theoretical essence of business ethics
TRANSCRIPT
Juhani Pekkola
Kimmo Pekkola
United Experts of Telework Oy Neulastie 2 C 38 00410 Helsinki Finland http://www.unext.fi [email protected] gsm + 358 40 750 7278 [email protected] gsm. + 358 40 750 8080 VIP WP2 D3
Theoretical essence of business ethics
Classification of approaches, cultural and business environmental impacts on
ethics
Helsinki, April 30, 2001
Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
Contents 1 Abstract.............................................................................................................................................................. 4 2 Introduction ...................................................................................................................................................... 6
2.1 Background ............................................................................................................................................... 6 2.2 Research problem .................................................................................................................................... 6 2.3 Objectives.................................................................................................................................................. 6 2.4 Scope.......................................................................................................................................................... 7 2.5 Methodology............................................................................................................................................. 7 2.6 Sources and structure .............................................................................................................................. 7 2.7 Definitions ................................................................................................................................................ 7
3 Concepts and Descriptions............................................................................................................................. 9 3.1 Moral and non-moral values................................................................................................................. 11 3.2 Business example ................................................................................................................................... 13 3.3 Deontological and teleological ethics.................................................................................................. 14 3.4 Views to ethics........................................................................................................................................ 18 3.5 Ethics of environment........................................................................................................................... 18 3.6 Synthesis .................................................................................................................................................. 20
4 Describing the company’s environment ..................................................................................................... 22 4.1 The external environment of a company ........................................................................................... 22 4.2 Background for the stakeholder theory .............................................................................................. 23 4.3 Stakeholders defined.............................................................................................................................. 25
4.3.1 Customers ....................................................................................................................................... 29 4.3.2 Employees....................................................................................................................................... 30 4.3.3 Shareholders/Financiers ............................................................................................................... 32 4.3.4 Vendors/Partners .......................................................................................................................... 33 4.3.5 Competitors .................................................................................................................................... 34 4.3.6 Host communities / the society .................................................................................................. 34
4.4 Relationships........................................................................................................................................... 37 4.4.1 General considerations ................................................................................................................. 37 4.4.2 Market relation ............................................................................................................................... 38 4.4.3 Agreement....................................................................................................................................... 38 4.4.4 Legal................................................................................................................................................. 38
4.5 Questions ................................................................................................................................................ 38 4.6 Virtues...................................................................................................................................................... 39 4.7 Cultural Aspects ..................................................................................................................................... 39
4.7.1 Background..................................................................................................................................... 39 4.7.2 Some cultural dimensions of corporate ethics .......................................................................... 40 4.7.3 Other points ................................................................................................................................... 43
5 Values and ethics within the company in relation to the environment.................................................. 44 5.1 Recognition of one’s own values ......................................................................................................... 45 5.2 Recognition of the values of a customer, the business environment and other actors of the environment ........................................................................................................................................................ 46 5.3 Compare your own values and the ethics of the environment and be able to make an analysis46 5.4 Methods of formulating operative ethical aspects of the business policy ..................................... 46
6 Stakeholders in business ethics..................................................................................................................... 47 6.1 Relations and concepts.......................................................................................................................... 49 6.2 Analyzing the relations .......................................................................................................................... 51
6.2.1 Classification of ethical standpoints............................................................................................ 51 6.3 Approaches to virtue ............................................................................................................................. 63
6.3.1 Virtue in ethics ............................................................................................................................... 63
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
6.3.2 Virtuous behavior .......................................................................................................................... 64 6.4 Quantity and quality of policy .............................................................................................................. 66 6.5 Analysis of ethical discussion ............................................................................................................... 66
7 Ethical tree / Draft for classification .......................................................................................................... 69 7.1 Evaluation of ethics ............................................................................................................................... 72 7.2 Normative structures in international economy................................................................................ 80
8. Conclusions and summary ............................................................................................................................ 84 9. References ....................................................................................................................................................... 85
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
1 Abstract
Ethics is one foundational element in culture. The basic idea of ethics is the idea of good. It is not
possible to define good, because this essence is so primary. Anyhow people recognize good and produce
descriptions, rules and theories out of it. In ethical analyse it is possible to consider these impressions in
forms of ethical expressions.
There are general values and ethical values. Ethics is about human understanding human alike issues like
character, virtue, and intention. This means that the area of ethical values is smaller than the sphere of all
values. This does not mean that other values are of no importance in life or in business, but one should
not mix them with ethical evaluations.
Complexity of ethical theories and discussion can be reduced by meta ethical systemisation. Ethical
discussion can be classified in categories of deontological and teleological theories and in categories
related to acts and values. This classification can be one optional starting point for practical analyse in
business circles too.
Current discussion is underlying the importance of ethics both in social and in environmental
connections. The demands for ethical principles are increasing in average. Many companies have
identified corporate ethical values and regarded them as one of their key success factors. This
identification has helped them to focus on internal and external processes and gain for improved
information and knowledge. Ethics is one operational element in generating and harnessing intellectual
capital.
In order to practise ethical discussion it is useful to no define actors and processes in environment.
Stakeholders are relevant interest groups the company is dealing with and who can justify claims towards
the enterprise. Ethical discussion can be analysed in categories of ethics and 2-sided in relation between
stakeholders. The decision of stakeholders can be done on empirical basis in relation to relevant ethical
considerations. Stakeholders in this study are:
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
1. Investors and specially shareholders
2. Employees (blue and white collars & managers)
3. Customers
4. Partners (including subcontractors and value chains)
5. Society (Community, government, international organisations, employee & employer
organisations)
6. Media and publicity (more as an channel for claims but as and essence of visibility).
7. Nature (As an concern among the people and as an essential basement for actions)
On the area of work and business ethics there are some general codes of conduct, however they are
fragmented and interpretations vary. There are social need to start discussions and development
processes to define and implement ethical principles within companies.
The aim of this preliminary study is to model theoretical field, players and main relations in ethical type
of discussion, bring some of these stated values among companies in to the context of theoretical
academic discussion and to analyse the argumentation behind the stated values. The outcome will be a
better understanding of how to approach the issue of companies' ethical behaviour. The first task in this
journey is to give short definition for the basic concepts. After that the focus is on finding the
frameworks to evaluate the company environment and actors. After that we get to the key questions and
arguments related to values and ethical behaviour.
This study first describes the nature of market actors and Ethics as general. After that follows a
discussion of the nature of business ethics and argumentation. At the end are some open questions,
conclusions and summary.
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
2 Introduction
2.1 Background
This study is carried out as part of the VIP project1 (IST-2000-25463) in spring 2001. It is related to
Work Package 2 Deliverable 3. The objective of the whole WP2 is to provide a theoretical framework
for corporate ethics and corporate responsibilities, with the aim of enriching the more pragmatic actions
within the VIP project. Deliverable 3 is a descriptive part including the following topics:
- Classification of approaches
- Identification of value systems
- Cultural and business environmental impacts on ethics
- Documented ethical behavior within organizations.
2.2 Research problem
The research problem of this study is to analyze ethical discussion within business-related organizations.
The aim of this study is to define the main actors and ways of ethical thinking in order to understand the
ethical statements within the company and in the environment of enterprises. Another target is to place
ethics among other relevant factors in business practices. Ethics is not a separate element in an annual
report. It is the manner in which people think and act. The paper aims at an ethical analyzing tool which
could help point out and understand some of the basic elements of ethical argumentation.
2.3 Objectives
The main objective of this study is to be a basis for discussion about ethical behavior within
organizations. After reading this paper one should be able to understand the principles of ethical
discussion and to identify some analytical and normative clauses concerning ethics. The study focuses on
documented issues found in the literature and company-related material (web pages, articles, annual
reports, etc.). The main objective is divided into the following sub-objectives:
- Description of the key actors in the market place
- Short definition of ethics and values
- Identification of possible views, key questions and sanctions related to ethical behavior in the
market place
- Describing and classifying ethical argumentation
1 . Full title of the project: Voluntary Industrial Code of Practice for Cross-border Work Arrangements
Proposal/Contract no.: IST-2000-25463
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
- Introducing the reader to a discussion about business ethics.
2.4 Scope
This study is a preliminary summary of topics described in the objectives section, and it provides some
background for further discussion and analysis about ethical behavior within business organizations.
This study should also give a person not familiar with the subject some basic tools and concepts to be
able to join the discussion.
2.5 Methodology
This study is carried out as a literature study. The material consists of literature, web pages, articles,
company and annual reports.
2.6 Sources and structure
Chapter 3 introduces the reader to ethical discussion, based on Frankena’s work. In general, European
and Nordic authors are included, especially, as concerns the practical issues presented.
The following chapters describe the models and frameworks that bring corporate decision-makers into
ethical questions. Most of the academic articles used in this part are from American journals. This is
because the available current academic discussion about corporate responsibility and ethical issues is
concentrated very much in North America. We recommend the reader to be critical, when evaluating the
presented findings with regard to their adaptability to European context.
The last part of this study summarizes the argumentation of the previous two chapters and presents the
key findings.
2.7 Definitions
Ethical code: Values and principles that define the ethical intent of the company. [3], P. 176
Code of Practices: Explains and describes the principles and values of a company for employees and decision-makers. [3], P. 176
Codes of Conduct: How do we behave. Provides a list of sanctions. How to act in conflicting situations? These kinds of rules tend to answer acute problems. [3], P. 176
CSP: Corporate Social Performance [11]
CSR sub 1: Corporate Social Responsibility [11]
CSR sub 2: Corporate Social Responsiveness [11]
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
Stakeholder: an individual or group that can affect and that are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance.
Norms are expressed with normative sentences, according to which acts are placed into categories: should, allowed, not allowed. Accordingly, acts are put into the categories: responsibility, allowed or prohibited. In ethical discussion, the expressions “good” and “bad” are used. These terms are called normative terms.
Values: are expressed by sentences of value, according to which phenomena are classified as positive and negative and sometimes indifferent. It is possible to express greater and minor value. There are several terms of value but the most important ones are "good" and "bad.”
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
3 Concepts and Descriptions
Ethics is the most powerful factor in individual and organizational behavior. The essence of
ethics is the idea of good. According to Plato (the Republic), the idea of good is the supreme one
among all ideas. He used the metaphor of sun describing the light, which this idea allows for the
people. Following the goodness by instinct or by rational rules is the last reason for all societal
processes and structures. Plato thinks that the idea of good itself gives and should give the form
in societal life.
If we follow the thinking of George Edward Moore (1873-1968), we can assume that the idea of
good certainly exists, but the recognition of it must be done in the mind or even on the level of
heart and soul - by intuition. This means that it is impossible to define the principle of good by
referring to other phenomena or concepts. Usually, we think that one can only feel it or learn it by
using moral intuition. (Pietarinen & Poutanen; 2000, 28-35.) [22]
In ethical discussion, we can classify and analyze those theories and values which express human
understanding of good. Analytical discussion about the area of ethics is a description of human
thinking and manmade structures, when they deal with the idea of good or morality. Another
debate relates to forming normative ethical rules. This paper takes the side of analysis and
description of possible ethical structures. If we regard the idea of good as real but impossible to
define in its deepest meaning, we can regard ethical discussion as a construction consisting of
thoughts and theories.
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
human behaviourhuman behaviour
rules (normative guideline)rules (normative guidelines)
theories and concepts of goodtheories and concepts of good
human understanding aboutgood
human understanding aboutgood
good itself / the idea of goodgood itself / the idea of good
Figure 1, Human understanding about good
human behaviourhuman behaviour
rules (normative guideline)rules (normative guidelines)
theories and concepts of goodtheories and concepts of good
human understanding aboutgood
human understanding aboutgood
good itself / the idea of goodgood itself / the idea of good
other ideas;Nonmoral valuesRightness,Wrongness
Figure 2, Complexity of values
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
What is important for the VIP project is to make definitions in the area of ethics and value and
build some robust and practical basis for analysis and normative work. The approach of the paper
is meta-ethical, that is, providing tools for actual ethical considerations and discussions, which
once again might give floor to normative decision-making.
3.1 Moral and non-moral values
One of the key questions in the discussion about ethics and values is: “How to produce (the greatest
possible) good over evil?” The theoretical dilemma related to this human aspiration is how to recognize
and analyze the behavior targeted at good. (Frankena 1973, page 14.)
Ethics is a branch of science which studies morality. Moral structures are empirical, and social
things can be put under examination. Ethics and morality can be regarded as synonyms when we
look for the rules and practices that govern the behavior of individuals and societies. Ethics is
convergent with the term “moral philosophy” when we are dealing with a philosophical inquiry in
a moral-type of phenomenon. (compare; Pietarinen & Poutanen; 2000, 12-14.)
Another principle is relevant in the structure of the theory of value and moral value. The theory of
value is wide and the theory of moral value is a part of it. This is an important distinction, because
in ordinary life this difference is usually not noticed. The values can be characterized as described
in the following table (Table 1).
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
Table 1, Good and its senses, Source: Frankena; 1973, 80-82
I Moral values = things that are good on moral grounds
II Non-moral values.
A. Utility values = things that are good because of their usefulness for some purpose.
B. Extrinsic values = things that are good because they are means to achieve what is good.
C. Inherent values = things that are good because the experience of contemplating them is good
or rewarding in itself.
D. Intrinsic values = things that are good in themselves or good because of their own intrinsic
properties.
E. Contributory values = things that are good because they contribute to the intrinsically good life
or are parts of it.
F. Final values = things that are good on the whole.
This distinction between moral and non-moral values brings, hopefully, some understanding of the
analysis of different kinds of moral meanings. This does not mean that non-moral values are of no
value or that they should be excluded from further analysis. The point is that one must make
decisions on what kinds of categories are included in further analysis and what is the relationship
between them. Another issue is the fact that phenomena are usually both positive / good and
negative / bad as such and in consequence. In real life, we must meet and deal with both sides.
Usually, we cannot have the luxury to define things as purely good or not good. (Frankena; 1973,
82.)
Theory of value
Theory of ethics
Theory of value
Theory of ethics
Figure 3, Ethics as a part of values
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
To draw attention to a few things, it should be mentioned that things can be good in a moral or non-
moral sense. Here non-morality does not mean that it would be bad or undesirable. Rather, the
difference between moral and non-moral values is that non-moral values often refer to tangibles and
moral values refer to a person’s traits or virtues, etc. “That is a good promise,” would be an example of a
non-moral statement. Moral values refer to ethics. “It is a good thing to keep one’s promise.” (Frankena
1973, page 62)
3.2 Business example
To give an example of a value structure in the business sphere, it is possible to refer to Aaltonen and
Junkkari [3]. According to them, values can be divided into two rough categories. In the first category
are ethical values, which represent an ideal of what we would like to be. The other category is more
practical, related to the acts of everyday life. This model refers to Maslow’s hierarchy of human needs.
The earliest needs are very practical, such as the need for shelter and security. Later in the development,
the needs change into respect and one’s need to express oneself. On the other hand, these values can
also be categorized as those that are created or obeyed because of common sense and those that
represent our own “personal” morality. The values related to common sense are based on formal rules
like law and order. At the other end are values based on feelings and emotion. The result of Aaltonen’s
and Junkkari’s discussion about values is presented in the figure below (Figure 4).
Value mapModified from:Aaltonen, Junkkari, YrityksenArvot & Etiikka,1999, WSOY, pages 81-97
Feelings
Commonsense
PracticalValues
Ethicalvalues
Field of efficency:The Market
Field of principle:The Tower
Field of individualism:The Individual
Field of idealism:The Temple
Value mapModified from:Aaltonen, Junkkari, YrityksenArvot & Etiikka,1999, WSOY, pages 81-97
Feelings
Commonsense
PracticalValues
Ethicalvalues
Field of efficency:The Market
Field of principle:The Tower
Field of individualism:The Individual
Field of idealism:The Temple
Value mapModified from:Aaltonen, Junkkari, YrityksenArvot & Etiikka,1999, WSOY, pages 81-97
Feelings
Commonsense
PracticalValues
Ethicalvalues
Field of efficiency:The Market
Field of principle:The Tower
Field of individualism:The Individual
Field of idealism:The Temple
Figure 4, the value map
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
The field of efficiency in Figure 4 represents the typical market. The actors are very “hands-on” and
promoted values are based on rules and regulations provided by other actors (i.e. Stakeholders). On the
other hand, a successful company must also be able to innovate, which refers to the temple field in
Figure 4. This is quite opposite of the previous field. The balance between these two fields represents a
critical tension in a company, the need for innovation and the imperative for execution. The company is
at least at some level accountable for its workers and the society that is presented in the individual field
and for the government that is represented in the tower field. This framework provides a basic tool for
evaluating and comparing the different value patterns between the different players. The next task is to
clarify the fundamental rules, practices and questions to identify one’s position within the dimensions
presented in Figure 4.
3.3 Deontological and teleological ethics
Frankena [1] defines ethics as follows: ”Ethics is a branch of philosophy: It is moral philosophy or
philosophical thinking about morality, moral problems, and moral judgements. … Moral philosophy
arises when we pass beyond the stage in which we are directed by traditional rules and even beyond the
stage in which these rules are so internalized that we can be said to be inner-directed, to the stage in
which we think of ourselves in critical and general terms of autonomy and moral agents.” Frankena
divides moral thinking into three categories:
1. Descriptive empirical inquiry with the goal to explain the phenomena of morality.
2. Normative thinking asserting normative guides or debate about what is good or right in a
particular case or as a general principle.
3. Analytical, critical or meta-ethical thinking.
Deontological ethics is a branch that is generally based on duty. The forms of ethics related to
deontological theory of norms see that judgement of a norm is - at least to some extent - independent of
the results achieved when obeying the norm. Principal norms are independent of our non-moral values
that are principles as such2. Accordingly, the deontological theory of moral values is based on the
conception that the value of concepts and motives are independent of outcomes. The moral value of
acts might be evaluated on the basis of intention or virtues. The former can be called ethics based on
duties, the latter ethics of mood. (Ringbom; 1973.) [23]
2 Expression Deontological is related to Creek word "dein" which means "should" in the sense, that we ought to do
something.
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
One is to obey these norms and values that tell us what is right and what is wrong. This is the type of
argumentation that Socrates uses when arguing that one has to obey the law, which is in the form of
both essential and visible social structure. The ethics of Kant is deontological ethics, too. He thinks that
we have to treat every sensible being and, especially, humans not as tools but as goals as such. The moral
value of actions is dependent on moral law and not on consequences. [24] 3
The other option to evaluate moral discussion is to look for the outcomes of norms and values, namely
the teleological4 theory. In teleological theory of norms, the judgement of a norm is dependent only on
the results of obeying the norm. This type of an ethical system is called ethics of consequence.
Accordingly, in teleological theories of moral value concepts and motives are estimated by looking at the
manner in which the principles promote the right kinds of acts. (Ringbom; 1973.)
Teleological ethics is utilitarism. Benefit, happiness and avoiding agony as outcomes are estimates of the
moral value of actions. In the ethics of J.S. Mill, utility is seen, for instance, in the form of public good
and education, which is one form of modern social thinking. (Mill, 2000, 16-17, 23-31).5 [25]
It is possible to describe deontological and teleological types of thinking by referring to Kant and J.S.
Mill:
Kant: moral law moral value or act Mill: outcomes
Both are looking for the good and the good life. And the concepts of the good life in practical terms
seem to be somewhat alike. Only the path or the method to achieve the goal of high life is different.
3 It is possible for companies to base their values on this type of argumentation. For example, “We show respect, care and
interest towards each other.” There is also often a hidden message related to how we should act. These norms are obeyed
because they have value as such, not because of the outcome they produce. 4 The term “teleological” is related to the Greek word "telos", which means outcome or goal. 5 Many people think that the ethics in companies is primary of teleological type. Actions among people are based on an
economical or some other benefit. However, the real situation is more complicated.
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
In addition, in the meta-ethical theories of norms and values, it is possible to make a distinction between
semantic and logical theories of norms and semantic and logical theories of values. When looking at the
relations of these different kinds of theories one can see that normative theories are usually based on
meta-ethical ideas. When a choice is made between the teleological or deontological normative theory,
the decision is greatly dependent on whether or not we accept the meta-ethical viewpoint that norms on
the average are dependent on our values. Accordingly, the meta-ethical conception that value can be
defined on the basis of factual feature will limit us to use these features as a sign of ethical value. When
looking at the mutual relationships of normative theories, one can see that all teleological theories
presume elements of some normative theory related to value. In order to make the decision on right and
wrong behavior, one must be aware of what kinds of consequences are good and bad. Deontological
theories of norms have not necessarily any relation to different concepts of values. (Ringbom, 1973.)
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
Mårten Rinbom categorizes ethical theory and the relations between different theories in general
as follows.
Normativetheory of
norms
Normativetheory of
values
Meta-ethicaltheory of
values
Meta-ethicaltheory of
norms
Deonto-log.
theory
Teleo-log.
theory
theory ofmoralvalue
theory ofvalues inaverage
logicaltheory of
norms
semantical theoryof norms
logicaltheory of
values
semantical theoryof values
pluralisticmonistic Deontolog.Teleolog.
Figure 5, roots of ethical theory, Source: Rinbom 1973.
Normative theory (conception)
B.1. values as such A. Norms B.2 moral values
1. Monistic 1.Teleological 1. Teleological
2. Pluralistic 2. Deontological 2. deontological
Meta-ethical theories(conception)
Figure 6, Relation between normative and meta-ethical theories, Source: Rinbom 1973.
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3.4 Views to ethics
As we can notice, the distinction between deontological and teleological ethics is not the only
dichotomy. In the western system, intent and virtue have an important role. This is especially important
when a judgement is made about one’s act, where the intent usually plays a significant role. Things that
lead to bad consequences but were made with good intent or for the public good can usually be forgiven
much easier than those made with undesirable or selfish intent. Among the teleological theories lies
Utilitarianism. Utilitarianism can be divided into many sub-categories but the most common ones are
listed in the following. Act-Utilitarianism stresses the individual’s act in a particular situation. General
Utilitarianism stresses that what is right for one person is right for anyone. An important question in
general utilitarianism is: “What would happen if everyone were to do so and so?” (This is what is often
asked from children.) Rule-Utilitarianism searches for the rule with the greatest utility for each
situation. (Frankena 1973, pages 34-59)
Logical positivism argued that the moral type of sentences does not describe facts; that is how things
are, but instead how things should be. This puts ethics beyond the border of scientific discussion.
However, explaining ethics irrelevant in linguistic or in respect of some special meaning turns out to be
inadequate for the explanatory theory itself. This approach is not sufficient when moral judgements are
analyzed. (Pietarinen & Poutanen; 2000, 49-52.)
Ethical points of view can be classified as ethical absolutism, where the real morality can be found by
using sense or thinking. In ethical realism, it is assumed that particular moral facts do exist
independently of beliefs, attitudes of agreements targeted at moral norms. Ethical objectivism is a
theory of moral reality, the good to know. Ethical relativism denies assumptions that sense or facts
could point out absolute moral standards. Conflicting moral concepts might be valid. (Pietarinen &
Poutanen; 2000, 99-100.)
3.5 Ethics of environment
Our relations toward the environment are sometimes regarded as a modern point of view. Thinking it
over, our social and economical systems are based on a biological and ecological foundation. The first
Greek philosophers were called natural philosophers because their interest was directed towards the
structure of the world and natural laws (Oksanen & Rauhala-Heyes, 1999, 7.). [26]
Mikael Stenmark [27] points out the need to analyze the relation to the environment from the point of
view of natural and social science and from the point of view of ethics in order to see biological, social
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
and economical factors and resources. According to him, everyone has some moral attitudes about right
and wrong, but to call this ethics, there has to exist some systematic and reasoned relation between
values and acts.
Stenmark makes a distinction between environmental ethics (miljöetik) and human-related ethics. The
former he describes by the attitudes people have – not towards each other but – towards the nature:
animals, plants, and the ecosystem. Ethical theory of environment is about whether or not people have
responsibilities in relation to other living creatures, what these duties may be, and what the consequences
of these duties may bring to life. Basically, it is possible to divide ethical views into a human-centered
and not-human-centered theory.
Human-centered theory of sustainable development is based on the principles shown in Table 2.
Table 2, Principles of sustainable development according to human-centered theory, Source
Elements of human-centered
ethics of environment
Explanation
Privileged position of humans – human need is the preference
Inter-generational justice – not only the preferences of the humans living at the moment,
but the rights of humans to be born must be respected
Intra-generational justice - fair share of resources within every generation, that is, between
the poor and the rich
Nature seen as a resource - nature is a resource that can be used as long as we do not
jeopardize the limits of the ecosystem or violate the rights of
other persons
Anthropocentrism - only a human is considered valuable as such, and nature carries
only instrumental value
In relation to renewable resources, it is possible to generate a weak or strong principle of justice.
According to the former, we have to offer the future generations an opportunity to meet their basic
needs. According to the latter, we have to ensure the same standard of living that we enjoy today.
The critique presented among non-human-centered theories about the ethics of environment concerning
the theory of sustainable development is that the latter sees nature as a resource for humans and for the
satisfaction of human needs. Instead of this view, one can argue that nature carries value as such. It can
be valuable to save nature, not for the sake of humans but for its own sake. The non-human theory
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Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3
argues that humans must learn to respect nature and structurally change the relation to nature. In the
branches of this theory, the biocentristic view argues that all life has an independent value. The
ecocentristic theory underlines that not only every living creature but also soil, air and ecosystem have
an independent value.
The practical definition of good and wrong among ecocentrists lies in what is good for the wellbeing in
societies of living organisms. The position of a human and the priority of different forms of living
organisms varies among the biocentristic theory and leads to varying estimations about rules: "not to
harm others" and "not to interfere." In the ecocentristic theory, a human has no different value from
other living beings. The terms related to ecosystems and good and bad are connected to: "principle to
protect, not to use and restore.”
Table 3, Branches of environmental ethics
Type of theory Goal in relation to nature Human-centered To use natural resources effectively and in the long term so
that this is possible for the generations to come, too. Biocentristic To ensure that humans in the way they use nature do not
violate other living things and their right to exist and flourish. Ecocentristic To ensure that humans in the way they use nature do not
violate the integrity of societies of living creatures (or integrity of individuals in these societies) nor pose a threat to their stability.
When we put environmental ethics into deontological and teleological context, it is possible to say that,
in the relation between human and nature, human-centered theories are more on the teleological side,
because they emphasize nature as a tool for human wellbeing. The ecocentristic theory lies more on the
deontological side, stressing the utmost value of existing ecological systems. Biocentristic theories are
more modest, but mainly on the deongological side, when emphasizing the central value of species and
creatures.
3.6 Synthesis
An essential and explicit way to study ethics is to analyze the principal elements of the practices related
to ethical thinking and behavior. Frankena has made a classification of ethical theories based on acts and
values. In order to deal with a simple and relevant concept of ethics, we have chosen the model of
Frankena. The different value systems and the argumentation behind them can be characterized by using
the framework provided in
Figure 7.
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ActsActs
ValuesValues
DeontologicalTheories
Some things are goodas such
DeontologicalTheories
Some things are goodas such
IDeontological theories
based on acts
IDeontological theories
based on acts
TeleologicalTheories
Some things producegood outcomes
TeleologicalTheories
Some things producegood outcomes
Classification of ethical theory , based on Frankena’sdiscussionin Ethics, 2nd ed., 1973, Prentice Hall
IIDeontological theories
based on values
IIDeontological theories
based on values
IIITeleological theories
based on acts
IIITeleological theories
based on acts
IVTeleological theories
based on values
IVTeleological theories
based on values
Figure 7, Classification of ethical theory
I Deontological theories based on acts:
There are acts that are good as such
II Deontological theories based on values:
There are values that are good as such
III Teleological theories based on acts:
There are acts which produce good outcomes
IV Teleological theories based on values:
There are values which produce good outcomes
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4 Describing the company’s environment
This chapter discusses the general environment of a company. It starts with a definition of the external
environment. After that, the stakeholder theory is introduced, which provides the tool for analyzing the
different interest groups of a company. At the end, there is a discussion about cultural aspects.
4.1 The external environment of a company
The environment of a company can be divided into the general environment, the industry environment,
and the competitor environment [13]. The general environment consists of six segments called the
economic, the sosiocultural, the global, the technological, the political/legal and the demographic
segment. The general environment is composed of elements in the broader society that can influence an
industry and the firms within it. Typically, firms cannot directly control these elements. The industry
environment includes Porter’s classical four dimensions [14], which are the threat of new entrants,
bargain power of suppliers and buyers, product substitutes, and the intensity of the rivalry in the market
place. These factors influence a company directly.
The External Environment
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
IndustryEnvironment
CompetitorEnvironment
EconimicEconimic
DemographicDemographicSocioculturalSociocultural
GlobalGlobal
TechnologicalTechnological
Political/LegalPolitical/Legal
Figure 8, The External Environment
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To take a closer look at a company’s decision-making, we must develop a model to characterize the
decision-making dimensions. One of the most accepted and most used models is the stakeholder model,
which will be introduced next.
4.2 Background for the stakeholder theory
Because one of the objectives of the VIP project is to provide normative guidelines for companies, the
strategic approach cannot be omitted. Strategic planning in a company can have a strong impact on the
whole market environment and, even further, on the surrounding society. A company cannot effectively
deal with the entire society, since it is a too big and fuzzy concept. Instead, the society can be regarded as
units which have interests concerning the company. These units are the stakeholders, which create a
basis for strategic planning in most companies. Even if the term stakeholder is not always used, the
companies tend to manage the relations between different groups that can be defined as stakeholder
groups [11].
Donaldson and Preston [15] argue that the stakeholder model can serve as a framework for testing any
empirical claims. They argue that the stakeholder theory has descriptive, instrumental and normative
aspects (see Figure 9). Briefly summarized, descriptive, instrumental and normative points of view
address the questions: what happens, what happens if, and what should happen?, respectively [18]. The
descriptive dimension means that the stakeholder model helps the company to identify the different
interest groups it has. The instrumental dimension means that the model can be used to evaluate and
identify, for example, different scenarios in decision-making. In the core of this model are the normative
assumptions that the company has towards its interest groups. The descriptive aspect is quite obvious,
but the two other aspects go beyond that. This means that the stakeholder theory has more to say than
that an organization has multiple interest groups. The instrumental dimension means that it establishes
the connections between the practice of stakeholder management and the achievement of various
corporate performance goals.
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Source: Donaldson, Thomas; Preston, Lee EThe stakeholder theory of the corporation: Conceptsevidence, Academy of Management.The Academy of Management Review, Jan 1995
Normative
Instrumental
Descriptive
Three Aspects of Stakeholder Theory
Figure 9, The Three Aspects of Stakeholder Theory
The stakeholder theory was originally developed in projects which tried to build a model for estimating
corporate social performance. Clarkson [11] suggests that the corporate social performance can be
analyzed and evaluated more effectively by using a stakeholder approach than by using models and
methodologies based on concepts concerning corporate social responsibilities and responsiveness.
Clarkson also mentions that managers tend not to act in terms of social responsiveness, social
responsibility or social issues and performance. They rather concentrate on managing their environments
through groups of stakeholders. One of the earliest books published about the stakeholder theory is
Freeman’s Strategic Management: A Stakeholder Approach, 1984. Since then the theory has been
developed by a myriad of authors, and it has been widely accepted as a basic tool for identifying the
playing field of a company. It has also become a standard way of providing an introduction to strategic
management.
Distinguishing between social and stakeholder issues seems to be a necessity. Clarkson gives the
following framework for distinguishing between social and stakeholder issues [11].
(1) A particular society determines what is a social issue by introducing legislation or regulation.
(2) When there is no legislation or regulation, an issue may be a stakeholder issue, but it is not
necessarily a social issue. The test whether an issue is / has become a social issue is the presence
or absence of legislation or regulation.
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One of Clarkson’s conclusions is that the analysis of stakeholders must be made on institutional,
organizational and individual level.
The stakeholder concept helps to identify the different interest groups which managers take into account
in their long and short-term management. The stakeholder theory is and can be related to the value
theory, which is especially in the interests of the VIP project, or it can be as well used as a basis for
normative judgements concerning the different interest groups that the companies must deal with.
The stakeholder theory has been mostly studied in the US as a response to the claim that a company
exists only because of the shareholders. The European situation is a bit different as there the other
stakeholders have been recognized far earlier. Likewise, the European legislation supports other
stakeholder involvement in a company’s decision-making. Such law is, for example, the Companies Act
of Britain, which mandates the directors to include the employee’s interests in decision-making
(Companies Act 1980) and the “harmonization” laws of the EU (Orts, 1992). In Germany and Northern
Europe, employees and some other interests groups often have a representative on the board. Japanese
companies have tightly connected and interrelated set of stakeholders.
Most of the authors of stakeholder literature agree that the role of a firm is to act as a nexus of contracts,
as can be seen in Figure 10.
4.3 Stakeholders defined
Rather than dealing with a moral or legal responsibility of the whole society, a company tends to deal
with different stakeholders6. Stakeholders are the individuals and groups who can affect and are affected
by the strategic outcomes achieved and who have enforceable claims on a firm’s performance.
Stakeholders with similar interests, claims, or rights can be classified as belonging to the same group:
employees, shareholders, customers, and so on [11]. Stakeholders continue to support an organization
when its performance meets or exceeds their expectations [12].
As we can see from the discussion below, there is no clear definition of the exact groups. This provides
flexibility to adapt the model to different situations. Two basic ways of dividing stakeholder groups at
6 "Stakeholders are persons or groups that have, on claim, ownership, rights, or interests in a corporation and its activities,
past, present, or future. Such claimed rights or interests are the result of transactions with, or actions taken by, the
corporation, and may be legal or moral, individual or collective..." (Clarkson 1995.)
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high level are presented. Donaldson and Preston argue that the “stake” that these stakeholder groups
have can be seen as a moral interest in the affairs of a corporation [15]. In his article Clarkson [11]
divides the shareholders into two groups. These are the primary stakeholders and the secondary
stakeholders. Both groups are discussed below.
FIRMFIRM
InvestorsInvestorsGovernmentsGovernmentsPoliticalGroupsPoliticalGroups
SuppliersSuppliers CustomersCustomers
CommunitiesCommunitiesTradeAssociations
TradeAssociations EmployeesEmployees
Source: Donaldson, Thomas; Preston, Lee EThe stakeholder theory of the corporation: Conceptsevidence, Academy of Management.The Academy of Management Review, Jan 1995
The Stakeholder Model
Figure 10, The Stakeholder Model by Donaldson and Preston, 1995
Primary stakeholders are typically comprised of shareholders and investors, employees, customers and
suppliers, which as a group are defined as the public stakeholder group. The governments and
communities provide infrastructures and markets whose laws and regulations must be obeyed and to
whom taxes and other obligations may be due. There is a high interdependence between a company and
its primary stakeholders. If any primary stakeholder group becomes dissatisfied and withdraws from the
corporate system, in whole or part, the corporation will be seriously damaged or unable to continue as a
functioning corporation. From this perspective, the corporation can be seen as a system of complex
relationships between different stakeholders with different rights, objectives, expectations, and
responsibilities. [11]
Secondary stakeholders are defined as those who influence or are affected by the corporation, but are
not in direct transactional relation with the company and are not essential to the corporation’s survival.
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The media and a wide range of special interest groups are considered secondary stakeholders according
to this definition. [11]
Donaldson and Lorsch divide the stakeholders into three categories. These include the capital market
stakeholders, the product market stakeholders, and the organizational stakeholders. Also Hitt, Ireland
and Hoskisson [12] use this approach in their book which is an introduction to business strategy and
strategic management. This view will be discussed next.
Capital market stakeholders include the shareholders and major suppliers of capital. Both of these
expect the corporation to maximize the value of the capital that they have invested in the corporation. If
lenders become dissatisfied, they can impose stricter covenants on subsequent capital borrowing.
Shareholders can express their worries in different ways, for example, by selling their stock. In most
American corporations, the shareholders are regarded as the most important group of stakeholders or, at
least, as the second most important group after the customers. Shareholders, according to the primary
stakeholder group thinking, have been strongly challenged in the 80’s and 90’s. This challenge has mainly
originated in organizational sciences, but also in business strategy and financing. For example, the
financing theory still aims to maximize the net present value of the company. However, this must be
carried out on a long-term basis. The maximization of net present value is not necessarily assumed to
benefit all stakeholders.
Product market stakeholders include customers, suppliers, host communities, and unions representing
the workers’ interests. In most corporations, the customers are seen as the primary stakeholder group.
The problem is that all customers are not equally profitable for the company. Another problem is the
service level that maximizes the customer value and the service level that maximizes the company value.
Organizational stakeholders include employees, non-managerial and managerial. They expect the
company to provide a good and secure place to work. These groups are usually satisfied if they work for
a company that is growing and developing their skills, especially the skills required for being an effective
team members and meeting or exceeding the global working standards. Should the company promote a
fast growth strategy or should it be more conservative? Fast growth might offer new opportunities for
employees, but conservative strategy might provide more secure jobs at least from the employees’ point
of view.
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per form ance per form ance per form ance per form ance
Capital market stakeholders • Shareholders• Major suppliers of capital
Product market stakeholders• Primary customers• Suppliers • Host communities• Unions
Organizational stakeholders•Employee•Managers•Non-managers
Stakeholders: People who are affected by a firm`s peerformance and who have claims on its performance
Source: Hitt, Ireland and Hoskisson,Strategic Management: Competitiveness and Globalization : Concepts, 4th edition, page 28
Figure 11, One possible way to classify the stakeholders
Donaldson and Preston [15] argue that each stakeholder group merits consideration for its own sake and
not merely because of its ability to further the interests of some other group, such as the shareowners.
They continue with the argument that the stakeholder theory does not imply that all stakeholders
(however they may be identified) should be equally involved in all processes and decisions.
The first of the above arguments is supported in the later work of Evan and Freeman (1988). They have
justified the stakeholder theory on normative grounds, specifically its power to satisfy the moral rights of
individuals. They assert that the theory of the firm must be re-conceptualized “along essentially Kantian
lines.” This means that each stakeholder group has a right to be treated as an end to itself, and not as a
means to some other end “and therefore must participate in determining the future direction of the firm
in which it has a stake” [15].
Preston and Sapienza [17] claim that stakeholder management does not necessarily need to be a zero
sum game. This means that the interests of one stakeholder need not be at the expense of the other.
Kotter and Heskett [16], who have studied a small number of high-performing companies, also support
this argument. Their finding was that these companies tend to emphasize the interests of all stakeholders
in their decision-making. However, there seems to be no evidence that the stakeholder management is
the best way of maximizing a firm’s conventional financial and market performance [15].
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To sum up the above, we can say that the stakeholders of any company include at least its customers,
employees, financiers and owners, partners and vendors, competitors, and the host communities. All
these groups have their own expectations of the company. A fundamental and difficult question for the
company is “to whom are we going to be most loyal.” This is not an easy question to answer, since some
of the interests of the groups in question can obviously be quite different. Nevertheless, identification of
values can make answering much easier. The stakeholders of a company will be discussed in more detail
in the following chapters. The main types of relations between these players, i.e. market, legal and
agreement, are discussed in chapter 4.4. Some key questions for further and more ethical discussion are
given in chapter 4.5.
The number of stakeholders is not perfectly clear. In some cases it makes sense to add categories under
those mentioned above. In some cases there might be more of these basic categories and sometimes less
– as, for example, the society can be seen as containing them all. A customer may be not only a customer
but also a partner or an owner. The multiple roles of the shareholders make it sometimes quite difficult
to define the groups. The most important thing here is to identify the most important ones to give a
basis for further discussion.
The question about profit sharing is also difficult. Should the employees and the top management get
equal benefits from increased profitability? Should the value be delivered to customers or to
shareholders or somewhere else? Certainly, the market mechanism plays a significant role in these kinds
of issues, but the stakeholders still have the possibility to influence. They are the markets even if an
individual usually has only a marginal possibility to influence.
4.3.1 Customers
Customers are often considered the most important group of stakeholders. This is because they create
the demand for the products and should, therefore, be the focus of all the activities within the company.
The main function when dealing with the customer is marketing, which is sometimes considered as the
most important function of a company. Market intelligence tries to give a good picture of what is going
on in the markets, but the company often wants to influence the development of the market as well.
The changing customer needs are the driver for development; thus, the market development forces a
company to develop its internal capabilities and control structure. The control structure influences what
kinds of competencies are built. These competencies have an impact on the market. This means that
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only by long-term development a company can have an impact on the markets. This, of course, depends
on the stage of the markets and the emergence of new technologies.
One of the key questions in marketing strategy is the segmentation of the customers. Then, there are
questions like price discrimination, which is usually discouraged by governments but sometimes seen as a
good thing (for example, price reductions for children, students, etc.). The related questions are the
different subsidies paid by the government.
Sometimes the sphere of customers is limited, sometimes almost the whole population can be regarded
as (potential) customers. Therefore, the definition of customers may be near the definition of "the great
audience." Customers and the general public formulate ethical demands for the company, but enterprises
and branches of industry will address ethical demands directed towards them, too. For instance, respect
for intellectual property right and illegal copying of software products are the most important issues, and
the form of ethics people adopt influences their behavior in this respect.
For example, the latest Finnish enquiry related to ethical views and expectations among the population shows that
57% regards as very important and 38% as somewhat important that companies in Finland construct ethical
rules to be obeyed and controlled. 69% of the population think that ethical drawbacks exist in entrepreneurship
and commerce and only 10% are of the opposite view. The Finnish people seem to think that (at least the first two
?) the main defects lie outside the country and in connection with other cultures and political areas, because the
main problems are regarded as the use of child labor, violating human rights, polluting and spoiling the
environment, and women rights in the developing countries. The customers as consumers notify that they are very
sensitive of the conditions where the product is produced and think that the importance of ethical elements will rise
among them in the future. They prefer the companies to emphasize ethical principles in marketing, avoid child
labor, and they are prepared to pay more for products produced in an ethical manner. They will also reject
unethical products and see that the main problem is lack of ethical information. On the other hand, they express
low personal activity in searching information and announce concern about ethics but let us know that they seldom
act themselves. [28]
The questions that companies must answer with regard to their customers include: what customers to
serve; every customer is not profitable, but is it profitable to leave some customers outside the service?
4.3.2 Employees
Employees offer their knowledge to and work for the company. This capacity is an increasingly scarce
asset, especially, within the IT industry. Traditionally, from the employee’s point of view, the company’s
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ultimate goal is to provide a fair salary and often the possibility to develop one’s own skills. In practical
terms, relations are amazingly complicated, including law, agreement, labor relations, social, medical,
management, sub cultural, etc. In addition, the forms and rationale of organizing work and business is
developing and dispersing. Historical roles based on formal rules are losing their importance and
working in value-added chains and value-added networks, the knowledge-based nature of work, data,
communication and social technology are reforming both the concept of the company and the identity
and functions of an employee. The forms of values, responsibility, commitment, share of value
produced, and final goals are in the process of development. To understand and deal with ethics-related
elements of this complexity is a challenge. Because the answer needed may be company-based and based
on the resources allocated, the approach methods are important. One example of personnel policy lies in
the "Steissi Work & and Wellbeing program."
Steissi Work & Wellbeing Program
The aim of the program is:
1. Motivation at work, which supports creativity and innovation among the personnel
- Meaningfulness of work, which supports creativity and innovation
- Employees with good motivation develop themselves and their work
- Positive atmosphere
- Wellbeing
2. Quality
- Happiness and health among the employees
- Innovative atmosphere and environment where communication is easy
- Flexible cooperation between units and groups
3. Efficiency (outcomes / costs)
- Prioritizing the tasks
- Full-capacity work
- Resources and work are compatible with one another
Means:
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Development of work organization
Examining physical and mental health
Meeting places
Medical health and occupational safety & health
Information services related to health and working environment
Clinic for mental resources
Values & ethics
If the Steissi model is examined from the point of view of values, the policy enhances economical benefit and social
relations by improving the preconditions for work and individual & social wellbeing. The policy underlines a
human type of approach in the area of business strategy. From the ethical point of view, one can say that in the
Steissi model there is an ambition of treating people in the same manner, which enhances the general ethical type of
goals: happiness & meaningfulness. This may lead to economical gains, but a humanistic type of approach is a
goal in itself, too.
From the practical point of view, one can notice that an ethical kind of personnel policy and the theory of general
value within the company are not contradictory but elements to be put together. One must notice that between them
there might arise conflicts which lead to a more complicated contextual analysis in relation to ethical and
economical rationality. (For instance, periods of time, sharing of benefits, the essence of economical / ethical gain
and relations & expectations between employer / employees.) Human will and work are the most central elements
in any final output. The environment and the principles according to which activity takes place are important, too,
and dependent on ourselves.
What is the Human Resources Management's attitude towards the employees or different employee
groups? Are the employees seen as type X or Y?
4.3.3 Shareholders/Financiers
From a financier’s point of view, the ultimate goal of the company is to maximize the net present value
of its owner’s property in the long run. This does not mean that the managers should just stare at the
bottom line. Instead, it is the imperative that drives efficiency. This imperative is discussed a lot in
management of profitability literature. A good example is presented in references [10]. Recent
development in the IT sector has created a lot of tension between the employees and the owners. The
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trend in the market seems to be that even in capital-intensive sectors, employees can be sacrificed to get
the financiers trust the company. When the stock value dives, downsizing seems to be an efficient way to
calm down the investors. Rapidly changing stock value is a problem for all stakeholders. This is, to a
great extent, caused by the market noise. Speculators sometimes amplify the noise, which creates even
more unexpected situations.
The questions that a company must answer concerning its shareholders include: is the bottom line
always the most important, should owning be active or passive. [3]
The investors have three choices as regards a company’s ethical positioning. They can either ignore
ethical behavior, not invest in ethically susceptible business, or actively promote ethical business.
According to Koskinen [2], the seven signs of an ethical investment are human rights, environmental
policy, honesty, responsibility, HR policy, social accountability, and the business idea.
4.3.4 Vendors/Partners
Vendors and partners together with the company provide the product for the customer. The relation
between the company and its vendors and partners can vary from fierce competition to long-term
cooperation, depending on the market approach.
A key question is how to select the vendors and what kind of relation to develop. The recent trend has
been the creation of value networks that work for mutual benefit towards a common goal with selected
partners. In these kinds of relations, ethical rules create the basis for building the networks, legal
arrangements usually are too expensive and inefficient. Long-term relations guarantee that the parties
concerned learn to know each other. They also prevent the possibility of opportunistic behavior.
The key questions are:
- How to share the benefits?
- How to build long-lasting relationships?
- What happens in less prosperous times?
Vendors can be seen as a source of innovation and a means to make production more efficient. It seems
that even if there are no perfect markets in economical sense, the advantages of specialization can be
utilized within company networks that lower the transaction cost by promoting trust and lasting
relationships.
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Other questions a company must answer regarding its vendors and partners include: how to
reward/punish vendors and partners, what kinds of relations to promote?
4.3.5 Competitors
Competitors are often seen as the others who share the cake. They can also be seen as co-players that
create the market. This depends very much on the industry and the marginal differences between the
competitors. In the modern IT sector, competition is building up more between networks of companies
than between individual companies. Even if the early economists suggest that less competing units cause
less competition and do not benefit the customer, the opposite seems to be true. Competition and
product development in the IT sector is fierce. Benefits of collaboration are quickly transferred to
customers, because sustainable competitive advantages are extremely hard to attain. The emergence of
competition can also be seen as a good thing from the company’s point of view. It ensures customer
interest and the availability of complementary products. It also drives the development of new
technologies, which often open new opportunities and new markets. Competitors can be seen as a driver
for innovation and development. [4], [5]
A key question for a company is its attitude towards its competitors. They can be seen as rivals fighting
in the same markets and reducing the company’s market share or profitability. Alternatively, they can be
seen as market creators which help to build market awareness and speed up the development.
Our view to competition and the structure of markets is based mainly on Adam Smith’s theory of
perfect markets. Generally, the existence of competition is seen as a good thing, leading to the optimal
situation for the seller and the buyer. The existence of competition can also be seen as a good thing from
the marketing point of view, because it creates customer awareness. Governments and some other
institutions are to promote good marketing conditions. No company is allowed to gain dominance or
use its competitive position in a way that would create barriers for competition. How to deal with
competitors is an important question for a company. Should one compete with its excellence or
concentrate on the competitor’s weak points? Technical advantages are rarely sustainable. One way to
differentiate oneself from competitors is to recognize one’s own values.
4.3.6 Host communities / the society
Society is a large concept. Therefore, American literature uses the word host community instead, since it
is a narrower concept. The society can be regarded to represent all the stakeholders presented above. It
also includes the government, which has strong claims for the players in the markets. Society can be seen
as a stabilizing force. It provides the basic structure for doing business. Almost all shareholders have
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some duties with regard to the society. The basic duty is taxes. Often the goal of the most proactive
companies is to make the surrounding environment the winning one. This is usually achieved by
distributing the benefits to all the members in the production chain. It is in the company’s interests that
the partners, vendors and customers do good and profitable business. Then, also the investors and
employees must benefit.
An interesting question is what a company’s responsibility is towards the society. Many authors (for
example [2],[3]) who discuss corporate ethics divide companies into three categories based on their
attitude towards the society. The first category includes companies that do not fulfil or try to avoid their
basic responsibilities set by the local government, such as paying the taxes, employee health care, etc.
These “basic responsibilities” vary a lot depending on the region – even within a market or an industry.
The second category includes companies that do just what is necessary to avoid any trials or other
negative impacts, such as boycotts by consumer organizations, etc. The third category incluces
companies that fulfil their responsibilities and contribute to the society. This can be seen as building the
society. A difficult question to answer is whether a company should have a uniform policy covering all
the regions where it operates. A European company operating in China has obviously less governmental
or societal obligations in Asian markets than in European markets. This can be seen as a competitive
advantage or disadvantage, depending on the point of view.
Regarding the level of goal and application, one can take a relative attitude and notice that the
highest possible theoretical standard may be the aim, but applications are usually somewhat less
demanding.
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Standards of behavior and core values
Levels of behavior Core values present in every society
Theoretical - highest potential for good
Practical - extreme diligence toward moral
behavior
Currently attainable - basically moral; not
only the letter of law, good faith, common
sense
Basic standard - adherence only to the
letter of law, minimally acceptable behavior
Integrity - sound moral principle,
characteristics of honesty, sincerity and
candor
Justice - impartiality, sound reason,
correctness, conscientiousness, good faith
Competence - capable, reliable, duly
qualified
Utility - being useful, providing the greatest
good for the greatest number.
(See; Payne & Raiborn, 1997.)
Watrick and Cocharn (1985), following Carroll (1979), used the terms reactive, defensive,
accommodative and proactive to describe corporate strategy or posture towards social responsiveness.
This strategy can also be seen as characterizing a company’s stakeholder strategy. These four different
approaches are described briefly below:
(1) Fight all the way – Reactive
(2) Do only what is required (By whom?) – Defensive
(3) Be progressive – Accommodative
(4) Lead the industry - Proactive
An example of the existing certificates about social responsibility is SA8000 [6] (Social Accountability). It
includes the following areas:
1. Child labor
2. Forced labor
3. Health and safety
4. Compensation
5. Working hours
6. Discrimination
7. Discipline
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8. Free association and collective bargaining
9. Management systems
Companies that have achieved this certificate include, for instance, Mark’s & Spencer and The Body
Shop.
4.4 Relationships
4.4.1 General considerations
Interactions between ownership mode and approach to the relationshipSource: J Carlos Jarillo, Strategic Networks, 1993,
© Butterworth-Heinemann, page 131
Vertically integrated company Bureaucracy
Strategic network Market
Common ownership
No common ownership
Cooperative approach Non-cooperative approach
Figure 12, Relationship types in ownership and market approach dimensions
Figure 12 above describes four possible environments for any company. These can be seen as the basic
alternatives when deciding how to organize the business. Market relation is the easiest and the most
common, but it has its limitations. Bureaucracy often takes place in a state where proceedings may
become more important that the outcomes. Efficiency is not in the interests of bureaucracy. A bit more
efficient than bureaucracy is vertical integration. It makes control easier, but often lacks efficiency. As it
requires more capital, the risk for one company grows. Building strategic networks in flexible long-term
intent reduces the inefficiencies of market relation and the risk of vertical integration. However, these
kinds of relations are hard to build and maintain, as they require a lot of trust. One’s personal contact
network might be seen as an example of this kind of a network.
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The next chapters list some possible relationship types, not necessarily according to the discussion
above.
4.4.2 Market relation
Market relation is often the easiest and the most flexible one, but not necessarily the most efficient. As
the perfect market - described by the early economists - rarely exists, there is a lot of inefficiency in the
allocation mechanisms. This is because of transaction costs due to lack of trust. Market relation does not
require much cooperation and trust. In general, the parties try to benefit from each other. Only a
marginal additional value is added. Market relations are typically a zero sum game. This is about getting
the biggest piece of the cake.
4.4.3 Agreement
An agreement is the most beneficial. It requires mutual understanding and trust. The benefits are
achieved through collaboration and mutual trust. These kinds of relations usually lead to network
behavior, which has been studied in more detail by Jarillo and Gomes-Casseres (see references [4] and
[5]). This is about getting a fair share of the biggest cake. Agreements are typically not a zero sum game.
4.4.4 Legal
Legal relations are often the most inflexible ones. They are often the last chance if market relation or an
agreement fails. Legal relation often exists between a government and a company. In this kind of
relation, the parties do just what is necessary, but no more.
As mentioned earlier, the stakeholders of a company are the ones who have a great impact on the rules
the company must take into account. Governments still set and control legislation and many of the other
main rules. However, companies are strongly trying to shape their environment to change the rules into
what fits their strategy. Playing by someone else’s rules is a clear disadvantage.
4.5 Questions
There are still some relevant questions to answer, which cannot be classified as a certain stakeholder
group. These are typically related to companies' processes and include the following:
• Should high quality be promoted or is low price more important?
• Is price discrimination favorable?
• How should the value be allocated in the value chain?
• What is the role of innovation? There is often a choice to be made between high innovation
(long-lasting patents) and fast market development (short patents).
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• Does a company have a consistent set of values throughout the organization, and can an
individual employee accept them?
• What are good marketing practices? There are a lot of professional codes about ethical
marketing, but have they been adopted?
• Responsibility cannot be delegated. From an ethical point of view, letting things happen can be
regarded as having an influence on how things happen. What is a company’s responsibility for
what is happening in the markets or in the society?
4.6 Virtues
Plato and other Greeks thought that there were four cardinal virtues: wisdom, courage, temperance, and
justice. Christianity has seven cardinal virtues. The three “theological” virtues are faith, hope, and love.
The four “human” virtues are prudence, fortitude, temperance, and justice. Frankena [1] argues that all
the usual virtues, at least insofar as they are moral virtues, can be derived from benevolence and justice.
They can be seen as having to be fair and goodwilling towards other people.
The virtue that is stressed by the researchers of modern competition [4], [5] is temperance. Competition
no more divides the cake. Now the new players have to make the cake bigger in order to have a share of
it. As Gomes-Casseres says, ”It is not anymore about getting the biggest share of the cake, but getting a
fair share of the biggest cake.”
4.7 Cultural Aspects
4.7.1 Background
Schein defines culture as the shared basic assumptions and beliefs that operate unconsciously. Culture
can be identified on different levels, as can be seen, for example, in the work of Hofstede. His definition
of the culture at macro level is: “the collective mental programming of the mind which distinguishes the
members of one human group from another.”
Hofstede [8], [9] has conducted a research about values in 50 countries. He defines the differences
between the countries by four dimensions. These are power distance, uncertainty avoidance,
individualism/collectivism and masculinity/femininity.
Power distance is the extent to which the less powerful individuals in a society accept inequality in
power and consider it normal. In some cultures it is possible to tolerate a larger distance, for example,
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between the management and the workers than in others. For example, the action of a subordinate who
followed the unethical instructions of a superior would be more likely to be considered ethical in a high-
power-distance society than in a low-power-distance culture.
Uncertainty avoidance is defined as the extent to which individuals within a culture are made nervous
by situations that are unstructured, unclear, or unpredictable, and the extent to which these individuals
attempt to avoid such situations by adopting strict codes of behavior and a belief in absolute truth.
Cultures with strong uncertainty avoidance are active, aggressive, emotional, security seeking, and
intolerant. On the other hand, cultures with weak uncertainty avoidance are contemplative, less
aggressive, unemotional, accepting personal risk, and relatively tolerant. Uncertainty avoidance has three
indicators. These are rule orientation, employment stability, and stress. As an example, members of a
strong-uncertainty-avoidance culture might be less likely to question or take action against unethical
work practices, because of strong rule-orientation.
Individualism describes the relation between an individual and the group. Hofstede defines
individualist cultures as being those societies where individuals are primarily concerned with their own
interests and the interests of their immediate family. Collectivist cultures, in contrast, assume that
individuals belong to one or more "in-groups" (e.g., extended family, clan, or other organization) from
which they cannot detach themselves. The "in-group" protects the interest of its members, and. in turn.
expects their permanent loyalty. [19] This raises the question of the common good.
Masculinity describes a culture’s valuation of traditional masculine values. Such are efficiency, hard
competition, material success, and respect for whatever is big, strong and fast. Feminine cultures tend
to have overlapping social roles for both sexes with neither men nor women needing to be overly
ambitious or competitive. Masculine cultures tend to value material, while feminine cultures tend to
value qualities as such and interpersonal relations and concern for the weak.
4.7.2 Some cultural dimensions of corporate ethics
If societies vary with regard to the cultural dimensions presented in the previous chapter, so does the
ethical decision-making.[19] Vitell, Nwachukwu, Barnes and James propose the following framework for
the conceptualization of the impact of culture on the deontological and teleological evaluation of
business practitioners.
Individualism/collectivism
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Business practitioners in countries that are high on individualism are less likely to take into consideration
informal or formal industry and organizational norms when following their own deontological norms
than business practitioners in countries that have high collectivism. The evidence suggests that business
codes are often developed but hardly implemented in the US.
Business practitioners in countries that are high on individualism are likely to consider themselves more
important stakeholders than the owners/stockholders. Business practitioners in countries that are high
on collectivism are likely to consider themselves less important stakeholders than the
owners/stockholders. This argument is supported by the fact that personal desire for wealth has been
found to be positively related to unethical behavior.
Power-distance dimension
Research findings [20] that suggest that in countries with small power distance individuals are more
influenced in decision-making by their peers than by their superiors. However, in countries with large
power distance, managers are expected to act autocratically without consulting subordinates. This
suggests that greater importance is given to the cues of superiors and more formal practices in countries
with large power distance.
Business practitioners in countries with small power distance are likely to take ethical cues from their
fellow employees, but business practitioners in countries with large power distance tend to take their
ethical cues from the superiors.
On the other hand, business practitioners in countries with small power distance are likely to regard
informal, professional industry and organizational norms as more important than formal codes of ethics
when forming their deontological norms, contrary to the business practitioners in countries with large
power distance.
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Uncertainty-avoidance dimension
The uncertainty-avoidance dimension is related to the capability to tolerate deviations in organizational
norms. The two extremes could be seen as the Japanese type Z organization, in which an individual
naturally seeks for the common good and the American hierarchical organization.
Business practitioners in countries with high uncertainty avoidance will be more likely to consider
formal, professional industry and organizational codes of ethics when forming their own deontological
norms than business practitioners in countries that are low in uncertainty avoidance.
Uncertainty avoidance also raises the question of who is considered the most important stakeholder –
the individual or someone else. In countries with high uncertainty avoidance, business practitioners are
likely to consider the stockholders and employees more important stakeholders than themselves, which
is opposite to the countries with low uncertainty avoidance.
Uncertainty avoidance would also have an effect on such ethical problems as “questionable actions.”
Masculinity/Femininity
Masculinity or femininity has an impact on whether some ethical issues are perceived as problems. This
suggests that business practitioners in countries that are high in masculinity are less likely to perceive
ethical problems than business practitioners in countries with high femininity. Likewise, business
practitioners in countries that are high in masculinity are less likely to be influenced by professional,
industry and organizational codes than business practitioners in countries which are high in femininity.
To conclude the proposition presented in this chapter, it seems that the teleological argumentation leads
more to the evaluation of the stakeholders. Deontological argumentation seems to lead more to the
evaluation of the current norms and previous experiences.[19]
Taken together, this suggests that decision-makers in cultures with high uncertainty avoidance and low
individualism with high collectivism consider other stakeholders (employees and shareholders) more
important than themselves.
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Decision-makers in cultures with low uncertainty avoidance and high individualism with low collectivism
are likely to consider themselves more important than other stakeholders.
Formal codes of conduct are likely to be emphasized when deontological norms are formed in cultures
with high power distance and high uncertainty-avoidance index. In cultures with low power distance, the
decision-makers are likely to emphasize informal industry and organizational codes, when forming
deontological norms. Also, the ethical cues of decision-makers rely more on the peers and fellow
employees than on their superiors, if power distance is low.
4.7.3 Other points
Culture plays a significant role in ethical standards. European companies tend to stress the right of
codetermination and the sense of belonging and responsibility. American companies tend to stress
fairness and equity.[21]
Religion tends to have a significant impact on market rivalry and people’s thinking about efficiency. For
Europeans, time is money, whereas in Arabic cultures things happen in their own time. Similarly, the
attitude towards chance is a significant characteristic of a culture. In western cultures, man is the shaper
of the environment, whereas in Far Eastern cultures one should search for the balance between man and
nature. [3]
Dividing cultures into high and low context ones can make a rough cultural division. A high context
culture has deep roots and is quite uniform. It has not been open to external influences, and things are
not discussed in a very straightforward manner. Such are, for example, Japanese and Arabic cultures. In a
low context culture, there are multiple traditions. Things are often expressed in words in a very
straightforward manner.
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5 Values and ethics within the company in relation to the environment
One relevant question is the absolute or relative nature of morality. Moral attitudes are not holistic
even within a certain organization, and it is often necessary to recognize one’s own attitudes as
well as the attitudes in the environment. This chapter provides the possibility of analyzing
divergent ethical statements.
There are different views about whether different cultures can understand the moral-related
attitudes of each other. If not, then all moral principles are relative. On the other hand, ethical
principles are often meant to be universal, and some authors think that it is possible to generate
absolute and universal moral theories. In between these opinions lies ethical realism, which argues
that moral sentences carry a certain entity of truth. (see Pietarinen & Poutanen; 2000, 16-19.) This
is not only a theoretical dilemma, but also a practical question for companies.
Vitel, Scott, Nwachukwu, Saviour, Barnes & James (1993) [29] argue that values and ethics are
strongly influenced by cultural elements and values. This leads to a different type of ethics when
US and Japanese morality are compared. Smeltzer (1998) [30] argues that the ethics of a certain
company can be solid, even though the ethics of the environment is different and varying. The
company can evaluate whether its own values and moral concepts fit the environment.
Vitel etc. (1993) Smletzer (1998) Culture Culture Company / Company / Values Values Ethics Ethics absolute impact optional impact
Figure 13, Culture, company values and ethics, Sources: Vitel (1993) and Smletzer (1998)
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To deal with the variety of ethical structures, one has to identify them and understand one’s own
standpoint as well as the standpoint of the counterpart. To achieve this, we must use the basic
elements of all ethical theories and build the analysis and understanding on those premises.
The critical question lies in the nature of a company’s own values (clarity, existence) and the
adaptability of these values in relation to the environment. This relation can be examined and
considered, and it can form a basis for making decisions on, for instance, starting to lay down
activities in some social / political environment.
5.1 Recognition of one’s own values
The recognition of values used within the company is the first task, when one orients oneself
towards ethical business policy. This means, in principle, analyzing and being aware of the ways in
which the actors - managers, white and blue-collar workers - think and act:
- What are the objects of basic or absolute values that one cannot doubt or have a suspicious
attitude towards?
- What are the values which will bring highly appreciated outcomes and what is expected of those
values?
- What kinds of acts are appreciated highly as such?
- What kinds of acts will bring the expected outcomes?
It is important that an internal view is - if not holistic and monolith – an organic one. How does a
company look for a customer in a business environment? What is the basic idea for value chain
like?
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5.2 Recognition of the values of a customer, the business environment and other
actors of the environment
The recognition of values used in the business environment is the second task when one orients
oneself towards ethical business policy. This means, in principle, analyzing and being aware of the
ways external actors - customers, government, media - think and act:
- What are the objects of basic or absolute values that one cannot doubt or have a suspicious
attitude towards?
- What are the values that will bring highly appreciated outcomes, and what is expected of those
values?
- What kinds of acts are appreciated highly as such?
- What kinds of acts will bring the expected outcomes?
What kinds of things do the customer or business environment expect, when dealing with the
company? How do the various actors deal with each other, etc.?
5.3 Compare your own values and the ethics of the environment and be able to
make an analysis
The third phase is to compare the values of one’s own organization and the values of the
operative environment. Usually, one will find out that the principal things appreciated are various
and complicated, but so are the mechanisms for producing or recognizing the valuable essence.
When one understands this, one can act in this area. It is possible to make an analysis including a
description of similarities and differences between the ethical framework of one’s own
organization and that of the environment.
5.4 Methods of formulating operative ethical aspects of the business policy
The next principal phase is an internal and external dialogue concerning the ethical aspects of behavior
and business, by case and by special environment.
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6 Stakeholders in business ethics
"The task for a philosopher is not to introduce concepts, which are unclear by nature. The
methodology of philosophy is logical analysis and the aim is to clarify the meaning. The work
for a philosopher is to interpret conceptual intuitions and make them explicit." (Pietarinen &
Poutanen; 2000, von Wright; 1953.).
What are the areas of ethics that we can use in companies? Who is / are the substances:
worker, manager, owner, customer, partner or organization? (See: Frankena; 1973, 83-85.) The
basic possible ethical discussion lies on two areas; on the environment of the company and
inside the company. Ethical values among these areas are always complicated. The possible
conflict might be minor or latent, but discrepancy can be essential and manifest, even
problematic. Therefore the company must be aware of its own ethical structure, ethics in
environment, and the company must be able to generate a policy to deal with these factors in
a reasonable manner.
In order to notice and analyze ethical guidelines within the company we have to first define
the areas where ethical statements and considerations are relevant. Secondly, we have to
analyze the nature of ethics. The same request exists when dealing with the ethics of the social
environment.
First of all, we have to define the relevant actors in ethical respect. Usually, ethics is connected
to people and human-related issues. Lately, the biological and ecological environment has
risen to the center of ethical and societal discussion, not because nature itself would be able to
present ethical standards or other claims, but because people have come to realize the
importance of the ecological structure as a precondition for life and social essence and, in
some occasions, the value of nature as such - without getting any benefit out of it. In this
paper, nature is regarded as an independent area of discussion, not because nature itself were
able to raise arguments, but because people have strong - and an ever increasing amount of -
attitudes towards good and bad policy in relation to the natural environment.
As for stakeholders, there are many ways to classify and describe them. Aaltonen & Junkkari
(2000, 252.) mention the following interest groups:
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Customers
Personnel
Shareholders, financiers
Subcontractors, partners
Competitors
Great audience, Society [3]
One other model is the model of Donaldson & Lorsch ( 1995.)
- Capital market stakeholders
- Product market stakeholders
- Organizational stakeholders (see page 26)
Another possible dichotomy lies in primary and secondary stakeholders (Clarkson; 1995.)
The model of Donaldson & Lorsch is more constricted than the model of Clarkson. The
former is centered strictly on business focus, while the latter takes into consideration several
societal aspects in addition. Both lack nature or the ecological environment as a relevant
stakeholder affecting the company.
The final decision on stakeholders can be made on an empirical basis, taking into account the
relevant ethical considerations. The stakeholders are:
1. Investors and especially the shareholders
2. Employees (blue and white-collar workers & managers)
3. Customers
4. Partners (including subcontractors and value chains)
5. Society (community, government, international organizations, employee & employer
organizations)
6. Media and publicity (more as a channel for claims but as an essence of visibility).
7. Nature (As a concern among people and as an essential foundation for actions)
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6.1 Relations and concepts
One thing to take into consideration is the relations in which ethical intentions and sentences
appear. These relations to stakeholders can be:
Type of relation example
agreement (employer)
law (government)
market (customer)
common interest (partner)
relevant opinion (publicity)
justified claim (investor)
Payne & Raiborn (1997) give five major issues that the code of ethics should address:
Organizational relations
Economic relations
Employee relations
Customer relations
Industrial relations
Political relations
And what kind of ethical behavior do these stakeholders expect? Aaltonen & Junkkari
mention ethical code areas which should be specially treated;
-Environment
-Societal thinking and responsibility
-The quality of products and services, ethics in production
-Pricing
-Good mercantile habit, honesty
-Personnel policy and human relations
-Diversity among the personnel, justice
-Respecting the values of the employees
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-Marketing
-Selling
-Buying (Aaltonen & Junkkari; 2000, 177-179.)
According to Koskinen (2000), investors look for seven areas of ethics in business:
- Human rights
- Environment
- Honesty
- Taking responsibility
- Personal policy
- Societal responsibility
- Business principle or idea
If one looks at the list of Koskinen, one can notice that some items are principles of behavior
or virtues (honesty). Some are (even unclear) expectations for some kind of pro-activity or at
least intervention (taking responsibility, societal responsibility). Some can bee seen - in
addition to the preceding ones - as structures of policy (personal policy, business principle or
idea). Some are some kinds of preconditions or "check lists" for functions as such (human
rights, environment). It might be possible to build a hierarchy of these different kinds of
claims. This is not in the center of our interest, but helps us to understand what kinds of real
expectations are addressed to the company. In figure 9, it is mentioned that one may find
some logical structure in claims of ethical type. All items may be relevant issues as such, some
form preconditions for higher actions, some can be regarded as virtues, and some are
complicated policy structures of ethical type.
Policy structureVirtue
PreconditionRelevance
Figure 14
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Table 4
Relevance Policy
structure
Precondition Example:
Human rights
Example:
Pro-activity
Virtue Example:
Honesty
Example:
Personnel
policy
6.2 Analyzing the relations
In analyzing the ethical nature in discussions and actions, we have to take into consideration
Values and Acts. We have to concentrate on the visible, i.e. explicit facts such as written and
spoken language. The aim is not to evaluate or argue nor to make any normative evaluation,
but to make the ethical standpoint visible, i.e. to arouse awareness and discussion.
6.2.1 Classification of ethical standpoints
According to Frankena’s basic classification, ethical discussion can be divided into four
categories. On the basis of the experiences we have gathered among shareholders, we can
define six categories. We must add nature / ecological environment to the list, not because it
would arouse any ethical thoughts, but because human beings have ethical values in relation to
nature. In addition, the company can have an ethical policy towards stakeholders, and
stakeholders represent the relevant social environment which the company must take into
account. The classification produces 56 logical categories of ethical statements. Those
principal viewpoints will be presented on the next pages. The texts within the boxes serve as
examples. Statements could be positive / negative or conflicting.
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7 stakeholders
Policy-of the company-of the stakeholders
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theoriesSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Deontological theories /values Some values are
good as such
Deontological theories / actsSome acts are good as such
Teleological theories /values Some values are
good because they lead togood things
Teleological theories / actsSome acts are goodbecause they lead to goodthings
Figure 15, Classification of discussion
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1.A. Ethical behavior within the company towards: Investors and shareholders
Deontological Teleological Acts
The company follows a policy that regards the shareholders’ and investors’ interests as a basic element in the operations of the company. In conflicting situations (environment, labor market) the company will maximize the benefit of the shareholders and secure the profit of the investors.
Treating shareholders and investors as a financial resource. Possible by maximizing the investments over a short or longer period. Investors are part of financial activities. The company is free to treat shareholders like any other market item; only to secure the investments needed. In conflicting situations (environment, labor market) the company will maximize the benefit of the company by maintaining the shareholders’ and investors’ interests towards the company. The respect for the shareholders’ and investors’ interests is dependent on the importance of the investment.
Values Respect for shareholders, because they are the kernels of the company.
Respect for shareholders, because they are indispensable for the financing of the company.
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1.B. Ethical behavior towards the company: Investors and shareholders
Deontological Teleological Acts
It is good when the company in its operations fulfils the essential functions. Investments are resources that make this possible and make it happen. (Ethical investment funds, public investments in order to generate employment, regional development, etc. The company can be seen as an essential element in the socio-economic structure.) (Continuity and societal respect )
The company should generate maximum revenues. The company is a tool for the investor’s or shareholder’s revenue. The company can or must be reorganized, sold or laid down if the financial rationality expressed by the investors requires this kind of policy. (Typical for floating, international capital looking for rapid growth)
Values The company is an entity as such, because there are many valuable things in the company and the company fulfils many valuable functions (employment, life of the community). (Typical for a leader who owns the company and invests in it in order to develop the company in the long run.)
The company can be either a good or a bad basis for financial profit. The company as such has no value. (Typical for an investor who is looking for quick or even speculative revenue.)
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2.A. Ethical behavior within the company towards: Employees
Deontological Teleological Acts
Treating people as personalities. Opening opportunities for perfection and happiness. (Kant) The company as an environment for personal and business activities. Creativity, minimum control, discussion as guidelines (The ethical rationality lies in the employees as human beings)
Treating, educating, developing and protecting employees in order to guarantee maximum output of the employees and minimize the costs related to employees. Looking for the maximum profit from the investments in the staff. (positive, functional flexibility - rationality lies in the employees) Any kind of personnel policy and use of the labor force is possible in order to serve the interests of the company (sharp, numerical flexibility - rationality lies outside the employees) (The ethical rationality lies either in the employees or elsewhere.)
Values People, even as employees, are valuable as such. People are the essence which is available to the company. (Employees as a goal; target and partner) (Kant)
Employees are a valuable resource of the company. (Employees as a tool or asset)
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2.B. Ethical behavior towards the company: Employees
Deontological Teleological Acts
Good work as the principle. Company as a place or system to do good work. (Strong work orientation. Good work as a source of satisfaction and as a model of life.)
Work or other actions efficient in order to get a fair share of the outcome or profit. Work as a tool for income and living. Regulation of work and income. Regulating rules between social partners. (Traditional / formal labor market system, based on agreements and negotiations)
Values Putting high or even essential value on work. Work as the essence or work as a part of human nature. Organization gives / offers an opportunity to work. (Protestant ethics, some work cultures)
Company as a tool for benefit. Awareness of any conflicting interests and values within the company and taking them account. (Employee orientation)
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3.A. Ethical behavior within the company towards: Customers
Deontological Teleological Acts
Policy and processes which can increase the customer’s benefit. The company is able to offer benefit to the customer. (Private or public orientation)
Dealing with the customers in a manner that ensures maximum (time, magnitude) revenue from the customers.
Values The company is needed, because it can provide solutions for customers’ problems. That is: the company is willing to offer benefit to the customer.
Customers are needed in order to sell products.
3.B. Ethical behavior towards the company: Customers
Deontological Teleological Acts
Respecting the output of the company as cultural artifacts. (Ford; / car / Increasing the standard of living and quality of life, enhancing liberation)
Carrying out operations or stopping them according to the benefit received. (Volkswagen: car / Cost-effective method of moving for everyone)
Values The company carries a special value and function in the customers’ (community / society) life. The functions of the company are both important and essential for the life style or culture. (Car factory; offering work and wealth when manufacturing its products)
The company as a tool for serving the customers’ justified interest. (Car factory: producing vehicles to facilitate moving)
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4.A. Ethical behavior within the company towards: Partners
Deontological Teleological Acts
The company is needed, because it can provide solutions for the customers’ / partners’ problems. That is: the company is able to offer benefit to the customer.
Treating partners in a manner that is beneficial to them is a precondition for the benefits of the company.
Values The company is needed, because it can provide solutions for the customers’ / partners’ problems. That is: the company is willing to offer benefit to the customer.
Partners are needed for business. Respecting the interests of partners is a precondition for the benefits of the company.
4.B. Ethical behavior towards the company: Partners
Deontological Teleological Acts
Partners are running activities and policies as a part of the value chain, which has general and shared values.
Partners are running activities and policies, which will enhance their interest and benefits as an outcome of the process. (Traditional acceptance of joint operations and joint value-added)
Values Partners may respect the values and policies of the company on principal level. (The company may have some special pioneering role for instance during the periods of dramatical change)
Partners are respecting the company and its values looking for their own good / benefit when dealing with the company. (Principal acceptance for change)
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5. A. Ethical behavior within the company towards: Society (Community, government, international organizations, employee & employer organizations)
Deontological Teleological Acts
Trying to follow a policy which supports the value / ethical structure of the societal environment.
Accepting the behavior and the principles of the environment in operations in order to avoid conflicts and to continue and expand operations
Values Accepting and respecting the values of the societal environment as such. (democracy, Islamic law, etc.) Accepting the societal values as elements with their own value structure.
Respecting the values of the societal institutions and adopting them in operations in order to avoid conflicts and to continue and expand operations
5.B. Ethical behavior towards the company: Society (Community, government, international organizations, employee & employer organizations)
Deontological Teleological Acts
The societal environment accepts the values / ethics of the company because they are considered good as such or to be perfectly in line with the societal values.
The societal environment accepts the company when its operations support the value / ethical structures of the environment
Values The societal environment accepts the values / ethics of the company because they are considered good as such or to be perfectly in line with the societal values.
The societal environment accepts the company when it supports the value / ethical structures of the environment
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6.A. Ethical behavior within the company towards: Media & publicity
Deontological Teleological Acts
Actions and a policy that take into account and support public discussion are good.
Publicity can be used for the benefit of the company.
Values It is good to enhance publicity and openness.
Publicity is an opportunity to understand and mirror the environment.
6.B. Ethical behavior towards the company: Media & publicity
Deontological Teleological Acts
The policy of the company is exceptional or leads processes of ethical type. (Fighting disease)
Instrumental orientation towards the policy and operations of the company when they promote the goals regarded as good in publicity. (Good image)
Values The values of the company are exceptional or lead ethical discussion. (The bank of the poor / women)
Instrumental orientation towards the company in relation to the values and principles that can be used (Good reputation)
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7.A. Ethical behavior within the company towards: Nature & Ecological environment / In human respect
Deontological Teleological Acts
Acts / a policy that are considered good as such for the environment. For instance: Maintaining biodiversity regardless of the costs
Acts / a policy that in relation to maintain biodiversity brings wealth, employment or regional development For instance: Harvesting environmental values and interests (as a tool) in commercial or societal policy
Values Ecological principles are good as such. For instance, respect for nature, identification with nature, silence.
Following ecological principles that produce good things. For instance, values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development.
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7.B. Ethical behavior expected of the company: Nature & ecological environment / Human aspect
Deontological Teleological Acts
Acts / a policy which are considered good as such for environment. For instance: maintaining biodiversity regardless of the costs
Acts / a policy which in relation to maintain biodiversity is brings wealth, employment or regional development For instance: Harvesting environmental values and interests ( as a tool) in commercial or societal policy
Values Ecological principles are good as such. For instance, respect for nature, identification with the nature, silence.
Following ecological principles that produce good things. For instance, values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development.
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6.3 Approaches to virtue
In analyzing ethics, we have made a distinction between the issue (target) and form (structure
of argumentation), the values and forms of ethics within the organization and outside of it,
clarifying one’s own position and understanding the attitudes of the environment, and
possibly reconciling these.
A. Areas of ethics
B. Forms and type of argumentation (structure of values = what is important)
C. Own ethics
D. Ethics of the environment
E. (Reconciliation between one’s own ethics and the ethics of the environment)
It is possible to start practical discussion from a theoretical point of view. Possible angles that
can be adopted are, for example, the ethics of Kant or or the ethics of virtue.
6.3.1 Virtue in ethics
What are the areas of ethics in substantial respect? What kind of behavior can be regarded as
virtuous? So-called cardinal virtues are principles on which ethics can be based. Virtue is an
element according to which one should act. This means that virtue is not only related to “what
to be” but to “what to do”. Virtue means the ability to select the right acts. (Frankena; 1973,
63- 64).
“Virtue, as Socrates says in the Meno, is not the power to achieve the good or obtain good things; it is acting
justly, honestly, temperately, and, we must add, benevolently.” (Frankena; 1973, 93.)
For Plato and the Greeks, the main virtues were:
Wisdom
Courage
Temperance
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Justice
In the Christian tradition, the main virtues are:
Theological Human-related
Faith Prudence
Hope Fortitude
Love Temperance
Justice
6.3.2 Virtuous behavior
What do we mean by virtuous? According to Kant, virtuous is convergent with "being worthy
of happiness". Virtuous behavior or acts of moral value are based on responsibility, sense and
universal moral rules. One can act according to rules regarded as responsibilities on the basis
of one’s nature or willingness to gain, but these acts have no moral value. Goals regarded as
responsibilities can be defined as "own process towards perfection and the happiness of the
others". (Walker; 1998, 16-21.)
For Kant the expression "business ethics" might be a problematic one. But the principles of
moral behavior are universal and therefore adaptable in any human activity. From this
perspective, a critical question might be: how can people in business strive for personal and
social perfection, and how can this behavior and these principles help the others involved, e.g.
customers, audience, etc. The critical thing is whether aspiration towards moral attitude
(ethics) is an integral part of the company. This means that the company can feel (feel,
recognize, operationalize) its responsibility and try to fulfil this responsibility in business. Only
this can be regarded as virtuous or ethical. The company can promote these kinds of ideas and
policies by nature or as a tool to reach other goals. According to Kant, these kinds of acts are
"accordant with responsibility" but not done by obeying the "demand of responsibility".
Trying to follow Kant, we could define the moral rule for an organization as follows: act in
business life in a manner that can be regarded as universal business behavior. Or act in
business in a manner which develops the competence and virtue of the actors. The
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central element in this process is respecting and supporting the human values of the
environment.
This means that every act that is right when I perform is right when any other person
performs it. And if it is not right when I perform it, it is wrong. (Walker; 2000, 42-43.)
This means - following the Kantian deontological type of thinking - that the interests of
shareholders or employees to gain from the company are not valuable in moral terms. This
does not mean that they are immoral. This means that they fall within the area of value theory
of behavior, which has no specific moral status. If an act is "right", it is right whoever
performs it. (Is it right that everyone can gain from the company? This can be the goal of
business strategy.) In addition, acts must be regarded as universal laws.
One aspect in ethical discussion is transparency. The ethics of a company can be taken up for
discussion for practical evaluation but also for further development.
In which sense is it reasonable to look for cardinal virtues in business policy is an interesting
question. Nobody can deny the relevance and attractiveness of such terms as wisdom,
courage, temperance or justice. Any organization will probably look prudent and show
fortitude, temperance and justice. These terms are culture-related and seem to be related to
the highest levels of contextual knowledge. This means that they are not only abstract entities
but also constructive elements of cultural and societal behavior and experience. Virtue in
practice is an actual and human principle to act. What can be regarded as virtuous in the area
of human rights or personal policy is a dilemma that should be discussed between different
audiences. It is not a dilemma as such, because universal definitions for virtue do not exist.
What can be regarded as virtuous is an estimation of the company itself and the audience, and
usually the company expects respect. On the basis of this estimation, the company can make
decisions, form social and economical models and include virtue as ethical principles in these
structures. Defining and developing virtue is a normative thing, not an issue for research or
analysis. The purpose of analysis can be to show the structure within and outside the
organization.
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6.4 Quantity and quality of policy
Efforts in the areas of ethics and policy can be regarded as positive / negative and active /
passive. The outcome in internal or external respect depends (disregarding the negative side)
not only on following the (minimum) norms but also on how actively the organization
implements and develops measures in these seven areas. One can add an operative element to
this theoretical distinction. Does the ethical view really work in the organization in such a
manner that it really and deeply affects daily operations? On that level there is no sense any
more to measure the amount of ethical elements but analyze the quality of ethical business /
behavior. This might be a paradigmatic change in an organization or in business. At least one
step forward is not to look at goodness itself but at the outcome of goodness. This should not
be taken to mean that a company adopts the role of a missionary, but in practice, this could be
understood in such a way that the company can look for a) its own processes and behavior
and b) the products and services from the ethical point of view and evaluate whether they
promote some special or common ethical value or principle. It is possible to include ethical
principles as an elementary element in business culture in order to enhance the resources of
both the company’s own organization and its customers and co-operation partners.
Some values may be more valuable than others. Aaltonen and Junkkari (2000, 225.) mention
the values of the rescue service according which actions are prioritized: 1. Human values, 2
Environmental values, 3. Cultural values, 4 Economical values.
6.5 Analysis of ethical discussion
A. The argumentation in ethics can be divided into teleological and deontological theories on
values and acts. By making this distinction it is possible to perform basic categorization of
discussion.
Teleological Deontological
Values
Acts
B. On the other hand, there is a need to define actual topics in ethical discussion.
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C. It is clear that being ethical is usually respected by the public. Anyway, it is easy to picture
environments and situations where high ethical orientation, for instance in the area of human
rights, might be a major obstacle for business in some countries or in some competitive
environment. How should one proceed? This is impossible for a researcher to say, but by
doing an analysis beforehand, a company can avoid painful and embarrassing or costly
processes.
The ethical code is culture specific, labor market specific, and even company and situation
specific in the sense that they are different. What is critical for the company is to consider its
own ethics and make a decision on whether the values are suitable or not, whether the
company is willing to cooperate, and which are the forms of interaction.
D. Who are the ones setting the norms?
Management
Shareholders
Personnel
Specialists
Customers
Others
and
E. What are the methods for setting ethical norms and evaluations?
Dictation
Discussion
Evaluation
Consulting
Sharing
Adapting
and finally,
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F. What is the actual normative content of ethical rules?
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7 Ethical tree / Draft for classification
In an ethical tree, it is possible to analyze the values of the organization and of the
environment. Basically, a division into 2+2 categories can be made. This distinction can be
made in every selected area of argumentation (for instance the seven ones proposed by
Koskinen’s). The first choice is between acts and values, and the second one is between the
deontological and teleological angle. Later on this can be used in every single selected and
specific area.
Own ethics:
ACTS / VALUES
Do you think that in real business life and practice it is better to follow good actions or good
principles?
Action
Value
Action:
Do you think that actions can be evaluated as good or bad on the basis of themselves or on
the basis of the outcomes of these actions?
Deontological view
Teleological view
Values:
Do you think that principles can be evaluated as good or bad on the basis of themselves or on
the basis of the outcomes of these principles?
Deontological view
Teleological view
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Ethics of environment / partner, society, etc.
ACTS / VALUES
Do you think that your partner/customer/personnel, etc., in real business life and practice
considers it better to follow good actions or good principles?
Action
Value
Action:
Does your partner/customer/personnel, etc., think that actions can be evaluated as good or
bad on the basis of themselves or on the basis of the outcomes of these actions.
Deontological view
Teleological view
Values:
Does your partner/customer/personnel, etc., think that principles can be evaluated as good or
bad on the basis of themselves or on the basis of the outcomes of these principles.
Deontological view
Teleological view
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The ethical behavior within the company towards:
Nature & ecological environment / Human aspect
Deontological Teleological Acts
Acts / policy which are regarded as good as such for environment. For instance: Maintaining biodiversity regardless of the costs Biocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail
Acts / policy which in relation to maintainin biodiversity bring wealth, employment or regional development For instance: Harvesting environmental values and interests (as a tool) in commercial or societal policy Anthropocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail
Values Ecological principles are good as such. For instance respect for nature, identify oneself with nature, silence. Ecocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail
Following ecological principles that produce good things. For instance values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development. I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail
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7.1 Evaluation of ethics
In the evaluation of ethics, one must define the following:
- Is discussion accepted as such (willingness to or not to discuss, to accept other
arguments and the right to formulate different arguments / one kind of arguments = the
opportunity to discuss and act in real terms) – opportunity for real discussion or not.
- Area of discussion (for instance human rights = what is the real essence.) – does the
argumentation fit the real issue?
- Topics (for instance: expression of political attitudes and the right to implement them
= real problem) – seeing the target of others
- Normative elements of this discussion (what is regarded as valuable in human terms) –
must be defined
- Type of ethical arguments (4 categories = the nature of arguments and how they fit
one’s own ideas / basic understanding of the agreement)
- Tension of discussion (high, low, no tension = the importance of the matter / need to
bargain)
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8. Ethics - the basic element of business
8.1. The nature of work in ICT-related environments
Work has been regarded as physical and mental activity at the work place. People
have used tools to improve their mental and physical performance. As regards
physical production, computer-aided manufacturing is integrated into computer-
aided design. This is a source for variety and customization of products. As for
mental work, data technology has integrated elements of office work: feeding and
processing text and data, creating images, documentation, archiving and
communication via data, voice, text and images. Communication technology has,
however, made it possible to discuss in real time or in an asynchronous manner, to
connect processes and network, and ICT creates virtual space for human thinking.
In addition, it is possible to use many technical systems to support human co-
operation and thinking in order to produce the knowledge needed.
The most relevant phenomenon in modern economy is to produce special
knowledge for the customer. This production process is both individual and social.
Knowledge is created in human minds by sharing ideas and building social and
technical environments which support the production of knowledge. Formal work
organizations are becoming more flexible and versatile; joining value-added chains
and promoting ideas take more and more often place in value-added networks.
ICT makes this development possible, but on the other hand, technical
applications are expressions of our social organization.
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Walter Paavonen describes IST-enabled work as follows:
Definitions crucial for ‘IST-enabled cross-border work arrangements’.
What is IST-enabled work?
IST-enabled work is carried out by means of Information Society Technologies, (IST). Typical technologies that facilitate IST-enabled work – and on which the work and its location are strongly dependent – are e.g. telephone systems (public or company networks), Internet-based communication facilities, satellite transmission, computer networks, video conferencing facilities, virtual reality applications, etc. IST is synonymous with Information Technologies (IT) and Information and Communication Technologies (ICT).7
What is cross-border work? The work is carried out (remotely from another country) across national borders by a company unit, work group or geographically dispersed work team (virtual team), e.g. various services, customer support functions, sales support functions (call centers), remote systems maintenance, data processing, research work, software development, technical development work, planning work, clerical or administrative work, etc.8
7 Examples: -Databases, which are globally accessible via company communication networks, enable wide dispersal of the enterprise’s functions. -Internet-based working tools enable access to information independently of location of the work sites. -Distributed computer systems in which the units communicate with each other facilitate organizational flexibility in time and space. -The cellular phone – and the facilities to connect them to lap-tops - has essentially increased the mobility and the location options of work. -Video conferencing reduces travelling costs and the costs for remote work site locations. -Virtual reality applications simulating office environments, although not very common yet, mediate a sense of proximity and facilitate co-operation across distances. Etc. 8 Examples: -Virtual teams: Work teams or company units which collaborate across distances and national borders in order to complete common tasks or achieve common goals, e.g. to prepare a tender, to draft a marketing campaign, to draw up a budget or to prepare a production plan. -Various services: Printed matter and translation work (handbooks/manuals, product specifications etc.) where parts of the production chain are located in different countries.
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8.2. Benefits of ethics and the theory of intellectual capital
Earlier we have discussed how and in what kind of respect an organization or
company can be ethical. Ethics is related to human kinds of things: human values,
human attitudes, human nature. Organizations relate to performance, revenues
and efficiency. According to John McDowell, moral reality exists among such kind
of beings who can have an experience of them, that is, among those who have the
structure and constitution to make moral experiences possible. (Pietarinen &
Poutanen; 2000, 134.) In what possible and reasonable manner does an
organization or business process tend to be ethical?
The simple answer to this dilemma lies in the fact that economical and
organizational processes are very much human by nature. Structure and
constitution can make ethical experiences real. The outcomes of processes are
inseparable from human elements. In addition, the outcomes of processes - the
real value - must be marketed and consumed in the human and natural
environment. The value of these outcomes is real only in natural and human
environment.
Who should be responsible for ethics? Only the people within the company. It is
up to their free will to think, evaluate and build not only individual but social
-Customer support: Technical support functions, help desks, complaint services etc. established in locations, with good knowledge of languages, technical skills and/or low costs. -Sales support: Order processing, booking, telemarketing functions, which are established in locations, with good knowledge of languages, technical skills and/or low costs. -Remote systems maintenance, e.g. maintenance of computer software systems from remote locations. -Data processing , data entry, etc., which is located in low cost areas or in locations with good competence/work force supply -Research work, e.g. research units within large companies which co-operate in networks in joint research projects. -Software development, technical development work, etc., often take advantage of teams in different time zones in order to reduce production time, to level out work load, to improve access to technical skills or to reduce production costs. -Planning work and administrative work within management, financing, marketing, production, R&D, etc., in large multinational enterprises which take place across national borders
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agreements and systems to make ethical aspects visible and relevant in everyday
work.
How can we describe ICT-related economy and especially the ethical aspects of it?
Once again we have to define and model the main elements of economical
activities and take a look at what is the role of values and ethical values in this
respect.
In recent years, knowledge balance sheets have been used to describe the whole
value chain of a company from the point of view of intellectual capital9. Usually
they include the following factors pertaining to the company: a) objectives and
basic values, b) capital input, and c) information on the results.
ValuesProcesses
People
Infrastructure
Personnel
Customers
Innovations
Environment& Society
EconomicIncome
Objectives
ValuesProcesses
People
Infrastructure
Personnel
Customers
Innovations
Environment& Society
EconomicIncome
Objectives
Figure 16, The Structure of Knowledge Balance Sheets, Source: Information Society to Knowledge-based Society, Employment by
Innovation; Ministry of Labor, Helsinki 2000.
When we take a closer look at the dynamics of this structure, it is possible to see
that the processes and structures of a company are based on objectives and values.
This does not mean that they are some external entities. On the contrary, they are
inherent elements among people and forms of co-operation in processes and
structures. These elements influence customer relations, modes of personnel
9 "Intellectual Capital is the possession of the knowledge, applied experience, organizational
technology, customer relationships and professional skills that provide Skandia with a competitive
edge in the market". (Edvinsson & Malone; 1997, 44.)
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policy, i.e. relations with the environment and society in general, and they have a
great impact on the forms of the innovations or knowledge produced. Once again
this is the basis for economic income. (Compare: Edvinsson & Malone; 1997, 10-
13, 47-50.)[31]
When Dr. Sveiby describes the essence of knowledge and competence, he divides
the latter into five elements: explicit knowledge, skill, experience, value judgements
and social network. To Sveiby, knowledge is contextual and regarded as a capacity
to act. According to Sveiby, "...code of ethics gives focus and purpose to
knowledge creation." (Sveiby; 1997, 34-38, 123.)[32] As we noticed earlier, ethics is
a part of the values. Ethics is the way in which the company meets and treats
people, in this case the shareholders. Ethical consideration is one element when
stakeholders assume their position towards the company.
Cash on handFixed capital assetsCirculating assets
Additional market value
Contingent liabilities
Human resourcesInternal structuresExternal structures
LiabilitiesNet worth
Assets Liabilities
TangibleAssets
IntangibleAssets
VisibleCapital
InvisibleCapital
Cash on handFixed capital assetsCirculating assets
Additional market value
Contingent liabilities
Human resourcesInternal structuresExternal structures
LiabilitiesNet worth
Assets Liabilities
TangibleAssets
IntangibleAssets
VisibleCapital
InvisibleCapital
Figure 17, The "Perfect" Balance Sheet, Source: Ahonen Guy; Henkilöstötilinpäätös - myös
yliopistojen kestävän tuloskehityksen työväline, Universitas 1999, Helsinki 1999.
The elements of intellectual capital are of utmost importance especially in the new
economy and in the ICT branch. It is not possible to "see" the well-being of the
personnel or good customer co-operation, but they are realities of intangible assets
and can be realized as invisible capital. For instance, the brand of a company is
based on the structure and history of the company, but it is basically the
shareholders’ expression, attitude and impression of the company. A good brand
is usually extremely valuable.
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In the networking economy, based on value-added chains and value-added
networks, intangible assets are the essence of transactions and a precondition for
tangible ones. The stakeholders are less and less "external" elements in business
and more and more internal parts of the business and functions of a company.
This means that the concepts human capital, customer capital and organizational
capital will increase their value in the understanding and conducting of networked
type of transactions.
8.3. Opportunities, problems and restrictions of ethics
Dealing with ethical structures can be as complicated as processes usually are.
Objects for practical work can be questions like:
* What is the status of moral judgements when they seem to be in conflict with
other values? - This is perhaps the most common case.
* Can one demand another person to accept moral conventions which he has not
internalized? - People have different kinds of values and orientations.
* How is it possible to deal with ethical relativism, for instance in the form of
cultural diversity or essential contradictions? - This is relevant especially due the
globalization processes. It is easy to imagine possible modes of conflicts and
discrepancy between ethical considerations.
Some possible relations between different ethical concepts
separated partial within each other congruent fragmentary
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imbalance incompatible various hidden, unclear
* What kinds of moral judgements are relevant, when one is a member of several
organizations and networks? - This is a more and more relevant question in the
modern economy, which is based on value-added networks, ICT, and in the
modern identity, which is not dependent on people’s location.
8.4. Methods of dealing with ethical principles
The above questions must be dealt with in studies related to moral structures.
When we are trying to solve conflicting interests, we could use the classical theory
of Ralf Dahrendorf and assume that parties have to recognize the existence of
conflict, recognize each other and find agreement on rules in solving the actual
conflict.
Other methods are based on language and discussion. For instance, in Sweden the
concept of "democratic dialogue" was used especially during the late 80s and early
90s. Habermas emphasizes the deep structure between the social reality and
symbolic expressions. By studying the structure and intention of speech, it is
possible to estimate the preconditions for mutual understanding. In discussion, the
evidence of truth is a joint attitude about the validity of an argument. (See:
Pietarinen & Poutanen; 2000, 154-163.)
On the other hand, one can argue that it is not necessary or even desirable to get
rid of all conflicts. The idea of Dahrendorf was to manage conflicts. Conflicting
situations can be fruitful and sources for further development and paradigmatic
chances.
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Pauli Juuti raises an interesting constructivist view of understanding, formulating
and reforming reality. By discussion it is possible to create and express reality but
also to change concepts and adapt to the continuous change and continuous
appearance of different kinds of realities. (Juuti; 2001.) [33] The relation to ethics
lies in maintaining human values in approach. This means to keep the
environment reasonable, valuable and beautiful - worth living.
An interesting theory of Donaldson (see Payne & Raiborn, 1997.) is related to
different kinds of ethical languages: virtue and vice, self-protection through self-
control, maximization of human welfare, avoidance of human harm, rights/duties and
social contract. Payne & Raiborn suggest that especially the three last ones can be
suitable for the use of international business.
7.2 Normative structures in international economy10
The need for an accurate ethical estimation is based on the fact that the international
economy is growing rapidly and dealing with various legal, political and moral
atmospheres.
"...the growing interdependence of socially, politically, economically, and legally diverse
countries has caused multinational corporate entities to reexamine a variety of their
existing policies. These reviews have often created the need for revisions in strategies
about marketing, strategic alliances, competitive focus, customer service, and product and
service offerings and quality. These revisions result from the need to view the
organizational environment from both domestic and global perspective, with ever-
increasing awareness of alternative cultures, governments, and traditions... an overriding
concern for many MNC:s is the complexity of trying to transfer domestic ethical system
to nondomestid operations or adapting to the various ethical perspectives of host
countries." (Payne & Raiborn, 1997.) [34]
Betz & Schwarz-Wölzl [35] report that international ethical codes of conduct include:
• Respect for fundamental human rights and their adherence
10 Role of Codes of Conduct for Transborder Work is dealt with here only briefly, because the VIP project will deal with
these topics separately in greater detail.
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• Work relations, such as the right of freedom of association and collective bargaining; non-
discrimination at the workplace
• Political participation*
• Guarantees of employee benefits
• Sensitivity for socio-cultural conditions
• Transparency of payments, financing and taxation
• Protection of the natural environment
• Consumer protection
• Control of implementation of the codes of conduct
The major areas of codes identified by the OECD (1999) are the following:
Fair Business Practices
Observance of Rule and Law
Fair Employment and Labor Rights
Environmental Stewardship
Corporate Citizenship. (See Betz & Schwarz-Wölzl, 1999, 13-14.)
A US survey among 300 companies, related to the international code of conduct,
identified seven items that at least 80% of companies have internalized:
- Employee conflicts of interest
- Inappropriate gifts to corporate personnel
- Sexual harassment
- Unauthorized payments
- Affirmative action
- Employee privacy
- Environmental issues. (Payne & Raiborn, 1997.)
Another research gave five main factors among ethical issues:
- Gifts and entertainment
- Use of information
- Personnel issues
- Central and foreign government relationships
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- Politics and local relationships. (Robertson & Fadil; 1998.) [36]
There are several international codes of ethics recommended for instance by OECD, ILO and
CTC (Centre for Transnational Corporations). Many MNCs (Multinational Corporation) do not
feel that they are obliged to follow them, because they are written by governmental
representatives, and because of the lack of governmental ratification or acceptance of these
conventions. When these codes are analyzed, it can be seen that they are guidelines in the area of
government, general/public and individual. (Payne & Raiborn, 1997.)
Table 5, Guidelines given by international organizations, Source: (Payne & Raiborn, 1997.)
OECD non-binding
guidelines for MNCs
Competition, financing, taxation, employment / industrial
relations, science / technology
ICC "employers´
federation on
international level"
Investment policies, ownership and management, finance, fiscal
policies, legal framework, labor policies, technology, commercial
policies
ILO conventions Direct investments in developing countries, equality of
opportunity and treatment, security of employment, wages,
benefits/conditions of work, safety/health, freedom of
association, collective bargaining
CTC Centre for
Transnational
Corporations
45 instructions to MNCs in categories:
General/political, economic, financial/social, disclosure of
information, nationalization/compensation, jurisdiction
It is possible to make other classifications, too. When looking at the different codes, it can be seen
that some of them are related to minimum norms - like non-discriminatory treatment or torture.
Some have the nature of a right to something, such as freedom of speech and association. Some
may carry elements of development, such as the right to education.
One aspect that should be taken into account is the level or standard of the ethical code. Ethical
concepts have been subject to relativistic approach, in which it is admitted that human or
company performance can come nearer the theoretical idea of high good, but in practice the level
is dependent on will, ability and virtue. It is possible to see values in comparative perspective, too,
but on the other hand one can assume that there are some principal or even universal values
which companies face in every society.
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Table 6, 7-step scenario to develop a culture based framework for a corporate code of ethics, Source: Robertson & Fadil, 1998.
1. Analysis of cultural differences along Hofstede’s dimensions prior to the
establishment of codes of ethics will decrease the number of ethical dilemmas that
arise as a result of cultural misunderstandings.
2. An analysis of the dominant ethical philosophy in society, deontology versus
teleology, will aid in the development of a more effective code of ethics.
3. Performing an analysis of each nation’s environmental factors will help identify
potential ethical dilemmas and improve codes
4. The development of Culture-Contingent Code of Ethics will lead to a decrease
in fines related to unethical behavior and will minimize harm caused to citizens of
foreign nations.
5. Analyzing the specific characteristics of a moral issue, known cumulatively as the
moral intensity, prior to engaging in moral behavior will result in better decisions
by managers operating in foreign nations.
6. The moral decisions made by managers who follow a culture-contingent code of
ethics will result in more ethical behavior than if a code of ethics is not followed.
7. The continual evaluation of ethical performance, and adjustment of culture-
contingent codes of ethics will lead to higher ethical performance.
It is possible to present ethical theory linked to practical functions in business to ensure proper
performance and avoid ethical and economical disasters and minor problems. Robertson & Fadil
present a 7-step scenario to develop culture-based framework for a corporate code of ethics.
(Robertson & Fadil, 1998.)
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8. Conclusions and summary
To sum up, there do not seem to be any clear rules of business ethics. Rather, there is a set of practices
and frameworks that brings decision-makers into ethical considerations when dealing with different
interest groups. To further identify these models and the related normative valuations seems to be an
important task in the VIP D8. Ethics in business practices can be regarded as a responsibility in decision
making, when there are no explicit rules.
During this research, we have come to the conclusion that values in an organization are (or should be)
the results of an internal process and intention rather than explicitly stated norms. There are many paths
to find values and the ethics practised, and there are, in addition, several alternatives for selecting values
and the forms of ethics. The methods for reaching corporate ethics are important. One can notice them
as an integral part of business ethics.
RECOMMENDATIONS
When one looks for possible ethical structures, one can identify ethical types of opinions among
different stakeholders, an ethical policy towards them, and ethical expectations and demands from their
side. The dynamics of this discussion can be understood partly through ethical analysis and codes. At
any rate, what is most important is to start discussion and a process in order to define and implement
tailored ethical rules and recommendations for the company and for the special environment. In other
words, ethical theory, analysis and codes are guidelines and tools for a company to understand ethical
structures and use ethics as a real resource.
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9. References
[1] William K. Frankena, Ethics, second edition, Prentice Hall, 1973, page 4
[2] Lennart Koskinen, Kannattaako Etiikka?, Like, 1999
[3] Aaltonen, Junkkari, Yrityksen Arvot & Etiikka, 1999, WSOY
[4] Benjamin Gomes-Casseres, The Alliance Revolution – The New Shape of Business Rivalry,
Harvard University Press, 1996
[5] J. Carlos Jarillo, Strategic Networks, Creating the borderless organization, Butterworth
Heinemann, 1993
[6] SA 8000, source http://www.cepaa.org/
[7] Schneider, Susan C, Managing Across Cultures, Prentice-Hall, 1997
[8] Hofstede, Culture’s Consequences: International differences in work related values, 1980
[9] Hofstede, “Dimensions of National culture in fifty countries and three regions”, 1983
[10] McTaggert, James M, etc., The Value Imperative - Managing for Superior Shareholder Returns,
Cloth. Free P, US, UK, 1994, ISBN: 0029206707.
[11] Clarkson, Max B E, A stakeholder framework for analyzing and evaluating corpora, Academy of
Management. The Academy of Management Review, Jan 1995
[12] Hitt, Ireland and Hoskisson, Strategic Management: Competitiveness and Globalization:
Concepts, 4th edition
[13] Donaldson and Lorsch, Decision making at the top, 37.
[14] Porter, “input-output model”
[15] Donaldson, Thomas; Preston, Lee E, The stakeholder theory of the corporation: Concepts,
evidence, Academy of Management. The Academy of Management Review, Jan 1995
[16] Kotter, J. & Heskett, J. 1992. Corporate culture and performance. New York: Free Press
[17] Preston, L.E., Sapienza, H.J. 1990 Stakeholder Management and Corporate Performance.
Journal of Behavioural Economics, 19:361-375
[18] Jones, Tomas, Instrumental Stakeholder Theory: A synthesis of ethics and…, The Academy of
Management Review, Apr 1995
[19] Vitell, Scott J; Nwachukwu, Saviour L; Barnes, James H, The effects of culture on ethical
decision-making: An application of Hofstede's typology, Journal of Business Ethics, Oct 1993
[20] Zey-Ferrel et al,1979; Zey-ferrel and Ferral 1982
[21] Cohen, Jeffrey R.; Pant, Laurie W.; Sharp, David J., Cultural and Socioeconomic Constraints on
International Codes of Ethics: Lessons from Accounting Journal of Business Ethics, Sep 1992
[22] Pietarinen Juhani, Poutanen Seppo; Etiikan teorioita, Tampere 2000.
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[23] Ringbom Mårten; Etiikan haarat ja teoriatyypit, luentomoniste, University of Helsinki, 1973.
[24] Walker Ralph; Kant ja moraalilaki, Keuruu 2000.
[25] Mill John Stuart; Utilitarismi, Tampere 2000.
[26] Oksanen Markku, Rauhala-Hayes Marjo (eds.); Ympäristöfilosofia, Kirjoituksia
ympäristönsuojelun eettisistä perusteista. Tampere 1999.
[27] This chapter is based on text: Stenmark Mikael; Sammanfattning av projektet: Miljöetik och
miljövård, Våra värderingars betydelse för skapandet av ett miljöanpassat samhälle, Rapport från
ett projekt finansierad av Svenska Naturvårdsverket och MISTRA, Uppsala universitet,
Teologiska institutionen, 1999
http://www.hotel.uu.se/teol/homepage/mikael_stenmark/miljöetik.htm. The rwport seems to
be on line with prevailing ethical theory related to environment. See Oksanen & Rauhala-Hayes
(eds.) 1999.
[28] Reilun kaupan edistämisyhdistys ry.; Tutkimus suhtautumisesta eettiseen kaupankäyntiin /
yritystoimintaan.
[29] Vitel, Scott, J., Nwachukwu, Saviour, L., Barnes, James, H.; The effects of culture on ethical
dicision-,making: An application of Hofstede`s typology, Journal of Business Ethics 12, 1993.
[30] Smeltzer Larry R.; Why an international code of business ethics would be good for business,
Journal of Business Ethics 17, 1998.
[31] Edvinsson Lief, Malone Michael S.; Intellectual Capital, Realizing your company`s true value by
finding its hidden brainpower, New York 1997.
[32] Sveiby Karl Erik; The New organizational wealth, Managing & Measuring knowledge-based
assets, 1997.
[33] Juuti Pauli; Johtamispuhe, Aavaranta-sarja no 48, Juva 2001.
[34] Payne Dinah, Raiborn Cecily; A global code of Business Ethics, Journal of Business Ethics Dec
1997, volume 16, issue 16.
[35] Betz Fritz, Schwarz-Wölzl Maria Ethics, Business Ethics and the Role of Codes of Conduct for
Transborder Work Arrangements – Contribution to the TheoryReport (D3) of the VIP Project,
Internal Paper, First Draft, (Centre for Social Innovation, Vienna); Vienna, 27 March 2001.
[36] Robertson Chris, Fadil Paul A.; Developing corporate codes of ethics in multinational firms:
Bhopal revisited, Journal of Managerial Issues volume 10, Issue 4. Winter 1998.
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Exhibit 1.
Source: Cohen, Jeffrey R.; Pant, Laurie W.; Sharp, David J.,Cultural and Socioeconomic Constraints on InternationalCodes of Ethics: Lessons from Accounting Journal ofBusiness Ethics, Sep 1992
FundamentalPrinciples
DetailedGuidelines
Cultural values, e.g.,•Indidualism•Power Distance•Uncertainty Avoidance•Masculinity/Feminity
Socioeconomic Conditions, e.g.,•Level of ProfessionalDevelopment and Expertise•Availability of EconomicRescources
ETHICAL CONDUCT OFPROFESSIONALS
e.g., ACCOUNTING
•Aggressiviness in generating•retaining or billing clients•Acceptability of bribes•Independence ofmanagement
Factors affecting implementation of professional codes of t
Professional Codeof Conduct
Moderating Constraints Behaviors
International Environment
Factors affecting implementation of professional codes of conduct presented by Cohen, Pant and Sharp
[21].
87