy
  • Informational privacy
  • Psychological privacy

54
Health and drug testing
  • Highly contested issue
  • Three main issues
  • Potential to do harm
  • Causes of employees performance
  • Level of performance
  • Despite these criticisms, such tests have
    increasingly come common in the US

55
Electronic privacy and data protection
  • Computer as a work tool enables new forms of
    surveillance
  • Time and pace of work
  • Usage of employee time for private reasons
  • E-mail and internet
  • Issue of privacy in situations where data is
    saved and processed electronically
  • Data protection

56
Due process and lay-offs
  • Ethical considerations in the process of
    downsizing
  • Right to know well ahead of the actual point of
    the redundancy that their job is on the line
  • Compensation packages employees receive when laid
    off

57
Employee participation and association
  • Recognition that employees might be more than
    just human resources but should also have a
    certain degree of influence on their tasks, job
    environments, and company goals right to
    participation
  • Financial participation allows employee share
    in the ownership or income of the corporation
  • Operational participation
  • Delegation
  • Information
  • Consultation
  • Codetermination

58
Working conditions
  • Right to healthy and safe working conditions one
    of the very first ethical concerns for employees
  • Dense network of health, safety and environmental
    (HSE) regulation
  • Main issue is enforcement and implementation
  • Newly emergent HSE issues relate to changing
    patterns of work
  • Ethical issues in the context of
  • Excessive working hours and presenteeism
  • Flexible working patterns

59
Excessive working hours and presenteeism
  • Excessive work hours and their influence on the
    employees overall state of physical and mental
    health
  • Presenteeism phenomenon of being at work when
    you should be at home due to illness or even just
    for rest and recreation (Cooper 1996)

60
Flexible working patterns
  • Another way of saying that management can do what
    it wants? (Legge, 1998)
  • Non-standard work relationships
  • Part-time work, temporary work, self-employment
    and teleworking (Stanworth 2000)
  • Less secure legal status for periphery workers
  • Potential for
  • Poorer working conditions
  • Increased insecurity
  • Lower pay
  • Exclusion from training and other employment
    benefits

61
Fair wages
  • The basis for determining fair wages is commonly
    the expectations placed on the employee and their
    performance towards goals
  • Problems of performance-related pay (PRP)
  • Risk
  • Representation

62
Freedom of conscience and freedom of speech in
the workplace
  • Normally guaranteed by governments
  • Situations in business where freedom of speech
    might face certain restrictions
  • Speaking about confidential matters related to
    the firms RD, marketing or accounting plans
  • Usually unproblematic, since most rational
    employees would find it in their own best
    interests to comply with company policy
  • Some cases where those restrictions could be
    regarded as a restriction of employees rights
  • Whistleblowing

63
The right to work
  • Fundamental entitlement of human beings
    established in the Declaration of Human Rights
  • The right to work in a business context cannot
    mean that every individual has a right to be
    employed
  • The right to work should result in every
    individual facing the same equal conditions in
    exerting this right

64
Employing people worldwide
  • The ethical challenges of globalisation

65
National culture and moral values
  • Different cultures will view employee rights and
    responsibilities differently
  • This means that managers dealing with employees
    overseas need to first understand the cultural
    basis of morality in that country
  • Raises the question of whether it is fair to
    treat people differently on the basis of where
    they live
  • Relativism vs. absolutism
  • Absolutism ethical principle must be applicable
    everywhere
  • Relativism view of ethics must always be
    relative to the historical, social and cultural
    context

66
Some yardsticks for ethical decision-making
  • Start with human rights as a basic compass for
    providing direction
  • Differences in the treatment of employees on a
    global scale depend on the relative economic
    development of the country in which the practice
    is taking place

67
The race to the bottom
  • Many critics argue that MNCs play a role in
    changing standards in countries
  • Globalisation allows corporations to have broad
    range of choice of location
  • Developing countries compete to attract foreign
    investment
  • Large investors tend to choose country with most
    preferable conditions
  • Lowest level of regulation and social provision
    for employee
  • Leads to race to the bottom in environmental
    and social standards

68
The corporate citizen and employee relations in a
varied European context
69
The corporate citizen and employee relations in a
varied European context
  • Extent to which corporations administer social
    and civil rights of citizens in the workplace
    varies across Europe
  • Differences between Anglo-American and the
    European model of capitalism
  • Continental Europe take interest of employees
    into account to a greater degree than the
    Anglo-American model
  • Co-determination

70
Towards sustainable development
71
Re-humanized workplaces
  • Alienation of the individual work in the era of
    industrialised mass production
  • Brought tremendous efficiencies and material
    wealth, but have also created the prospect of a
    dehumanised and deskilled workplace
  • Attempts to re-humanize the workplace
  • empowering the employee
  • job enlargement
  • job enrichment
  • Success of such schemes contested
  • Suggested that humanized approach might be more
    appropriate and effective in some cultures (e.g.
    Scandinavia) than others

72
Wider employment
  • Large numbers of unemployed people becomes the
    norm in many countries due to mechanisation
  • Threatens
  • Right to work
  • Social fabric of particular communities
  • New technologies herald the end of work?
    (Rifkin 1995)
  • From sustainability perspective ensure that what
    work there is, is shared out more equitably

73
Work-life balance
  • Increasing incursion of working hours into social
    life
  • Growing pressure for longer hours
  • Most notable amongst professionals
  • Healthy work-life balance difficult to maintain
  • Some solutions
  • Sabbatical schemes
  • Home-based teleworking
  • Social benefits
  • Economic benefits
  • Ecological advantages

74
Activity
  • Ethical Dilemma 7 Off your face on Facebook?
  • What is the dilemma?
  • What are the main ethical issues in the Case?
  • What are the main ethical arguments for and
    against the use of social networks sites for
    potential employers in this situation?
  • Does this case influence the way you might use FB
    in future?
  • How would you decide as the personnel manager?

75
Summary
  • Discussed the specific stake that employees hold
    in their organisations
  • Discovered how deep the involvement of
    corporations with employees rights can be
  • Corporate responsibility for protection and
    facilitation of these rights is particularly
    complex and contestable when their operations
    become more globalised
  • Employees long been regarded as extremely
    important stakeholder in European business

76
Enjoy the course and Good Luck See you next
time
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