Chapter 10

Question 1

What is ethics?

Answer 1

Ethics is a branch of philosophy, whether there is any objective right and wrong, and how we know it if there is.

Question 2

What three types of inquiry has ethics?

Answer 2

1. 1 Normative ethics provides theories about what is the right thing to do and why this is so.
2. 2 Practical ethics is about what is the right thing to do in a specific situation.
3. 3 Meta-ethics considers the very concepts of ‘right’ and ‘wrong’ and where they come from.

Question 3

Which ethical theories can we distinguish?

Answer 3

In respect of normative ethical theories, we can distinguish between consequentialist (or teleological) moral and non-consequentialist (or deontological) moral theories.

Question 4

What are Teleological theories?

Answer 4

Teleological moral theories base moral judgements on the consequences of decisions and actions

Question 5

What are Deontological theories?

Answer 5

Deontological moral theories hold that decisions and actions can be wrong irrespective of their positive or negative outcomes. Objectivism or non-relativism is the belief that there is right and wrong.

Question 6

What is a belief of ethical values?

Answer 6

The belief that ethical values and beliefs are relative to individuals and societies and that objective moral judgement is not possible is called ethical relativism.

Question 7

What are business ethics?

Answer 7

Business ethics is a practice that determines what is right, wrong, and appropriate in the workplace. Making economic decisions in a business context often involves evaluating the alternative economic actions from strategic, commercial, financial and legal perspectives.

Question 8

What are the four defining characteristics for a free market capitalist economic system?

Answer 8

1 Private ownership of the means of production
2 Competition.
3 The division of capital and labour
4 The profit motive

Question 9

What is private ownership?

Answer 9

Private ownership as opposed to state ownership and communal ownership is the predominant mode of owning the means of production in a capitalist economy. Different levels of state ownership and communal ownership of business organizations will still exist in most countries.

Question 10

What is the assumption of competition through laws and demand?

Answer 10

The assumption is that competition, through the laws of supply and demand, is the way in which markets allocate scarce resources to their most valued (in financial terms) uses. The profit motive is what incentivizes entrepreneurs to engage in the creative and inventive business activity that has given us the products and services in the market today. Their self-interest works in the public interest through the invisible hand of the market.

Question 11

When does free market capitalism work best?

Answer 11

When governments set the rules that govern them—such as laws that ensure property rights—and support markets with proper infrastructure, such as roads and highways to move goods and people.

Question 12

What is CSR

Answer 12

CSR is also called corporate responsibility. Others refer to CSR as ‘Environmental, Social and Governance responsibility’ (ESG). ESG recognizes that it is not only about ‘(a) the definitions of the responsibilities to society at large, [but it is also about] (b) how these responsibilities are defined and negotiated, and (c) how they are managed and organized’

Question 13

What four types of responsibilities do companies have?

Answer 13

1. 1 The economic responsibility to produce goods and services that society wants in order to be profitable and survive.
2. 2 The legal responsibility to play by the rules and obey the law in the jurisdictions where it operates.
3. 3 The ethical responsibility to do what is right, just and fair and to avoid doing harm.
4. 4 The philanthropic responsibility to contribute to the community and be a good corporate citizen.

Question 14

What is Freeman’s stakeholder theory?

Answer 14

Freeman’s stakeholder theory of strategic management is compatible with and related to Stakeholder Theory in corporate governance, which adopts the same instrumental approach. The stakeholder approach is also consistent with the Entity Theory in financial accounting.

Question 15

What rules does directive 2014/95/EU set out?

Answer 15

Directive 2014/95/EU sets out the rules on disclosure of non-financial and diversity information by large companies. Large public-interest companies with more than 500 employees are required to include non-financial statements in their annual reports;

Question 16

What reports on policies do companies have to publish in relation to:

Answer 16

• environmental protection
• social responsibility and treatment of employees
• respect for human rights
• anti-corruption and bribery
• diversity on company boards (in terms of age, gender, educational and professional background).

Question 17

What happens when a company accepts freeman’s stakeholder theory?

Answer 17

If one accepts that business managers must evaluate alternative economic actions from strategic, commercial, financial, legal as well as moral perspectives, one is likely to accept that corporations have an ethical (moral) responsibility to all their stakeholders, including society at large.

Question 18

What is the IIRC?

Answer 18

Had the objective to create a globally accepted framework for a process that results in communications by an organisation about value creation over time.

Question 19

What is the IIRC vision?

Answer 19

Its vision is to align capital allocation and corporate behaviour to wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking.

Question 20

What assumption is there regarding values?

Answer 20

The assumption is that value is not created by or within an organization alone. It is influenced by the external environment, created through relationships with stakeholders and is dependent on various resources.

Question 21

What does an integrated report inform?

Answer 21

investors about the external environment of the business and its six types of capital used to create value, which are categorized as:
* financial capital
* manufactured capital
* intellectual capital
* human capital
* social and relationship capital
* natural capital.

Question 22

What does the report need to describe regarding to creating value?

Answer 22

The report must describe the value creation process and its underlying business model. The business model is the business activities through which the company converts its capitals into outputs.

Question 23

What is the SRI related to?

Answer 23

SRI is related to business ethics as it is about investment decision making that incorporates other goals than purely financial goals. Those other goals could be related to different types of moral values. SRI practices rooted in religious beliefs started with some investors avoiding companies engaged in industries related to gambling, tobacco, alcohol, weapons and pornography.

Question 24

What does SRI analysis consist of?

Answer 24

SRI analysis involves screening, which can take the shape of negative screening and positive screening. Negative screening is based on exclusionary screens.

Question 25

What do investors and indices exclude from?

Answer 25

Companies operating in:
* alcohol
* gambling
* firearms
* military weapons
* pornography
* nuclear power.

Question 26

What do other negative screens monitor?

Answer 26

Other negative screens monitor compliance with internationally accepted norms such as the UN Global Compact or the Millennium Development Goals. Investment funds state their ways of screening in order to create and guard their reputation.