POSTGRADUTAE PROGRAM: BUSINESS ETHICS AND SOCIAL ACCOUNTING, SOME GENERAL CONSIDERATIONS TO INTEGRATE THE PAPERS AND THE SLIDES OF THE COURSE

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1 1 POSTGRADUTAE PROGRAM: BUSINESS ETHICS AND SOCIAL ACCOUNTING, SOME GENERAL CONSIDERATIONS TO INTEGRATE THE PAPERS AND THE SLIDES OF THE COURSE ACADEMIC YEAR Author: Gianfranco Rusconi 1.BIRTH AND DEVELOPMENT OF BUSINESS ETHICS A certain superficial understanding of some prominent classic Authors of economics or modern and postmodern philosophy presents often economics and business administration as the territory of amorality, a sort of ethics-free area. An important conquer of modern evolution of economic and business studies is the autonomy of technical skills of the managers and the economists in the decision processes, but this birth of economics and business administration as autonomous disciplines does not imply a total refusing of the role of ethics. A.Smith was professor of moral philosophy at the university of Glasgow and his liberistic doctrine was thought both as directed to wealth of nations as a positive result and as inserted in an acceptance of a specific moral theory. The same Nobel prize M. Friedman, supporting a very radical deregulatory view of the economy, affirm, however, that the specific social duty of a manager is maximizing doing profits, but without deception and fraud and respecting law and ethical customs. As a matter of fact, also people thinking that maximizing profits (or shareholders value) is the only (also social) duty for business, is very often, more or less implicitly, recognizing at least that: 1) It exists a sort of moral frame (according to the various personal ethics views) to comply with; 2) the law has to be respected;

2 2 3) Producing richness and what is connected with this process (employment, knowledge and wealth diffusion) are morally appreciable or, in some cases, at least neutral. What is the novelty of the introduction of business ethics as a specific discipline? Business ethics studies and applications were borne for let scholars and practitioners aware that to make explicit ethics in business (and economics as well) is not so immediate and simple, also because it is asking for interdisciplinary skills. From 70s- 80s on, before in USA and after in Europe, has been developed a wide movement for studying business ethics as a specific field of studies and applications. Rapidly speaking, one fundamental immediate cause of this was (mostly in USA) the discovering of some scandals in big corporations (in 70 there was been Lockeed, with bribes paid abroad to important governors or political domestic interferences, with illegal funds), that got bad light on big enterprises, so jeopardizing the traditional truth of American people in enterprise and free market. The reoccurrence of scandals in more recent times (false accounting in Enron, Parmalat and others), till to the recent big crisis of the economy of the world that exploded as a consequence of a lot of bad finance, are coming up again the need to deepen business ethics issues. Bad ethics in finance and in management in general have as a consequence damages for the economy of the world, at least because unethical behaviors, if discovered, cause an increasing of the so-called agency costs, that are costs of preventing not correct behaviors. As important example it may be as well considered the consequences (on stock market and trust of financers) of bad accounting and not correct and transparent financial operations (that may also be linked with not correct accounting). Back to the short historical considerations, business ethics diffused after also in Europe, though with some different characteristics, also when in the more recent times, different world s areas are getting better homogenous thanks to the continuous exchange of papers, conferences and experiences, with:

3 3 a) birth of specific academic disciplines, with regular University undergraduate, postgraduate or PhD courses (in Italy later, in 2000, after the reform of 1999); b) emerging of scientific journals (the most diffused and important are Business Ethics Quaterly (USA), The Journal of Business Ethics (USA and international) and Business Ethics. A European Review (UK and European and international) and other are diffusing (like Business and professional ethics); c) diffusion of scientific (also with some practitioners contributions) organizations, like: Society of Business Ethics (USA and international), European Business Ethics Network (European and international) and others; d) interdisciplinary works, among scholars of management, philosophy, sociology, accounting, organization, marketing, theology and other; e) fostering of more studies on corporate social responsibility and social and environmental accounting, subject more or less indirectly connected with business ethics; f) Birth of specific laws and rules about corporate social responsibility, also with organizations connected also with the world of business, public and not for profit organizations; g) Introduction and development of ethical codes for companies and every kind of organizations. This kind of interdisciplinary studies is however very complex, because it implies knowledge of different disciplines, with the risk that a scholar could be facing a subject with not a complete knowledge of all the aspects of the considered topic. An help to avoid this risk can be from: 1) To define subsectors, that, though always interconnected in business ethics studies, could present more specific topics, for examples distinguishing ethics of management and business administration from ethics of economics; 2) To bring about a further division, introducing (always saving basic knowledge and general interconnections within business ethics) more specific studies: ethics of marketing or ethics of finance, labor, accounting and so on.

4 4 3. IS FIRM A MORAL PERSON? HOW? Can a firm be considered a moral person? How? Can a firm be thought as a real moral subject or moral responsibility could be given only to single persons? If we do not think a business organization as having something like moral responsibility in itself, it would be impossible speak adequately in term of business ethics and, therefore, business ethics would become only a part of personal ethics of individuals. At the origins of business ethics, mostly in USA, were worked out some philosophical theories to solve this issue. At the extreme corner we can find the proposals of French (1979) and Ladd (1970), that could be mostly thought as referred to big public companies with large diffusion of share by public. Firstly of all, French attributes to the big corporation a sort of autonomous Moral Personality (he use even the term Metaphysics ), independent also by that of single member or board of directors French (1979), refuses obviously a purely law-contractual view of the company, that for a company assigns moral responsibility only to the individual persons as part of a nexus of individual contracts. French points out that a company is an agent, with its own intentionality and a specific kind of moral responsibility, based on a view of responsibility grounded on the concept of accountability, that means: the duty to be accountable to someone with regard to a responsibility you have in doing something for him. According to French, being accountable implies a series of intentional decisions for which a company is accountable, therefore he says that a company has a moral responsibility like an Individual Person. On the other side, Ladd (1970) uses the concept of Formal Organization, as all sort of bureaucracies, private and public, big companies included.

5 5 According to Ladd, corporate decisions are like in a game plaid complying with specific rules, that are fixed (in connection with the aims of the game) by a formal structure to which persons, perfectly replaceable in their functions, can t rebel, unless leaving or, very difficult, upsetting the finalities, values and rules system whose are part. Therefore, following the Ladd s thinking, if the rules of game of the company management are, for example, to maximize profits as only aim, moral rules can influence the behavior of this formal organization only if they are taking account of this aim of the company. According to Ladd, a corporation can only be forced to be moral, by using a system of laws, regulations, awards and punishments: in this perspective regulation is the only way to obtain a moral behavior by a company. French and Ladd s views from a certain point of view are opposite with regard to the nature of a corporation as a moral subject with specific ethical duties, but both are grounded on a strong differentiation between company and personal ethics. The reflections of these two philosophers avoid to think a corporation as a nexus of ethical individual responsibility, but their positions are minimizing the role of individual consciences. A last observation is that these two authors do not consider the possibility that ethical behavior could be useful also for having a sustainable profit, but it has to be considered that this is a more recent result of business ethics and CSR s reflections, stakeholder management, studies as well. A third more intermediate position is that of Goodpaster and Matthews (1982), that try to found corporation s moral responsibility without resorting to a sort of metaphysical moral personality for a composite human product as a corporation. Goodpaster and Matthews use in a reverse way a concept of the Plato s dialogue Repubblic, that, very synthetically, uses his idea of equilibrium of the social components of a State, as a model to explain the equilibrium among the component of a human person.

6 6 According to Goodpaster and Matthews we can project on corporation some characteristics (for example respect of persons ) that are typical of the behavior of human beings, though not considering, like French, a specific conscience of a corporation Is it possible to joint partially the philosophical considerations of Goodpaster and Matthews with an operational view of moral conscience of the corporations, that, though saving single human person s responsibilities, could, at least only operationally, call corporations (and organizations in general) to a precise ethical accountability. In fact it is possible consider, here just for a short insight, to refer to Italian Economia aziendale (mostly its Systemic view, see Aldo and Antonio Amaduzzi books) that presents aziende (every organization, profit oriented or not) as organized and synergic systems. These systems are leaded, at different degrees of responsibility, by a top management whose aim is to save a long term sustainable economic, financial and capital equilibrium. In this perspective it is more emphasized the systemic and institutional aspects of the organization than the finality of make satisfactory profits for shareholders, that, in any case, have to be pursued in the long term. The enlargement of Firm System Theory in Ethical Firm System Theory ((precursors in C. Masini and V. Coda, see Signori and Rusconi 2009) let us be able to apply business ethics to a firm without minimizing individual personal responsibilities. Applying EFST is it possible to speak about a decisore aziendale (firm decider Rusconi book of 1997), as the group of persons that has the Authority to decide, in short and medium-long term, how to pursue the above mentioned equilibriums also taking account of ethics, that becomes firm ethics, corporate ethics, as essential topic of business ethics. In this contest it is at least operationally possible to call for ethical responsibilities the firm in itself, without speaking about either a person (French) or an intrinsic amoral mechanic structure (Ladd).

7 7 In this context is it also possible to apply more concretely the suggestion of Goodpaster and Matthews without to link necessarily the corporate moral responsibility to a Platonic analogy (though reversed). It has to be mentioned that the structure of the deciders is very different if the organization are public companies, large hard core (family or financial institutions) companies or small business. ETHICAL RELATIVISM AND OBJECTIVISM AND THE CASE OF HUMAN RIGHTS (INSIGHT FROM THE PAPER OF BOWIE) Individual extreme relativism let depend the elaboration of human rights only on fitting with various individual opinions. From the point of view of cultural (moderate) relativism, human rights are variable according to different historical conditions, culture and so on. This point of view could however imply that some international companies could accept, or at least not refuse, doing business in some odious forms of treatments of human persons (children exploitation, women discrimination or oppression, political opponents persecutions and even forms of slavery) if they say it as accepted in some specific culture. Objectivism affirms that there are some human rights whose ethical value and respecting regard all the persons because it is grounded on universal principles. According to this perspective is it possible to fix a set of universal rights to apply to all the actions of a company, though it has to be avoided the cultural imperialism, i.e. that a strong and dominant culture could impose its customs as universal values. Essential question is therefore to find a common base of human rights (like UN Declaration, though not always and everywhere respected after its birth) and distinguishing them from local customs and traditions, that are not to be considered as world law or ethical fundamental rights. In business ethics the just above presented is a very important issue, on that have been reflected some of the most prominent business ethics scholars (see for example

8 8 Integrative Social Contracts Theory of Donaldson and Dunfee, that has also been criticized by different authors) BUSINESS ETHICS AND RELIGION Business ethics is also connected with different religious perspectives. It is possible a certain practical convergence on some fundamental ethical values in business: not to lie, solidarism and charity, social justice. However in some cases different religious rules could influence in different way the managerial behavior and selection of strategies, that are to be faced with an open view, pursuing the aim of balancing economy needs and saving essential fundamental religious beliefs of every person. An example of applying of religion to business is in some part of Catholic Social Thought, where economy and business are oriented to Common Good (see also Argandona 1998, From one of my working papers: The common good is one of the four fundamental principles proposed in CST, along with the Dignity of the Human Person, Subsidiarity and Solidarity (Compendium, 160). These principles must be appreciated in their unity, interrelatedness and articulation (Compendium, 162). According to CST, the principle of the common good is a crucial reference for business: Businesses should be characterized by their capacity to serve the common good of society through the production of useful goods and services. In seeking to produce goods and services according to plans aimed at efficiency and at satisfying the interests of the different parties involved, businesses create wealth for all of society, not just for the owners but also for the other subjects involved in their activity. (Compendium, 338) Besides this typically economic function, businesses also perform a social function, creating opportunities for meeting, cooperating and enhancing the abilities of the people involved (author s note: in italics in the original text). In a business undertaking, therefore, the economic dimension is the condition for attaining not only economic goals, but also social

9 9 and moral goals which are all pursued together. The objective of a business must be met in economic terms and according to economic criteria, but the authentic values that bring about the concrete development of the person and society must not be neglected (author s note: in italics in the original text). (Compendium, 338) Common good relationships amongst a firm s constituents are also well expressed in the Encyclical Pacem in Terris : Men, both as individual and as intermediate groups, are required to make their own specific contributions to the general welfare. The main consequence of this is that they must harmonize their own interests with the needs of others, and offer their goods and services as their rulers shall direct assuming, of course, that justice is maintained and the authorities are acting within the limits of their competence (Pope John XXIII, 1961, n. 53). In other religions you can think to Islamic finance, especially important for the moral issue for a Muslim bankers and financial institutions or to Confucian ethics and working and business, not forgetting Old Testament Teaching and so on. BUSINESS ETHICS AND LAW Ethics and respect of the law are strictly connected. Somebody can observe that Ethics starts when finishes the law (European Commission about CSR, Green Paper of 2001). In this context ethics is needed to enforce behaviors that are independent by respecting law, that has to be complied in any case with. This definition from some respects is quite correct, but (especially in situations where law is largely not respected for a long time) complying with the law implies immediate economic burdens that only a personal ethical perspective can be able to accept.