Justice and Economic Systems & Corporations, Morality, and Corporate Social Responsibility

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<ul><li>Slide 1</li></ul><p>Justice and Economic Systems &amp; Corporations, Morality, and Corporate Social Responsibility Slide 2 Justice and Economic Systems Moral Evaluation of Economic Systems Economic systems can be evaluated in 2 ways Structural analysis. Involves evaluating the morality of the basic economic relation on which it is built, and analyzing the actions that follow as a result of that relation. End-state approach. Involves looking at what the system as a whole does to the people affected by it. 2 Slide 3 Economic Models and Games Though economics might be considered a game, economic systems when actually implemented are not games (Were not bluffing here). Frequently, economics is studied as if it had nothing to do with people, as if it was simply the study of abstract concepts ( supply, demand, money, price, profits ). Ultimately, economic systems are the ways in which people are related. Their relations are mediated by money, commodities, prices and wages, and supply and demand. Economic systems arent, ultimately, morally neutral. They should be examined from a moral point of view. 3 Slide 4 Capitalist Model There are three defining features of the model of classical capitalism: an available accumulation of industrial capital, private ownership of the means of production, and a free-market system. The model of classical capitalism includes industrialization and capital. It does not question where capital comes from or how it was developed. Because the model is not an historical account but an analytic tool, the presence of capital is given. 4 Slide 5 Capitalist Model (Accumulation of Industrial Capital) Capitalism derives its name from the notion that it is a system based on accumulated industrial capital. In a barter economy there is no accumulation of capital. Goods are exchanged for goods of equal value; there is no residue. 5 Slide 6 Capitalist Model (Private Ownership) The distinguishing characteristic of capitalism is sometimes said to be private ownership of the means of production. But this does not mean that everyone owns the means of production. The majority of people in our model of capitalism do not individually own means of production they use; theyre employed by others &amp; work for wages. Wages are the dominant source of income for the vast majority in our capitalist model. 6 Slide 7 Capitalist Model (Free-Market System) A free market is one that is not controlled either by government or by any small group of individuals. In a free market, government does not: set the price of goods set wages or control production. Competition is also vital to a free-market system. To try to achieve greater returns on investment, perhaps by taking more risk, resources must be free to move within the system to whichever portion of it someone believes will bring the greatest return. Slide 8 Capitalism and Government First, the model of Laissez-Faire capitalism. This model, fails to take into adequate account the good of society as a whole, opposed simply to the good of those who enter into economic transactions. A second model depicts government as the protector of capitalists at the expense of the other members of society [Fascism]. The third version of the model is one of governmental protectionism [Infant Industry]. 8 Slide 9 Capitalism and Government A fourth model assigns to government a variety of different tasks vis--vis business, all of which are responsive to the general interests of the citizens [Basic U.S. Model]. In the fifth version of the model, government and business cooperate for the sake of both business and the society as a whole [Industrial Policy]. The sixth version of the model comes closest to socialism [Democratic Socialism]. 9 Slide 10 Socialist Model There is no classical model of socialism as a purely economic system. Historically, a number of very diverse societies have been called, socialistic. To the extent that socialism involves government ownership, it is very difficult, if not impossible, to separate socialism as an economic system from socialism as a political system. Socialism should not be identified with or confused with communism. Communism, as an economic system, has never been achieved, though some countries, like the USSR, claimed to have been developing such an economy. 10 Slide 11 Socialist Model A partial model of socialism which is restricted to socialism as an economic system could be characterized by three features: an industrial base, social ownership of the means of production, and centralized planning. Crown Corporations as Socialism? Pay your socialist auto insurance premium?! 11 Slide 12 Economic Systems and Justice We cant be moral &amp; espouse an inherently immoral economic system. But, theres no moral imperative mandating we choose one over another. Distributive justice: justice in allocation of benefits &amp; burdens, is often thought to be the most important moral component of any economic system. In the capitalist system, justice demands equality of opportunity; it does not demand equality of results. Justice in a socialist system consists not only in equality of opportunity, but allows for proportionality of differential rewards. It may guarantee all receive rewards, but limits the amount of rewards one gets. Slide 13 Corporations, Morality, and Corporate Social Responsibility 13 2 4 6 8 10 2 2 4 6 8 2 Click to start Timer 1 2 3 4 5 1 2 3 4 End Timer Started Slide 14 Private vs. Public Ownership To some extent, the rules for privately owned companies are different from the rules for those that are publicly owned. Publicly traded companies are obliged to reveal a good deal of info. about their financial status, so investors can make informed decisions about buying &amp; selling their stock. More is legally required of publicly traded companies in order to protect the interest of the shareholders (more on this next class). 14 Slide 15 Small &amp; Medium-Sized Businesses Though giant corp.s tend to dominate business &amp; are the focus of most discussions about business &amp; business ethics, small &amp; medium- sized businesses are the most numerous in all societies &amp; are often the most innovative. Small and medium-sized businesses are frequently treated differently under the law. The emphasis in most discussions of business ethics is on corporations, &amp; especially on large corporations. 15 Slide 16 What is the Corporation? (1/2) Characteristics of CorporationsCharacteristics of Corporations Legal entity Artificial being, invisible, intangible, &amp; Artificial being, invisible, intangible, &amp; existing only in the contemplation of law existing only in the contemplation of law Creature of the stateCreature of the state Owes its existence to the government Allows for free transfer of ownership Limited liability Perpetual existence 16 Slide 17 What is the Corporation? (2/2) Powers of the CorporationPowers of the Corporation Expressed powers in a corp. charter Implied powers (free speech) Limits legalities &amp; the changing face of the law Responsibilities: Corporate LiabilityResponsibilities: Corporate Liability Civil Liability Corp. has deep pockets Criminal Liability The courts would like to arrest someone! 17 Slide 18 Stockholders Shareholders vote on:Shareholders vote on: Mergers / Consolidations Important shareholders investment decisionsImportant shareholders investment decisions Disposing of most corp. assets Dissolving the corp. / re-incorporation Charter and Bylaw Changes Proposals by Stockholders to force corp. to actProposals by Stockholders to force corp. to act Elections of Directors Who should act on corp.s &amp; shareholders behalfWho should act on corp.s &amp; shareholders behalf 18 Slide 19 Government S h a r e h o l d e r s B o a r d o f D i r e c t o r s M a n a g e r s a n d O f f I c e r s W o r k e r s Annuit Coeptis The Received Legal Model 1/2 How the Corporation is run by law How the Corporation is run by law 19 Slide 20 Governmental Power to Charter &amp; Regulate Fiduciary Duty of Directors to the company &amp; the Stockholders ObedienceObedience Fiduciary Duty of LoyaltyFiduciary Duty of Loyalty Liability under some conditionsLiability under some conditions Insolvency &amp; CDN wages Whenever theres a buyout Pollution Due Diligence Due Diligence Oversight which would be used by a responsible director in a similar position The Received Legal Model The Received Legal Model 2/2 Implications Implications 20 Slide 21 Shareholder vs. Stakeholder 1/3 Corporations have a special status under law in that they have limited liability. This means that the owners of stock in the company are only liable for the amount they have invested in the companys stock. Their personal assets are not at stake. The classical concept of the corp. presents the it as existing primarily to serve the shareholders. According to this view, the interests of the shareholders are paramount and come first over all other interests. Under Canadian law, the corporation may have its own interests, which means that directors must broadly consider all stakeholders (BCE). 21 Slide 22 Shareholder vs. Stakeholder 2/3 Shareholders, although legally the owners, are very often simply speculators with no real interest in the long-range future of the company. Though stockholders are technically the owners &amp; have rights, including the right to have the corp. run well, there are other constituents who have a much stronger interest &amp; involvement in the firm, &amp; a much stronger stake in it and in its continuance &amp; success. 22 Slide 23 Shareholder vs. Stakeholder 3/3 All those to whom the corp. has any obligations are collectively referred to as stakeholders in the corp. A stakeholder analysis of an issue consists of weighing &amp; balancing all of the competing demands on a firm by each of those who have a claim on it, to arrive at the firms obligation in any particular case. The stakeholder approach has the strength of forcing us to consider carefully all the obligations involved, for instance, in a plant closing, Instead of just looking at the closing from the point of view of profits, &amp; so from the point of view of the shareholders. 23 Slide 24 The BCE Decision 1/4 There is no principle that 1 set of interests, for example the interests of shareholders, should prevail over another set of interests. Everything depends on the particular situation faced by the directors &amp; whether, having regard to that situation, they exercised business judgment in a responsible way. The duty to act in the best interests of the corporation comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. Corp. decisions may now need a more rigorous analytical approach, but, if a proper decision-making process is followed &amp; documented, corp. decision- makers may take comfort that their decisions are less likely to be second-guessed by courts. 24 Slide 25 The BCE Decision 2/4 Everything depends on the particular situation faced &amp; whether, having regard to that situation, directors exercised business judgment in a responsible way. Thus, corp. decision-makers may have greater latitude to make decisions provided appropriate process is followed. What is the Business Judgment Rule? Courts will grant deference to a business decision so long as it lies within a range of reasonable alternatives. The rule reflects a reality that directors &amp; officers are often better suited than judges ( exercising perfect hindsight ) to determine what is in the best interests of the corporation. The business judgment rule applies to decisions on stakeholders interests as much as other decisions. 25 Slide 26 The BCE Decision 3/4 Decision-makers need to turn their minds to a range of affected stakeholders &amp; consider their reasonable expectations in making significant corp. decisions. -Corporate decision-makers need only consider the reasonable expectations of stakeholders. -The profit motive is not to be abandoned. -The corp. &amp; shareholders are entitled to max. profit &amp; share value but not by treating individual stakeholders unfairly. Fair treatment is most fundamentally what stakeholders are entitled to reasonably expect. Where a directors decision is reasonable in light of all circumstances the director knew or ought to have known, courts will not interfere with that decision. A courts inquiry will generally focus on whether directors applied an appropriate degree of prudence and diligence. Slide 27 The BCE Decision 4/4 Stakeholders cited by the Supreme Court included: Employees, Creditors, Consumers, Governments, The Environment. Directors must consider what are the reasonable expectations of the stakeholders identified. Commercial / past practice The relationship between the parties Steps the claimant could have taken to protect itself Representations and agreements Fair resolution of conflicting interests between stakeholders Public statements and disclosures (including ethics policies and codes of conduct). Properly document proceedings (with appropriate evidence). Solicit outside advice where necessary. Consider the public disclosure of possible decisions. Slide 28 Corporate Moral Responsibility 1/5 A corp. has the same ethical obligations to its share- holders, employees, customers, suppliers, and the community &amp; the same responsibilities with respect to the environment whether it is conceived on the shareholder or the stakeholder model. General obligations of corp.s stem from the nature of the firm, society &amp; implicit agreement among them. The first is the obligation to Do no harm. The second general obligation is the moral obligation not to undermine the freedom and the values of the system. The third general obligation is to be fair in the transactions in which it engages. The fourth general obligation is to live up to the contracts into which one enters freely. 28 Slide 29 Corporate Moral Responsibility 2/5 Members of the Board of Directors (BoD). Are responsible to the shareholders for selecting honest, effective managers, especially the CEO. They may also be responsible for choosing executive V.P.s &amp; other V.P.s. Theyre morally responsible for the tone of the corp. &amp; for its major policies. They can set a moral tone, or they can condone immoral practices. Management is responsible to the board. Mgmt. is responsible for setting a firms moral tone Unless those at the top insist on ethical conduct, set an example of moral conduct, punish unethical conduct and reward ethical conduct, the corp. tend to function without considering the moral dimensions of its actions. 29 Slide 30 Corporate Moral Responsibility 3/5 Management and Workers. Mgmt. is responsible to the workers. Workers are responsible for doing the jobs theyre hired for. From a moral point of view, ones job can never legitimately involve breaking the law or doing what is unethical, even if one is ordered to do so. But within the guidelines of ones job description, employees are expected to carry out their jobs as instructed by those above them. Corporations and th...</p>