BUSINESS ETHICS: MANAGING
CORPORATE CITIZENSHIP AND
SUSTAINABILITY IN THE AGE OF
GLOBALIZATION
ANDREW CRANE & DIRK MATTEN
SUMMARY OF CHAPTERS 1, 2, 4 – 9, & 11
,1 INTRODUCING BUSINESS ETHICS
WHAT IS BUSINESS ETHICS?
Business ethics is the study of business situations, activities, and decisions where issues of morally
right and wrong are addressed. Also, by business ethics, we do not mean only commercial businesses,
but also government organizations, pressure groups, not-for-profit businesses, charities, and other
organizations.
Business ethics and the law
There is considerable overlap between ethics and the law. 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, as can be
seen in the figure.
The law is a definition of the minimum acceptable standards of
behaviour. However, the law does not explicitly cover every possible
ethical issue in business. Similarly, it is possible to think of issues
that are covered by the law but which are not really about ethics.
Business ethics is primarily concerned with those issues not covered by the law, or where there is no
definite consensus on whether something is right or wrong. Discussion about the ethics of particular
business practices may eventually lead to legislation once some kind of consensus is reached, but for
most of the issues of interest to business ethics, the law typically does not currently provide us with
guidance. For this reason, it is often said that business ethics is about the ‘grey areas’ of business.
Business ethics is about gathering relevant evidence, and systematically analyzing it through particular
lenses and tools in order to come to an informed decision that has taken account of the most
important considerations. Business ethics is principally about developing good judgement.
Defining morality, ethics, and ethical theory
Morality is concerned with the norms, values, and beliefs embedded in social processes which define
right and wrong for an individual or a community. Ethics is concerned with the study of morality and
the application of reason to elucidate specific rules and principles that determine morally acceptable
courses of action. Ethical theories are the codifications of these rules and principles.
According to this way of thinking, morality precedes ethics, which in turn precedes ethical theory. All
individuals and communities have morality, a basic sense of right or wrong in relation to particular
activities. Ethics represents an attempt to systematize and rationalize morality, typically into
generalized normative rules that supposedly offer a solution to situations of moral uncertainty. The
outcomes of the codification of these rules are ethical theories, such as rights theory or justice theory.
,WHY IS BUSINESS ETHICS IMPORTANT?
There are many reasons why business ethics might be regarded as an increasingly important area of
study:
▪ Business has huge power within society
▪ Business has the potential to provide a major contribution to our societies
▪ Business malpractice has the potential to inflict enormous harm on individuals, communities, and
the environment
▪ The demands being placed on business to be ethical by its various stakeholders are becoming
more complex and challenging
▪ Employees face significant pressure to compromise ethical standards
▪ Business faces a trust deficit
BUSINESS ETHICS IN DIFFERENT ORGANIZATIONAL CONTEXTS
Business ethics in large versus small companies
Small businesses typically differ in their attention and approach to business ethics compared to large
firms. These differences include the lack of time and resources that small business managers have
available to focus on ethics, their autonomy and independence with respect to responsibilities to
other stakeholders, and their informal trust-based approach to managing ethics.
Large corporations, on the other hand, tend to have much more formalized approaches to managing
business ethics. They have considerably more resources available to develop sophisticated ethics and
compliance management programs. They are constrained by the need to focus on profitability and
shareholder value, as well as the very size and complexity of their operations.
Business ethics in private, public, and civil society organizations
While private sector companies will tend to be responsible primarily to their shareholders or owners,
the main responsibilities of civil society organizations (CSOs) are to the constituencies they serve. In
the public sector, more attention is paid to higher-level government and the general public. Typical
ethical issues prioritized by government agencies will be those of rule of law, corruption, conflicts of
interest, public accountability, and various procedural issues involved in ensuring that resources are
deployed fairly and impartially. This is usually reflected in a formalized and bureaucratic approach to
ethics management. CSOs, on the other hand, will often be more informal in their approach,
emphasizing their mission and values. CSOs may be limited in terms of the resources and training they
may typically be able to deploy in relation to managing ethics, whereas government organizations are
often restricted by a heavy bureaucracy that breeds inertia and a lack of transparency to external
constituencies.
, 2 FRAMING BUSINESS ETHICS
WHAT IS A CORPORATION?
The practical and legal identification of the corporation within any given society has significant
implications for how, and whether, certain types of responsibility can be assigned to such an entity.
A corporation is defined in terms of legal status and the ownership of assets. Corporations are
regarded as independent from those who work in them, manage them, invest in them, or receive
products or services from them. Corporations are separate entities in their own right. For this reason,
corporations are regarded as having perpetual succession: as an entity, they can survive the death of
any individual investors, employees, or customers. This legal status leads to the second key defining
feature of corporations. Rather than shareholders or managers owning the assets associated with a
corporation, the corporation owns its own assets.
Corporations are regarded as artificial persons in the eyes of the law. They have certain rights and
responsibilities in society, just as an individual citizen. Also, corporations are owned by shareholders,
but exist independently of them. The corporation holds its own assets, and shareholders are not
responsible for the debts or damages caused by the corporation. Managers and directors have a
fiduciary responsibility to protect the investment of shareholders. This means that senior management
is expected to hold shareholders’ investment in trust and to act in their best interests.
Can a corporation have social responsibilities?
Can we claim that entities such as corporations have a moral responsibility?
In 1970 Milton Friedman published an article with the title ‘The social responsibility of business is to
increase its profits’. In this article, he protested against the notion of social responsibilities for
corporations. His arguments boil down to three concerns:
▪ Only human beings have a moral responsibility for their actions, corporations themselves not.
Corporations are not human beings and therefore cannot assume true moral responsibility for
their actions. Since corporations are set up by individual human beings, it is those human beings
who have moral responsibility for the actions of the corporation.
▪ It is managers’ responsibility to act solely in the interests of shareholders
The only responsibility of the managers of the corporation is to make profit, because it is for this
task that the firm has been set up and the managers have been employed.
▪ Social issues and problems are the proper province of the state rather than corporate managers
Managers should not, and cannot, decide what is in society’s best interests. This is the job of
government. Corporate managers are neither trained to set and achieve social goals, nor (unlike
politicians) are they democratically elected to do so.
Can a corporation be morally responsible for its actions?
Is a corporation just a loose collection of individuals who work together under the same roof, or is it a
distinct entity of its own which can actually assume moral responsibility for the rights and wrongs of
its actions? Four considerations why most people believe that corporations do have a moral
responsibility:
1. Legal identity
Corporations have a distinct legal identity: they enter into contracts, are subject to legal
requirements, etc.
CORPORATE CITIZENSHIP AND
SUSTAINABILITY IN THE AGE OF
GLOBALIZATION
ANDREW CRANE & DIRK MATTEN
SUMMARY OF CHAPTERS 1, 2, 4 – 9, & 11
,1 INTRODUCING BUSINESS ETHICS
WHAT IS BUSINESS ETHICS?
Business ethics is the study of business situations, activities, and decisions where issues of morally
right and wrong are addressed. Also, by business ethics, we do not mean only commercial businesses,
but also government organizations, pressure groups, not-for-profit businesses, charities, and other
organizations.
Business ethics and the law
There is considerable overlap between ethics and the law. 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, as can be
seen in the figure.
The law is a definition of the minimum acceptable standards of
behaviour. However, the law does not explicitly cover every possible
ethical issue in business. Similarly, it is possible to think of issues
that are covered by the law but which are not really about ethics.
Business ethics is primarily concerned with those issues not covered by the law, or where there is no
definite consensus on whether something is right or wrong. Discussion about the ethics of particular
business practices may eventually lead to legislation once some kind of consensus is reached, but for
most of the issues of interest to business ethics, the law typically does not currently provide us with
guidance. For this reason, it is often said that business ethics is about the ‘grey areas’ of business.
Business ethics is about gathering relevant evidence, and systematically analyzing it through particular
lenses and tools in order to come to an informed decision that has taken account of the most
important considerations. Business ethics is principally about developing good judgement.
Defining morality, ethics, and ethical theory
Morality is concerned with the norms, values, and beliefs embedded in social processes which define
right and wrong for an individual or a community. Ethics is concerned with the study of morality and
the application of reason to elucidate specific rules and principles that determine morally acceptable
courses of action. Ethical theories are the codifications of these rules and principles.
According to this way of thinking, morality precedes ethics, which in turn precedes ethical theory. All
individuals and communities have morality, a basic sense of right or wrong in relation to particular
activities. Ethics represents an attempt to systematize and rationalize morality, typically into
generalized normative rules that supposedly offer a solution to situations of moral uncertainty. The
outcomes of the codification of these rules are ethical theories, such as rights theory or justice theory.
,WHY IS BUSINESS ETHICS IMPORTANT?
There are many reasons why business ethics might be regarded as an increasingly important area of
study:
▪ Business has huge power within society
▪ Business has the potential to provide a major contribution to our societies
▪ Business malpractice has the potential to inflict enormous harm on individuals, communities, and
the environment
▪ The demands being placed on business to be ethical by its various stakeholders are becoming
more complex and challenging
▪ Employees face significant pressure to compromise ethical standards
▪ Business faces a trust deficit
BUSINESS ETHICS IN DIFFERENT ORGANIZATIONAL CONTEXTS
Business ethics in large versus small companies
Small businesses typically differ in their attention and approach to business ethics compared to large
firms. These differences include the lack of time and resources that small business managers have
available to focus on ethics, their autonomy and independence with respect to responsibilities to
other stakeholders, and their informal trust-based approach to managing ethics.
Large corporations, on the other hand, tend to have much more formalized approaches to managing
business ethics. They have considerably more resources available to develop sophisticated ethics and
compliance management programs. They are constrained by the need to focus on profitability and
shareholder value, as well as the very size and complexity of their operations.
Business ethics in private, public, and civil society organizations
While private sector companies will tend to be responsible primarily to their shareholders or owners,
the main responsibilities of civil society organizations (CSOs) are to the constituencies they serve. In
the public sector, more attention is paid to higher-level government and the general public. Typical
ethical issues prioritized by government agencies will be those of rule of law, corruption, conflicts of
interest, public accountability, and various procedural issues involved in ensuring that resources are
deployed fairly and impartially. This is usually reflected in a formalized and bureaucratic approach to
ethics management. CSOs, on the other hand, will often be more informal in their approach,
emphasizing their mission and values. CSOs may be limited in terms of the resources and training they
may typically be able to deploy in relation to managing ethics, whereas government organizations are
often restricted by a heavy bureaucracy that breeds inertia and a lack of transparency to external
constituencies.
, 2 FRAMING BUSINESS ETHICS
WHAT IS A CORPORATION?
The practical and legal identification of the corporation within any given society has significant
implications for how, and whether, certain types of responsibility can be assigned to such an entity.
A corporation is defined in terms of legal status and the ownership of assets. Corporations are
regarded as independent from those who work in them, manage them, invest in them, or receive
products or services from them. Corporations are separate entities in their own right. For this reason,
corporations are regarded as having perpetual succession: as an entity, they can survive the death of
any individual investors, employees, or customers. This legal status leads to the second key defining
feature of corporations. Rather than shareholders or managers owning the assets associated with a
corporation, the corporation owns its own assets.
Corporations are regarded as artificial persons in the eyes of the law. They have certain rights and
responsibilities in society, just as an individual citizen. Also, corporations are owned by shareholders,
but exist independently of them. The corporation holds its own assets, and shareholders are not
responsible for the debts or damages caused by the corporation. Managers and directors have a
fiduciary responsibility to protect the investment of shareholders. This means that senior management
is expected to hold shareholders’ investment in trust and to act in their best interests.
Can a corporation have social responsibilities?
Can we claim that entities such as corporations have a moral responsibility?
In 1970 Milton Friedman published an article with the title ‘The social responsibility of business is to
increase its profits’. In this article, he protested against the notion of social responsibilities for
corporations. His arguments boil down to three concerns:
▪ Only human beings have a moral responsibility for their actions, corporations themselves not.
Corporations are not human beings and therefore cannot assume true moral responsibility for
their actions. Since corporations are set up by individual human beings, it is those human beings
who have moral responsibility for the actions of the corporation.
▪ It is managers’ responsibility to act solely in the interests of shareholders
The only responsibility of the managers of the corporation is to make profit, because it is for this
task that the firm has been set up and the managers have been employed.
▪ Social issues and problems are the proper province of the state rather than corporate managers
Managers should not, and cannot, decide what is in society’s best interests. This is the job of
government. Corporate managers are neither trained to set and achieve social goals, nor (unlike
politicians) are they democratically elected to do so.
Can a corporation be morally responsible for its actions?
Is a corporation just a loose collection of individuals who work together under the same roof, or is it a
distinct entity of its own which can actually assume moral responsibility for the rights and wrongs of
its actions? Four considerations why most people believe that corporations do have a moral
responsibility:
1. Legal identity
Corporations have a distinct legal identity: they enter into contracts, are subject to legal
requirements, etc.
