What idea or issue have you identified from chapter 6 for your journal

- what is a topic you find particularly interesting in the chapter ?

Demonstrating your understanding and whether your thinking has

developed

? Do you agree with the authors, disagree with the authors, perhaps in the middle?

? Maybe relate it to an experience you have had, something you have read or watched, news,

etc...Past employment; cultural experience; compared to other sources (e.g., journal articles)

Critical insight:

Exhical theories taken from moral philosophy provide insights, but

have blind spots.

Management textbooks provide a range of theories from moral philoso-

phy that can be used to inform ethical decision making. These theories

fit well with the managerial perspective that dominates most textbooks,

We believe they could be usefully supplemented by philosophical per-

spectives that pay greater attention to power, inequality and the role of

government.

6 The Rise of Ethics and Corporate Social Responsibility If you studied management 40 years ago, your textbook probably would not have had a chapter devoted to ethics and corporate social respon sibility (CSR). In the 1980s, a commonly-held view was that 'business ethics' was an oxymoron - that people didn't succeed in business by being ethical, because business was about doing what made you money, rather than esoteric questions of right and wrong. Today, ethics and CSR may be the most talked about topics in busi- ness. Whether it is the actions that organizations are taking to reduce their carbon footprint, or to improve the ethical practices in their supply chain, organizations increasingly want to be seen as taking their societal responsibilities seriously. Business ethics and CSR have gone mainstream and are now core topics in management textbooks. Samson et al. (2018: 186) define busi- ness ethics as 'the moral principles and values that govern the behaviour of managers with respect to what is right or wrong'. CSR is defined as the 'obligations of management to enhance the welfare and interests of society, as well as of the organization' (Samson et al., 2018: 198). There is an assumption here, which we return to later in the chapter, of a win-win scenario: that when managers act responsibly, they benefit both business and society. A common starting point for management textbooks is to refer to a series of corporate scandals that occurred at the start of the twenty-first century. The biggest of these scandals was Enron. In 2001, it emerged that the energy company, named by Fortune magazine 'America's most innovative company' for six years in a row between 1996 and 2001, was involved in corruption and accounting fraud. The company cre- ated artificial power shortages in California in order to charge excessive prices. When its financial performance worsened, assets and profits were inflated, and the company's high level of debt was hidden from investors. Enron eventually went bankrupt, costing stockholders US$74 billion in the process. In the aftermath, chief executive Jeff Skilling, a gradu- ate of Harvard Business School, was sentenced to 24 years in jail and the company's auditor, Arthur Andersen, lost its licence to offer public accounting services.98 A Very Short, Fairly Interesting and Reasonably Cheap Book about Management Theory The crisis which swept financial markets in 2008, leading to the col- lapse of major financial services firms, such as Bear Stearns and Lehman Brothers, prompted another round of questioning over the morality of executives. While the causes of the crisis were varied and complex, par- ticular attention focused on the risks that senior executives had taken to maximize profits in the short term. When the global financial system went into meltdown, governments stepped in with rescue packages and bailouts paid for with taxpayer money. The global financial crisis intensified concerns that had been grow- ing since the Enron scandal about the moral shortcomings of business school graduates. Business schools were blamed for producing 'wan- nabe Gordon Geckos', the character played by Michael Douglas in Oli- ver Stone's 1987 film Wall Street, whose catchphrase 'greed is good' typified the recklessness and lack of morals exhibited by Wall Street in the 1980s. Khurana (2007) lamented that business schools had aban- doned the idea of management as a profession with 'higher aims', in favour of a view which sees managers as 'hired hands' serving stock- holder interests. The response from the business education sector was swift. The Association to Advance Collegiate Schools of Business (AACSB), which provides quality assurance and accreditation to business schools, announced that teaching business ethics should be a top priority. Har- vard Business School led the way by creating a Hippocratic Oath for Managers, based on that undertaken by medical professionals, in which managers pledge to serve the public interest. Business schools around the world joined the quest, revamping their curriculum and promising to do a better job of producing future managers with a stronger moral compass. Unfortunately, despite the increased emphasis on business ethics, scandals continue to make headlines. One of the most staggering was the deception staged by Elizabeth Holmes, chief executive of health technology company Theranos. Holmes claimed to have developed a revolutionary blood testing technology using tiny volumes of blood, an innovation inspired by her own fear of needles. By 2015, Holmes topped Forbes' list of richest self-made women, her wealth estimated at US$4.5 billion. However, it subsequently emerged that the technology could not do what was claimed and that Holmes was involved in the cover-up. She and the company were charged with massive fraud and the company was forced to close. Holmes' story, told in a documentary film The Investor: Out for Blood in Silicon Valley (2019, HBO) illustrates the dark, immoral side of transformational leadership. Holmes had created a cult of personality at Theranos. It was a company where employeesThe Rise of Ethics and Corporate Social Responsibility 99 who believed in the fantasy were rewarded and those who raised con- cerns were ostracized. Another recent jaw-dropper was the Volkswagen (VW) emissions scandal. In 2015, the US Environmental Protection Agency found that many VW cars sold in America had a 'defeat device' installed to detect when the car was being tested for emissions of harmful gases. The soft- ware enabled the car to emit up to 40 times lower levels of gases during the test compared with when they were driven on the road. VW owners, many of whom were environmentally conscious and had purchased the vehicles because of their supposed low emissions, were outraged. After repeatedly denying the existence of defeat devices, VW came clean. The company was fined US$2.8 billion, 10 million vehicles were recalled and chief executive Martin Winterkorn resigned. Perhaps the most disturbing aspect of the scandal was captured in the Netflix docu- mentary series Dirty Money: Hard Nox (2018). It alleged that the Ger- man government knew that defeat devices were being used and turned a blind eye because of the importance of the automobile industry to the country's economy. Carroll's pyramid of CSR Probably the most-well known theory in the topic of ethics is Archie Carroll's pyramid of CSR, shown in Figure 6.1 (Carroll, 1991). As with Maslow's pyramid of human needs, we think the pyramid symbol has con- tributed significantly to the enduring popularity of Carroll's framework. Unlike Maslow, Carroll did actually build the pyramid that bears his name! The pyramid is made up four levels of responsibilities. At the base are economic responsibilities, commonly understood as the responsibility to maximize profit. To be sustainable, a business must be profitable. Only then can it continue to provide jobs for employees, to provide the goods and services that customers need and to deliver on the responsibilities at higher levels of the pyramid. A business must be profitable, but it must obey the law in generat- ing those profits. These legal responsibilities make up the second level of the pyramid. Carroll sees legal responsibilities as reflecting 'codified ethics' - that is, the law reflects societal expectations of what is fair and just business conduct. Laws are like the rules of a game - winning is the objective, but to win you must play by the rules. We will return to this analogy later when we discuss the role that government plays in setting these rules and the actions businesses take in attempting to influence the rule-making process.100 A Very Short, Fairly Interesting and Reasonably Cheap Book about Management Theory The Pyramid of Corporate Social Responsibility PHILANTHROPIC Responsibilities Be a good corporate citizen. Contribute resources to the community; improve quality of life. ETHICAL Responsibilities Be ethical. Obligation to do what is right, just, and fair. Avoid harm. LEGAL Responsibilities Obey the law. Law is society's codification of right and wrong. Play by the rules of the game. ECONOMIC Responsibilities Be profitable. The foundation upon which all others rest. Figure 6.1 Carroll's pyramid of corporate social responsibility (Source: Carroll, 1991: 42) The next level up consists of those responsibilities that are expected by society but are not codified into law. These ethical responsibilities might comprise changing ethics or values championed by social movements. For example, it has become common for organizations to make com- mitments to becoming carbon neutral even though this is not required by law. This might be because they genuinely believe it is the right thing to do in response to climate change, or because they are under pressure from environmentally conscious customers.The Rise of Ethics and Corporate Social Responsibility 101 At the top of the pyramid are philanthropic responsibilities, which reflect society's expectation for organizations to be 'good corporate citizens' and might include donations of money or time to charities or community activities. Philanthropic responsibilities are desirable, but Carroll's theory suggests that firms are not unethical if they do not per- form them. Carroll's pyramid is a useful theory for thinking about business ethics. We see that Theranos and VW neglected their ethical and legal responsibilities in the pursuit of higher profits. The pyramid is also appealing for textbook authors because it purports to offer something new. Carroll (1991: 40) says, 'to be sure, all these responsibilities have always existed to some extent, but it has only been in recent years that ethical and philanthropic functions have taken a significant place'. This creates the impression that while some businesses, like Theranos and VW, are unethical, these are unusual cases, or 'bad apples', among a majority of companies following good practice. Students are reas- sured that the business community is for the first time in history taking social responsibilities seriously. Students are further reassured that the increased emphasis on CSR proves that businesses are more ethical than ever. So, all's well, no need to be alarmed. In this chapter, we challenge this narrative. We explore some popular ethical theories and show that while they promote an ideal of the ethical manager, they have blind-spots that ignore important aspects of ethics, such as power relationships in organizations and the role of government in regulating organizational behaviour. By taking a historical perspec- tive, we show that debates about the morality of business executives and the responsibilities of business are as old as business itself. We highlight some periods where these debates assumed great importance and argue that a better understanding of this past provides us an opportunity to think differently today. First, however, we turn our attention to Milton Friedman, another famous theorist on CSR. Friedman versus Freeman Milton Friedman was an intellectual leader of the so-called Chicago school of economics, a school of thought that challenged Keynesian eco- nomics, an economic theory that saw government needing to play an active role in the economy. Friedman was a staunch advocate of a free market economic system with minimal government intervention, and he was an advisor to both US President Ronald Reagan and UK Prime Minister Margaret Thatcher during the 1980s. Friedman's 1962 book,102 A Very Short, Fairly Interesting and Reasonably Cheap Book about Management Theory Capitalism and Freedom, was a best-seller, but in terms of CSR, he is best remembered for his 1970 article in The New York Times and his famous statement that 'the social responsibility of business is to increase its profits'. Friedman argued that corporate executives are employed by the business owners and therefore have a responsibility 'to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom' (Fried- man, 1970). Friedman is vague on what he means by 'ethical custom', but he certainly does not want businesses to engage in philanthropy, such as making donations of money to charity. Profits should be maxi- mized and returned to owners, he theorized. Those owners can then choose to support worthy causes if they wish. In management textbooks, Friedman's view is often characterized as the 'stockholder view' and is contrasted with Edward Freeman's 'stakeholder view'. Freeman's 1984 book, Strategic Management: A Stakeholder Approach, argues that successful businesses develop their strategy around relationships with those who have a stake (or interest) in the organization. . Employees have a stake because they spend much of their lives at work and derive an income from it. Customers have a stake because they rely on the goods or services provided. Local communities, government and the environment, and of course the owners, all have a stake. In the narrative preferred by today's management textbooks, Freeman is the hero and Friedman the villain. We are told that Friedman failed to recognize that society expects more of business than maximizing profits within the law. In contrast, Freeman recognizes that executives should balance the interests of all stakeholders rather than single-handedly pursue the narrow financial interest of stockholders. Carroll's pyramid provides a practical tool for managing these responsibilities. Carroll's claim that ethical and philanthropic responsibilities are novel provides the historical narrative of progress that, as we have seen throughout this book, appeals to textbook authors. The story is one of the field of management maturing and promoting a more enlightened approach to managing over time. This is a reassuring story for those who aspire to a managerial career, but the 'new versus old', 'good versus evil' framing of the Freeman versus Friedman debate is rather misleading. Textbooks position Friedman as the 'bad guy', yet the free market ideology he promoted continues to beThe Rise of Ethics and Corporate Social Responsibility 103 supported by business schools. Why, then, does Friedman get labelled the 'bad guy' in management textbooks? Because he provides a theory that justifies the development of CSR as the most advanced theory of business ethics. According to Edward Wray-Bliss (2017), it is no coincidence that ethics and CSR became popular under a version of capitalism that regards government intervention in the economy as inefficient and largely unnecessary. In free market thinking, governments should hand over responsibilities to business leaders, who are encouraged to 'self-' or 'voluntarily' regulate. To return to the 'rules of the game' analogy outlined earlier, it's like the referee allowing the players to make up their own rules and encouraging them to follow those rules but without forc- ing them to do so. Deregulation is welcomed by the business community because it leads to a reduction of governmental bureaucratic 'red tape'. In return, business leaders reassure society that the trust placed in them by soci- ety is warranted. This seems like a win-win situation - business oper- ates largely free from government intervention, the costs to taxpayers falls because less people are needed to create and enforce regulations, and society benefits from organizations being socially responsible as depicted in Carroll's pyramid. There's good reason to question, therefore, textbooks' portrayal of Friedman's theory as outdated and irrelevant. We think it remains highly relevant for the field of management, because it provides the intellectual justification for the growth of business ethics and CSR - it is an impor- tant link in the same chain. We can also question the portrayal in management textbooks of Friedman and Freeman having theories that oppose each other - the stockholder approach versus the stakeholder approach. We think they are more similar than different. Best-selling textbooks create the impression that Freeman developed stakeholder theory to compete with Friedman's stockholder theory. But as Walsh (2005) points out, Freeman's book Strategic Management is about business strategy, not corporate social responsibility - it was only later repurposed as a the- ory of ethics. Freeman argued that the growing complexity and globalization of the business environment in the 1980s meant that executives needed to monitor closely their external environment to account for all those affected by the organization's actions. In other words, Freeman was primarily concerned with how to make money, not how to be a good corporate citizen. Freeman openly acknowledges in a subsequent book (Freeman et al., 2010: 12): 'Both we and Friedman agree that business and capitalism are not about social responsibility. We contend that104 A Very Short, Fairly Interesting and Reasonably Cheap Book about Management Theory stakeholder theory is about business and value creation, and, as we have said, it is managerial.' Freeman, like Friedman, adopts a managerial perspective in seeing that the primary aim of organizations is to maximize profits. For Free- man, that is best done by having 'great products and services that cus- tomers want, solid relationships with suppliers that keep operations on the cutting edge, inspired employees who stand for the company mis- sion and push the company to become better, and supportive communi- ties that allow businesses to flourish' (Freeman et al., 2010: 11). Both Freeman and Friedman are unitarists who believe that executives have the right to decide how best to manage the business. Both believe in small government - that government should hand over responsibilities to business, and that business can be trusted to act responsibly. Do Freeman and Friedman actually disagree on anything? Freeman believes that if Friedman were alive today, he'd be a stakeholder theo- rist, as it is now largely accepted that corporations which contribute to worthy projects in the community themselves benefit - through positive publicity and the generation of goodwill among their stakeholders. It is also recognized that when corporations are seen to have acted unethi- cally, it can hurt them financially. A close reading of Friedman reveals he did understand this 'enlightened self-interest' - that by furthering the interests of others, businesses ultimately serve their own interest. But he thought it dishonest for businesses to disguise their self-interest under the 'cloak of social responsibility'. He also saw it as short- sighted, because while business gained kudos in the short term 'it helps strengthen the already too prevalent view that the pursuit of profits is wicked and immoral' (Friedman, 1970). The manager as ethical decision maker We've seen already why business ethics and CSR have been embraced by the business community. Profitable business and ethics are seen to be compatible, rather than a contradiction in terms. By business recognize ing their social responsibilities, it becomes less likely that governments will create laws and regulations that burden free enterprise. As Wray- Bliss (2017) puts it, for managers the problem of relevance (why should we take ethics seriously?) has been answered (because it is in our finan- cial interests to do so). A second problem facing theories of business ethics is the problem of conscience. Who should decide what ethics are relevant? Individuals are encouraged to behave ethically by their conscience, or out of fear ofI ne rise of Ethics and Corporate Social Responsibility 105 God, but who should be the conscience of the organization? You can probably guess the answer to that - management. This helps explain the popularity of theories such as transformational and authentic lead- ership that we discussed in Chapter 5. These theories assume that sen- for executives are of high moral standing - they do what is right, just and good, and it is therefore they who should define and enforce the organization's ethics. Unfortunately, when they turn out to be cheats, like Enron's Jeff Skilling or Theranos' Elizabeth Holmes, the damage to organizations, countries, citizens and stakeholders can be enormous. If management are the ethical conscience of the organization, then they need frameworks to make decisions about how to resolve ethical dilemmas. Management textbooks provide a range of theories from the field of moral philosophy that can be used to inform ethical decision making. Textbooks vary in their coverage, but the four theoretical per- spectives most often used are utilitarianism, deontology, justice ethics and virtue ethics. In utilitarianism, which originates from Jeremy Bentham and John Stuart Mill, the ethical value of an act is based on its consequences. An ethical act is that which leads to the greatest good for the greatest num- ber. This is a common approach to moral reasoning in business because it seeks to account for costs and benefits, but it has trouble accounting for individual rights. Deontology, associated with German philosopher Immanuel Kant, uses rules to determine right from wrong, which makes it different to utilitarianism's focus on consequences. Kant believed ethical actions fol- lowed universal moral rules such as 'do not commit murder'. Following rules makes deontology easy to apply but its weakness is ignoring con- sequences. Sometimes, might not be breaking a rule be the right thing to do, to prevent a terrible outcome? Justice-based approaches to ethics, formulated by John Locke, are similar to deontology in seeking to establish universal rights, but they differ by focusing on the issue of fairness, which is tricky because it can mean different things to different people. Virtue ethics, which is traced back to Aristotle and other Ancient Greeks, focuses on the character of the person who acts. It focuses on what it means to be a virtuous human being and considers the moral character of managers. As Martin Parker (2002) observes, this impressive line-up of famous moral philosophers provides the sub-field of business ethics with gravi- tas. In addition, moral philosophers are appealing for management text- books because their theories can be reduced to a tool that managers can use to resolve ethical dilemmas. Parker encourages us to consider the philosophers that do not get mentioned in best-selling management106 A Very Short, Fairly Interesting and Reasonably Cheap Book about Management Theory textbooks. References to twentieth-century continental philosophers such as Foucault and Friedrich Nietzsche are rare, as is the inclusion of Marxist perspectives that we introduced earlier. Including these theorists would enable students to explore issues of power, justice and equality and to examine how an economic system which incentivizes profit maximization can encourage unethical actions. It would enable a closer examination of government's responsibility for regulating business conduct. That is important because government sets 'the rules of the game' that organizations play by and determines the extent to which those rules are enforced. As we saw earlier, it was sug- gested that VW's cheating was emboldened by managers' belief that the German government would turn a blind eye because of the company's contribution to the economy. Does the growth of CSR mean that organizational behaviour is more ethical? Given the increasing attention that business ethics and CSR is receiving, it might be assumed that organizational behaviour is becoming more ethical. It is certainly a plausible argument to make. Businesses have an incentive to act with responsibility because they realize that if they don't, government will step in to strengthen legal requirements. This threat of regulation is regularly used by government in circum- stances where it feels business is not self-regulating adequately. In New Zealand, the government has threatened to introduce a sugar tax on fizzy drinks to address an escalating obesity and type 2 diabetes epi- demic. But before actually acting on this, it hopes that the food and drink industry will respond by taking voluntary steps to reduce sugar content. This has begun to happen, with drink manufacturers discover- ing that there is demand for reduced-sugar products. However, there is also a plausible argument that more CSR does not make business more ethical. Wray-Bliss describes this as the 'corporate takeover of ethics', where 'ethics is reduced to a corporate image exer- cise in support of the business drive for profits' (2017: 581). An example of this is 'greenwashing', where organizations (such as VW) promote themselves and their products as environmentally friendly, while their actual environmental practices suggest otherwise. Businesses who greenwash want the benefits that come with being seen to be green without the cost or effort of acting green, and it is a practice that is becoming more common as consumer demand for environment tally sound goods and services grows