The Evolution of the Global Business Ethics - Research Paper Example

Introduction The applied art of business ethics examines ethical principles and moral or ethical problems arising in the business environment. All aspects of conduct relevant to that of individuals and organizations fall under their umbrella of behaviour. Business ethics can be either normative or descriptive—the way things ought to be done from a management perspective as opposed to the way they actually are in the real business world. Explaining the normative, “Humanistic education...has to do with action. For by virtue of its subject matter, which is human experience … it implicitly addresses the questions that underlie action: How should one act? How should one live?” (Megone & Robinson quoting Allen, 2002: 23). As corporate management practice is primarily normative many of the examinations of how an organisation should act toward Third World Countries prompts the question how it should and can do better in ethical terms. In academia descriptive approaches to analyze and compare practices are taken as a means of judging how best those practices can be customized or altered to better suit the organization’s quest for more ethical ways of doing business. The extent of business ethical issues, how many we can come up with, in any given assessment largely reflects the degree to which the business may be at odds with social values. These values may or may not have anything to do with the economics of the situation. “...much of what masquerades as business ethics is nothing of the sort, having little to do with either business or with ethics” (Megone & Robinson quoting Sternberg, 2002: 25). Academic approaches to business ethics often get caught up in this distorted “reality,” using a directive approach that only appears to reflect what is actually going on in the organization and the environment in which it operates. The Historical Evolution of the Global Business Ethic Interest in business ethics came to the forefront during the 1980s and 1990s both within major corporations and within academia. “The involvement of multinational companies in the elaboration of a new Corporate Social Responsibility (CSR) agenda during the 1990s imbued investment considerations with a more political profile. A plethora of initiatives expressed the increased salience of the private sector to debates over the respect for basic rights in the developing world” (Youngs, 2004: 85). More than a few corporate web sites place a good deal of emphasis on commitment to promoting non-economic social values as part of their business ethics program. They publish ethics codes as seen on the web site of the Halliburton company (Halliburton, 2010), suppliers of products and services to the global energy industry, or they post social responsibility charters as published on the Nikon website. (Nikon Corporate Social Responsibility (CSR) Charter, 2009). In some cases, corporations such as British Petroleum have redefined their core values in the light of ethical business considerations with its web site tag, “beyond petroleum.” (BP, About BP, 1999-2010). This latter example while professing a code of ethics seems to suggest a marketing ploy rather than a serious attempt to improve in the area of ethical business practices and possibly just another attempt by business to “...reduce public pressures for stronger regulation and tougher policing of business” (Grace, 2006: 1). BP’s core business ethics will be severely tested over the next months and years as it tries to do what is “right” regarding the massive oil spill off the coast of the southern United States. As soon as businesses move beyond their own country and culture in search of customers and suppliers they begin to face new and wider challenges. This is to be expected, and has probably been so since the beginning of trade and commerce. Questions arise regarding how a company and its management can reconcile its home country’s laws and ethical principles with those of the countries they are trading and doing business with. Perhaps the day has finally come, by necessity, to “re-establish both corporate law and modern business on the same foundation of public service” (Atkinson, 2004: 1). Their [other countries] entire sense of business ethics may be completely different, yet despite this, more and more of them are turning their attention to ethical business practices, if only as a means of controlling corruption as a self-defensive mechanism among multi-national companies (MNCs) operating in their territories. As a result, more companies who operate in Third World countries are paying more attention to possible expensive-to-litigate legal court cases incurred when doing business with firms with less stringent ethical standards. “Worldwide watchdog groups, such as Greenpeace, and global news coverage networks, such as the BBC and CNN, also increase the risk of global public relations disasters” (Hoffman et al. Introduction, 1994: xiii). They get word out quickly and to large numbers if a company employs less than ethical practices, especially in terms of harming indigenous peoples of the Third World and their economy or environment. More and more businesses and their management are beginning to focus on the ethical ramifications of doing business on a global level, especially when it comes to preserving a sustainable environment—business, human and ecological—within those countries with lower economic status than their own. In short, the decision to develop ethical management practices is a matter of doing what is right as much as it is doing what is right and ethnical in terms of a company’s status in the worldwide community. Business Ethics in the Economic Downturn The following quote might be a good place to begin examining the effect of the recent downturn vis e vie business ethics. There was a “...widely held conviction in the early 1930s that the Great Depression was a direct result of the lack of ethics exhibited by the business leadership of the 1920s...accusations that the current downturn is a product of the excesses of the 1980s are omnipresent” (Noe and Rebello, 1994: 531). This fact presents an interesting “chicken or the egg” dilemma for both the global economy and for managers charged with applying business ethics. Written in 1994, a case can certainly be made for the latter assumption, and that apparently not much has progressed since the early 1990s in terms of ethical practice, at least when it comes to responsible business management of resources. As world economies struggle to sustain themselves lapses in workforces may get worse. Some suggest that as frustration and anxiety grows the tendency on the part of both employees and executives “who might never have considered engaging in unethical conduct...will be much more prone to ethical lapses when the economy is in free fall” (Lauren, 2009: para. 1). The most important topic relating to the current and post-downturn economics is how to maintain sustainability—one of the most pressing issues on the global economic agenda. Economic Downturn and the Food Industry What sort of business strategy in terms of sustainability might be used in the world economic downturn in the local, regional and global food industry is a complex discussion involving many aspects of business ethics and social welfare versus practical considerations on the part of managers. “An important aspect of business ethics is the fiduciary duty of managers to their employers” (Noe and Rebello, 1994: 531). Given this reality, and the fact that these responsibilities, too, are part of the business ethic framework, one might ask where the ethical duty to employer ends and where the ethical operational responsibility to those affected by industry begins. Are both equally important, or does one supersede the other? “Essentially the role of management is to manage changes that might affect its organizations....a proactive rather than reactive approach is warranted” (Michman & Mazze, 1998: xi). Starbucks and the Ethiopian Coffee Growers Starbucks in terms of selection of an industry presents an excellent opportunity to gauge the application and effect of business ethics because of its well-publicized high standards in this area. A recent conflict over its coffee trade in Ethiopia with small farm growers highlights the difficulties in maintaining ethical standards in the face of economic realties and their affect on all stakeholders. With economic downturns in the early part of the new century due to a glut of coffee on in the marketplace, farmers turned to growing narcotics. Organizations such as Oxfam concerned about a dwindling food market in the area asked Starbucks to encourage coffee production by providing fairer prices to farmers who produced it. The labor intensive process produced a profit of about one dollar per pound for farmers for coffee Starbucks sells for many times the price. The coffee, indigenous to the region and sold as such, had farmers charging that from a cost perspective have been “unable to capitalize on their intellectual property” (Faris, 2007: para. 1-12). Using a corporate tactic, the farmers filed for patents as a way “to rest profit from their distributors” (Faris, 2007: para 6). By seizing control of the brands the Ethiopian government hoped to force Starbucks into licensing agreements and eventually obtain a larger share of sales. At first resisting, Starbucks finally assented to the reality that the situation represented a possible public relations nightmare. To its credit, Starbucks up until the recent economic downturn spent $2.4 million in investments and loans to Ethiopia since 2002 as support for the burgeoning economy. In 2008, when the current global economic downturn hit, the economic fortunes of the world’s largest coffee chain went into freefall, calling current marketing conditions “the worst in its thirty-seven-year history...profits fell from $150.8 million...to $108.7 million” (Starbucks is Latest, 2008: para. 1-2). While the Ethiopian experience represents one ethical dilemma for Starbucks, its operations in other countries including Latin America, where governments are known to take sides with corporations over people, are subject to similar ethical questions. On launching its stores in Mexico and Peru, Starbucks has taken pains to show that it is benefiting local producers by offering its clients home-grown blends for which it has paid a price higher than the international standard. But some consumer organizations say this assertion is a marketing ploy and that the transnational firm could be doing more to assure that coffee producers get a fair deal. While closing 600 of its stores, laying off 7,000 in one year, in the U.S., and in the process limiting its offerings and employment in the regional setting, the giant is flourishing in Mexico and Puerto Rico with 150 new stores planned in the former over the next five years. (Luxnor, 2003: para. 1-22) One coffee-producing operation is a blend cultivated by700 campesinos at six cooperatives in Chiapas as part of a program promoted by the environmental organization Conservation International (CI), with which Starbucks has a long-standing partnership. The campesinos are partially financed by Starbucks and according to Starbucks and their Mexican subsidiaries receive 60 percent more for their coffee than they would if sold at market. According to the Minnesota-based Organic Consumers Association website, Starbuck’s claims of ethical treatment of farmers does not equate with the reality that hundreds of farmers are migrating north for work, while Starbucks in Mexico is charging almost the going U.S. price for a latte. Are they using the less financially stable Latin Market to offset losses in the U.S.? (see fig. 1)While Starbucks promotes its ethical business standards featuring free help to producers to improve their brands, one can only surmise based on actual operation that in doing so it is really benefitting itself. Starbuck’s new decision to offer less expensive non-coffee drinks is also bound to cut into the profit of local businesses who do not feature high end coffee drinks. (Luxnor, 2003: 1-22). Starbucks and the Three Business Ethics Models Archie Carroll: CRS and the Pyramid Model: The three ethical models of Archie Carroll; Ed Freeman and S.P. Sethi present different views of corporate and how behaviours within companies should be sought and achieved. Taking Carroll’s model into consideration first, a rather complex pyramid of responsibilities are laid out in what he sees at the only means to achieve the ethical behaviour of a company which includes as stakeholders the environment, employees and consumers to be legitimate stakeholders in business—the stakeholder list ever widening over time to include the legal community, retailers, wholesalers the list goes on. Carroll views ethical business behaviour from a multi- Corporate Social Responsibility (CRS) perspective holding responsible executives to balance both corporate interests with those of legitimate shareholders “framed by a pyramid of corporate social responsibility” (Carroll, 1991: 1) including those economic and legal (see fig.2); ethical and philanthropic (see fig. 3) with three moral types and orientation toward various stakeholder groups—owners, employees, (see fig 4.) and those of the customers and community (see fig. 5). Following these standards to the letter, Carroll maintains, is the only way managers can ensure that morality and not amorality in business survives in the best interests of all stakeholders. “If the ‘good society’ is to become a realization, such a high expectation only naturally becomes the aspiration and preoccupation of management” (Carroll, 1991: 19). Applications to the Starbucks model are mixed, with questions regarding how Starbuck’s attention to bottom line may be superseding the benefits of society both in the U.S., its home base, and those of other parts of the world in terms of the benefits gains by communities from its operations. Its legal attempts to forestall Ethiopian rights in terms of its regional coffee operations are telling in that although finally acquiescing to its legal challenges. In the downturn, it appears, the company has lost sight of its responsibility to U.S stakeholders, including its employees, in the interests of the bottom line. Freeman and Stakeholder Theory: Stakeholder theory has been articulated in a number of ways, but in each of these ways stakeholders represent a broader constituency for corporate responsibility than stockholders. Discussions of stakeholder theory invariably present contrasting views of whether a corporations responsibility is primarily (or only) to deliver profits to the stockholders/owners. Milton Friedmans (1912-) now-famous pronouncement that the only social responsibility of corporations is to provide a profit for its owners stands in direct contrast to those who claim that a corporations responsibilities extend to non-stockholder interests as well. Theorist Edward Freeman as father of stakeholder theory creates an even broader yet in some respects more defined view of ultimate corporate responsibilities to the various groups and individuals affected by its actions. For Freeman managerial relationships with stakeholders are strictly based on normative moral commitments rather than on a desire to use those stakeholders strictly to maximize profits. Claims of stakeholders are based on fundamental principles unrelated to the stakeholder’s value to the corporation [bottom line]. In ethical practice, a corporation should not ignore these claims simply because they may infringe on its business strategy or interests. Instead of being the result of its actions, stakeholder interests should be the foundation of corporate strategy an ethical corporation shapes its strategy accordingly. Freeman goes so far as to suggest that companies make up generic stakeholder matrices mapping all stakeholders : owners, financial community, activist groups, suppliers, government, political groups, customers, unions, employees, trade associations, and competitors would be filled in with more specific stakeholders. A more narrow view includes employees, suppliers, customers, financial institutions, and local communities where the corporation does its business. An ethical manager would consider the impact on each of these specific stakeholders. Given theorists such as Milton Friedman who insist a corporation’s only responsibility is to its stockholders, Freeman’s stance seems to sit far to the “left.” When analyzing Starbucks’s current approach in the downturn, it appears the company is trying to satisfy both perspectives, with an emphasis, given the information available, on profit maximization in a bad economy with making it appear, at least, to give due attention to stakeholder interests, particularly in the category of prime producers of its coffee supply. However, the seven thousand jobs lost and tendency to work through middle men in Latin America does not bode well for either the Freeman or Carroll models. And, while Starbucks undoubtedly considers its stakeholders, to a degree at least, under the law business managers may beneficially consider non-shareholder constituencies but are not legally bound to do so. As “...business ethics and legal ethics parallel each other in many significant respects, one would expect there to be proportionately great contact between the two fields. But the truth is quite the contrary; points of conscious contact between the two fields are surprisingly rare” (Atkinson, 2004: 1). Motivations for doing so may be pragmatic (for the long-term well-being and sustainability of Starbucks coffee-based business; or, for normative (moral). It is difficult to know which overrides the other in Starbuck’s decisions. S.P. Sethi: Ethics From the Top Down Model: S.P. Sethi’s theory presents “a radical diversion from prevailing literature in business ethics” Sethi suggests that instead of looking at the Starbucks case from the perspective that ethics and ethical changes come through company individuals [managers], that ethical standards should come top down company executives. (Sethi, 1994: Abstract, para. 1) In this respect, Starbucks CEO Howard Schultz, who has once again taken the reins of the company, needs to set true moral standards that despite the downturn should not deviate toward economic manipulation as currently practiced in Latin America to while softening the blow to the company bottom line may be discarding consideration for job loss among employees, customers who no longer have access to Starbuck’s products, and to growers in Latin American who may be victims of dealings Starbucks is making with third party distributors and price fixing at levels that do not benefit the wide range of customers in that part of the world. Its widely touted philanthropic efforts in short may not be quite as altruistic as they claim. From Sethi’s perspective, Schultz should be dictating the terms of its ethics and in using this model prevent the company from becoming “unhinged from the mooring of individual actions” (Sethi, 1994: 1) of stakeholders such as middle men who may not have the interests of other stakeholders, namely the original producers and their workers, at heart. Conclusion: Classical Business Management Theories vs. Modern Ethical Models Quite simply, classical business management theory focused on getting people to work, on scientific management and then on the bureaucratic organization itself, with a firm eye toward making a profit for stockholder. Modern management theories, largely due to the introduction of business ethics into the picture, also focus on people and the interests of all stakeholders, including future generations. The potential rub in all this is obvious. Old ways die hard, as they say, and the reality is a good and successful manager these days must do both. The problem related to Starbucks is succinctly laid out in a letter to company CEO Howard Schultz regarding the company’s recent decision given the economic downturn to sell it’s coffee liquored in liquor stores for possible purchase by under-aged drinkers, and the questioning of that decision vis e vie Starbuck’s social responsibility to a segment of its stakeholders—under-aged customers. Ballinger writes, “Our defining factor, what keeps our stores bohemian and trendy and our coffee in high demand is our tradition of corporate social responsibility. Customers feel that when they buy our product, they are in some way contributing to a better world, one where business is conducted in a way that benefits both customers and firms alike...” (Ballinger, Mercer Street: 163). Addressing the classical business theory approach, Ballinger goes on “ “We have always subscribed to Evan and Freeman’s Stakeholder Theory, that the stockholders are not the only party to which management is responsible, and while stockholders’ support is necessary to run a business, their needs cannot dominate those of the other stakeholders” (Ballinger, Mercer Street: 165). Can not or “should not” (the normative) here is the question, an age-old one. Should Starbucks cave in to non-ethical behaviour in times of economic distress? What, if any, are the alternatives? Taking heed of Sethi’s approach, Ballinger suggests, “...it is time for you Mr. Schultz, the leader and voice of the company, to take a stand for what is right and not just what is profitable” (Ballinger, Mercer Street: 167). Bibliography Atkinson, R. (2004). “Connecting Business Ethics and Legal Ethics for the Common Good: Come, Let Us Reason Together.” Journal of Corporation Law. Vol 29 (3): 469+ Barrintine, A. “Defining the Mermaid: Letter to Howard Schultz, Chairman of Starbucks Coffee Company.” Mercer Street Publications. No date. New York: New York University Publications (163-168.) Retrieved April 27, 2010 from: http://www.nyu.edu/cas/ewp/barrentinedefining03.pdf Bloom, L. (April 8, 2009). “In An Economic Downturn, Business Ethics Also Decline.” April 8, 2009. Retrieved April 27, 2010 from: http://www.thebusinessethicsblog.com/in-an-economic-downturn-business-ethics-also-decline BP Web Site, (1999-2010). Retrieved April 28, 2010 from: http://www.bp.com/marketingsection.do?categoryId=2&contentId=7013628 Carroll, A. (1991) “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.” Business Horizons, July-August. Retrieved April 28, 2010 from: http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf Faris, S. (February 26, 2007). “Starbucks vs. Ethiopia.” From: Fortune Magazine, Retrieved April 28 from: http://money.cnn.com/magazines/fortune/fortune_archive/2007/03/05/8401343/index.htm Grace. D. (2006). “For Business Ethics.” Australian Journal of Management. Vol 31 (2): 371+ . Halliburton Web Site. (2010) Code of Business Conduct. Retrieved April 28, 2010 from: http://www.halliburton.com/AboutUs/default.aspx?navid=976&pageid=231 Hoffman, M. W., Kamm, J.B., Frederick, R.E. & Edward S. Petry, Jr. (1994). Emerging Global Business Ethics. Westport, CT: Quorum Books. Lateline Business Web Site. (Tuesday, October 20, 2009). (Video) “Professor Freeman Discusses Ethics and Profits. Retrieved April 28, 2010 from: http://www.abc.net.au/news/video/2009/10/20/2719525.htm Luxnor, L. (November 26, 2003). “Starbucks raises some eyebrows in Latin America.” Global Exchange Web Site: Fair Trade. Retrieved April 28. 2010 from: http://www.globalexchange.org/campaigns/fairtrade/coffee/1315.html Megone, C. & Robinson, S.J., eds. (2002). Case Histories in Business Ethics. London: Routledge. Michman, R & Mazze, E.M. (1998). The Food Industry Wars: Marketing Triumps and Blunders. Westport Ct: Quorum Books. Nikon Web Site. (2009) Nikon Corporate Social Responsibility (CRS) Charter. Retrieved May 1, 2010 from: http://www.nikon.com/about/csr/policy/charter/ Noe, T.H. & Rebello, M.J. (1994). “The Dynamics of Business Ethics and Economic Activity.” American Economic Association. Retrieved April 29, 2010 from Jastor: http://www.jstor.org/pss/2118066 Sethi, S.P. (1994). “Imperfect Markets: Business Ethics as an Easy Virtue.” Journal of Business Ethics. Vol. 13: 803-813. From Jastor. Retrieved April 28, 2010 from: http://www.jstor.org/pss/25072592 “Starbucks is Latest Victim in Economic Downturn.” (May 1, 2008.) Retrieved May 1 from: http://stockmarketcrash08.com/?p=260 Youngs, R. (2004). International Democracy and the West: The Role of Governments, Civil Society. Oxford, England: Oxford University Press. Charts, Graphs and Figures Fig. 1 Starbucks Nasdax Performance Chart. CNN.com. http://money.cnn.com/quote/quote.html?symb=SBUX Fig. 2. Archie Carroll. The Pyramid of Corporate Social Responsibility: Toward the MoralManagement of Organizational Stakeholders, Business Horizons, July-August 1991. p. 2 http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf Fig 3. Archie Carroll. The Pyramid of Corporate Social Responsibility: Toward the MoralManagement of Organizational Stakeholders, Business Horizons, July-August 1991. p. 4 http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf Fig. 4 Archie Carroll. The Pyramid of Corporate Social Responsibility: Toward the MoralManagement of Organizational Stakeholders, Business Horizons, July-August 1991. p. 9 http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf Fig. 5 Archie Carroll. The Pyramid of Corporate Social Responsibility: Toward the MoralManagement of Organizational Stakeholders, Business Horizons, July-August 1991.p. 11. http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf The Coffee Industry (Starbucks) and Trade with Third World Countries: Developing a Business Ethics Strategy in the Economic Turndown Your name Professor’s Name Class name and number University City location of University Date Word Count: Read More