Leadership and ethics
Lecture 1
Business ethics and ethics are not the same. What does it mean to do work ethics?
Ethics: how we should act in certain situations, if you want/given that you want to do the right thing.
The right thing to do is to make money → common idea. It is not only profit making. Ethics is a lot
about arguing your point.
As an entrepreneur the right thing to do is to create value. It is not that simple, when is something
valuable? Is it when you make profit, is it when you make people happy? When are they happy?
What is the right thing to do?
- Make profit; but what if you harm people with that, still the right thing to do?
- Check the laws; if it is legal it is the right thing to do. Is what is legal the same as what is moral? For
example slavery, was legal, but still is it the right thing to do? Also not all that is immoral is illegal
(cheating on boyfriend).
- if we are good people, it is our intuition; some philosophers think that that is the best thing to do. But
even good people do wrong things (blind spots, societies are different)
- hire an ethics officer; maybe. There are still doubts whether you can trust someone else on this. You
decide how your team behaves. There are no real experts on ethics, lots is still uncertain. There is not
one right thing to do
- check the science/economics; facts are given, you can (dis)agree. Science and economics will not
give us the whole picture. For example, covid-19, scientist say that wearing a mask helps spreading
the virus. However, is it ethical to ask everyone to do it, or to make it mandatory.
,Lecture 2
Turing case; genetic drug, only one to produce, no competition. Raised the price by 5000%, by only
looking at a capitalistic view: the goal is to maximize profits, that is indeed what he did, his
stakeholders expect him to do that and is his primary duty.
Aetna case; raised minimum wage to 16$/hour, employees could also sign up for the richest benefit
plan for cheapest price.
Responsibility:
- Who did it? causal responsibility: who caused what has been done (for instance, broke a vase)
- Who is the person to blame? Can be different from who did it (dog owners are responsible for dogs,
parents are responsible for toddlers etc.)
- Role responsibility: was it their task
- Moral responsibility: can you blame them for what happened
- remedial responsibility: who will fix it (parents teenager, you can blame the teenager, but
they have no assets to fix what they did, insurance)
- legal responsibility
Criteria for an ethical framework
1. Backed by reasons
2. Tracks intuitions in obvious cases
3. Is action guiding
Shareholders approach:
Milton Friedman: leaders should make as much money as possible.
If reading further: The responsibility of managers is to conduct business in accordance with (the
shareholders) desires. They might not want to always maximize profit.
Argument: if you sign a contract you should respect it. Managers voluntarily enter sign contract saying
they will serve the interest of the shareholders. Managers should thus serve the interest of
shareholders.
Often the interest of shareholders is maximizing profit, thus often the responsibility of managers is to
maximize profit.
Contractual obligations:
Coffee example; you have accepted to do something for someone else (getting them a cup of coffee).
Agents will still have to act according to constrains (not cutting the line or stealing the coffee).
Managers and business owners have the same moral constrains on the way they maximize profit.
Background argument:
- property rights should be respected
- if you own something, you have the right to decide what to di with it
- shareholders own the firm
- therefore: shareholders have the right to decide what to do with their firm.
Constrains:
- property rights are not absolute
- the law is a constraint
- managers cannot and should not act instead of governments
Argue:
1. Is it enough to obey the law?
2. Do shareholders own the firm?
3. Do shareholders have a single desire/interest/preference?
,Stakeholders view:
Edward Freeman: Managers responsibility is to balance the right and interests of all stakeholders.
Stakeholder is anyone who can affect or is affected by a company’s activities.
- clients, government, owners, local community organisations, consumer advocates, special interest
groups, competitors, media, employees, environment, suppliers.
Ethical stakeholder view:
- the purpose of the firm is to serve as a vehicle for coordinating stakeholders interests. The purpose is
not to make as much money as possible, you need to put purpose back into capitalism. Business is
primarily about purpose and creating value for stakeholders.
→ argument
- managers should balance the interests of all stakeholder in their decision making. Everyone’s right
should be respected equally. When the law fails, managers should intervene and respect stakeholder’s
rights.
Argue:
1. What is wrong with making profit for profit’s sake?
2. Can/should a manager balance all affected interests?
Strategic stakeholders view:
- Devoting resources and paying attention to stakeholders tends to be profitable. Closer to the
shareholder approach. Acting in accordance with stakeholders’ interests is good for business.
- Managers should devote resources and attention to all stakeholders.
Argue:
, Required readings
The social responsibility of business is to increase its profits- Milton Friedman (1970)
The article was written in 1970, so a different state of mind can be noticed while reading. An example
of that is the first paragraph, where the writer preaches that the only concern for a business is to make
maximum profit, without considering externalities and social value:
‘’that business has a “social conscience” and takes seriously its responsibilities for providing
employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords
of the contemporary crop of reformers. In fact they are—or would be if they or any one else took them
seriously— preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting
puppets of the intellectual forces that have been undermining the basis of a free society these past
decades.’’
The writer states that only people can have responsibilities. However, a corporation, which is an
artificial person, could have artificial responsibilities, but ‘business’ as a whole cannot have
responsibilities. If there would be a form of responsibility in business, then it would be the
businessmen ( corporate executives), but not the business.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as
businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is
not in the interest of his employers. For example, that he is to refrain from increasing the price of the
product in order to contribute to the social objective of preventing inflation, even though a price
increase would be in the best interests of the corporation. Or that he is to make expenditures on
reducing pollution beyond the amount that is in the best interests of the corporation or that is required
by law in order to contribute to the social objective of improving the en vironment.
In each of these cases, the corporate executive would be spending someone else's money for a general
social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stock
holders, he is spending their money. Insofar as his actions raise the price to customers, he is spending
the customers’ money. Insofar as his actions lower the wages of some employes, he is spending their
money.
This is the main point the author is getting at. All decisions that are made have a consequence, as
displayed in the paragraphs above. The decision within the company leads to a different distribution of
money. The question is if it is right for ‘the company’ (its executives), to strive for ‘social
responsibility’, as that often leads lower revenue for the company, which is bad for the shareholders.
Would it be better if the company only strives for maximum profit, so that the shareholders and
employees can decide by themselves how they want to be s’ocially responsible’ with their earned
money.
The whole justification for permitting the corporate executive to be selected by the stockholders is that
the executive is an agent serving the interests of his principal. This justification disappears when the
corporate executive imposes taxes and spends the proceeds for “social” purposes. He becomes in
effect a public employe, a civil servant, even though he remains in name an employe of private
enterprise. On grounds of political principle, it is intolerable that such civil servants—insofar as their
actions in the name of social responsibility are real and not just window‐dressing—should be selected
as they are now. If they are to be civil servants, then they must be selected through a political process.
This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the
socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine
the allocation of scarce resources to alternative uses.
