Theoretical grounding

Business ethics

Crane and Matten (2010), defined business ethics as ”Business ethics is the study of business situations, activities, and decisions where issues of right or wrong are sddressed”, it is worth stressing that by ‘right’ and ‘wrong’ we mean morally right and wrong , as opposed to, for example, commercially, strategically, or financially right or wrong. Moreover, by business ethics, we do not mean only commercial businesses, but also government organizations, pressure groups, not-for- profit businesses, charities, and other organisations. For example, question of how to manage employees fairly, or what constitutes deception in advertising, are equally as important for organisations such as Greenpeace, the University of Stockholm, or the German Christian Democrat Party as they are for Shell, Volvo, or Deutshe Bank.

Having defined business ethics in terms of issues of right and wrong, one might quite naturally question whether this is in any way distinct from the law. Surely the law is also about issues of right and wrong. This is true, and there is indeed considerable overlap between ethics and the law. In fact, the law is essentially an institutionalization or codification of ethics into specific social rules, regulations, and proscriptions. Nevertheless, the two are not equivalent. Perhaps the best way of thinking about ethics and the law is in terms of two intersecting domains. The law might be said to be a definition of the minimum acceptable standards of behavior. However, many  morally contestable issues, whether in business or elsewhere, are not explicitly covered by the law. For example, just as there is no law preventing you from being unfaithful to your girlfriend or boyfriend (although this is perceived by many to be unethical), so there is no law in many countries preventing businesses from testing their products on animals, selling landmines to oppressive regimes, or preventing their employees from joining a union again, issues which many feel very strongly about. Crane and Matten (2010).

Corporate governance

‘Corporate governance’ is a topic of growing concern to analysts, investors and other stakeholders. Activists critique companies and their directors for having interests that are not fully aligned with the long-term interests of investors. Institutional investors have become the most outspoken critics in this area, particularly public pension funds and some union funds. The Council of Institutional Investors (CII) represents the interests of these groups and has over 140 pension fund members, with assets under management that exceed US$3trn. Among the most activist funds are CalPERS, CalSTRS and TIAA-CREF. Since the collapse of Enron, Arthur Andersen and Tyco International, the Business Roundtable (the leading association of corporate CEOs in the USA) has also been active on questions of corporate governance. Often these two groups find themselves on opposing sides of proposals to reform corporate governance systems. Corporate governance is the system of structural, procedural and cultural safeguards designed to ensure that a company is run in the best long-term interests of its shareholders. This alignment requires a commitment to sustained interactions between a company and its principal stakeholders. The primary corporate governance mechanism is the board of directors, and its primary purpose is to combat the familiar ‘agency problem’: the tendency and ability of senior managers to put their personal interests above those of the company’s shareholders and stakeholders Fombrun (2006).

Corporate Social Responsibility (CSR)

The concept of CSR originated in the 1950‘s in the USA but it became prevalent in early 1970s . At that time US had lots of social problems like poverty, unemployment and pollution. Consequently a huge fall in the prices of Dollar was witnessed. Corporate Social Responsibility became a matter of utmost importance for diverse groups demanding change in the business. During the 1980‘s to 2000, corporations recognized and started accepting a responsibility towards society. Corporate social responsibility (CSR) focuses on the wealth creation for the optimal benefit of all stakeholders – including shareholders, employees, customers, environment and society. The term stakeholder, means all those on whom an organization’s performance and activities have some impact either directly or indirectly. This term was used to describe corporate owners beyond shareholders as a result of a book titled Strategic management: a stakeholder approach by R. Edward Freeman in the year 1984.

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