Domestic violence
Financial Sustainability Week 2 – Ethics and predatory lending Financial Sustainability Distinguish between ethics and morality Describe the range of ethical and moral issues that arise in management, business and organisations. Define Corporate Social Responsibility (CSR) Analyse the ethical and moral issues in regards to predatory lending Learning objectives: 2 Chell, E., Spence, L.J., Perrini, F. and Harris, J.D., 2016. Social entrepreneurship and business ethics: Does social equal ethical?. Journal of Business Ethics, Vol. 133, Iss.4, pp.619-625. https://link.springer.com/content/pdf/10.1007/s10551-014-2439-6.pdf Moon, J., and Matten, D., 2020. Reflections on the 2018 decade award: the meaning and dynamics of corporate social responsibility, Academy of Management Review, Vol. 45, No. 1, pp.7–28 http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=2&sid=90dd0619-fa9d-41e9-a272-6d232331bcdf%40sdc-v-sessmgr02 Carroll, A.B., 2016. Carroll’s pyramid of CSR: taking another look. International Journal of Corporate Social Responsibility, Vol.1, Iss.1, pp.1-8. https://core.ac.uk/download/pdf/81843917.pdf Schmidt, R. (2008) ‘Whatever Happened To Just Doing The Right Thing?’, Credit Union Journal, 12(12), p. 8. http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=2&sid=1de657bd-2960-46da-a3c9-1d83591791be%40sessionmgr4006 Additional Reading 3 Last session we discussed what is financial sustainability and a sustainable economy In your rows, discuss what are the barriers to achieving a sustainable economy Discuss the drivers of a sustainable economy Activity: Doing business like there is a tomorrow. Richard Branson Module objectives A sustainable business is one that is not only limited to reducing its negative impact on society and the environment, it also embraces the opportunity of providing net positive value for the economy, society and environment it serves - this is real business and good business sense 5 What is ethics? The rules or standards which govern the conduct of a person or a group. It is concerned with what is good for individuals and society and is also described as a moral philosophy. ‘Ethics is concerned with how we should live our lives. It focuses on questions about what is right or wrong, fair or unfair, caring or uncaring, good or bad, responsible or irresponsible, and the like.’ (Jaksa and Pritchard cited in Wilcox, p.182) Examples of ethical issues Creative accounting to boost or suppress reported profits. Directors' pay arrangements - should directors continue to receive large pay packets even if the company is performing poorly? Should bribes be paid to facilitate contracts, especially in countries where such payments are commonplace? Insider trading, where for example directors may be tempted to buy shares in their company knowing that a favourable announcement about to be made should boost the share price. Should the company produce certain products at all, e.g. guns, pornography, tobacco, alcoholic drinks aimed at teenagers? Should the company be concerned about the effects on the environment of its production processes? Should the company test its products on animals? Survey Poll Title: Ethics and morality https://www.polleverywhere.com/surveys/FQILEZbd07nu9unhYJSI5 8 Ethics: Doing good A way to choose between competing moral principles. Philosophical. Ethics and Morality Morality: - Manner, character, proper behaviour. - Concerned with justice: preventing wrongs and making restitutions if wrongs are done 9 Social development (philanthropy) Social responsibility Reciprocity Fairness Lying Cheating Bullying Harming Encouraging Goodness: Ethics Morality Lying: nature and purpose Cheating: corporate and individual level 10 Absolutism One set of moral rules that are always true Truth in one culture may be imposed on another (missionaries) Developing idea that each culture has its own truths that should be protected Some basic morals common to all DOGMATIC Ethical theories: Relativism Different sets of moral rules that change over time No imposition of “truth” as different sets of ethical and belief systems Ethics and beliefs continue to change Accepted that individuals are entitled to hold different ethics and beliefs PRAGMATIC 11 Deontological Actions are judged against a set of rules Outcome is not considered Action can only be deemed right or wrong when the morals for taking that action are known Non-consequentialist theory Approaches to Ethics: Teleological The right or wrong of an action is judged against the outcome If the outcome is right, then the action itself is irrelevant Consequentialist theory “The end justifies the means” Egoism Utilitarianism Deontological approach (Kant): A deontological approach to moral behaviour is one that believes that moral reasoning and action should be guided by universal principles that hold irrespective of the context in which an ethical dilemma might exist. There are universal laws on morals and every individual has to follow. Teleological: Action in themselves do not have intrinsic moral value Moral value of an action is determined by its consequences. Finding reasons to support moral values. Teleological ethics can be used to justify the profit motive of businesses. If the business is profitable, then many people benefit for example shareholders benefit with higher dividends, employees benefits from secure employment and steady income, the customers benefits from a constant supply of goods and services. Profitable businesses are able to contribute to a secure economy and general public. 12 Theory Action morally right if decision maker freely decides in order to pursue either their short term desires or longer term interests. Pursuit of self interest ensures society benefits. Adam Smith, the invisible hand http://www.youtube.com/watch?v=ulyVXa-u4wE Teleology - Egoism Application Producing poor quality goods will lead to loss of sales. Pursuing self-interest of higher profits benefits society by higher quality goods Theory: Egoist does what is right to feel better Practice: Donating to charity, sponsoring the arts Criticism: Egoism may not work as actions of all members of society cannot be determined Resource depletion now means future generations will not benefit from those resources, but they have no say 13 Theory An action is morally right if it results in the greatest amount of good for the greatest number of people Valuable as it introduces the concept of utility, or the economic value of actions Highly subjective Teleology - Utilitarianism Application Greatest happiness, good outweighs the bad Decisions quantifiable, cost benefit analysis measuring good and bad utility Value may depend on viewpoint 14 What is business ethics? The application of ethical values to business behaviour. Moral principles that guide the way a business behaves. The study of business situations, activities, and decisions where issues of morally right and wrong are addressed. Business ethics Poll Title: Business ethics https://www.polleverywhere.com/free_text_polls/dYCIfVTcYQEethfcYCJyI 16 Business ethics – The Semiotic square 17 Actions that are good and legal, nut not a legal obligation Actions that are wrong and illegal Actions that are legal, but not necessarily just Actions that are just, but illegal Legal, illegal and just 18 Why is business ethics important? Business are part of society, as such the society expects its individuals to behave properly, and similarly expects companies to operate to certain standards. Business ethics is important to both the organisation and the individual. Fig 1. Ethical expectations for organisations and individuals Source: Kaplan CSR refers to organisations considering and managing their impact on a variety of stakeholders Corporate Social Responsibility 20 Friedman argued Only humans have moral responsibility Managers are bound by law to act solely in the interests of shareholders Social issues are therefore a matter for the State and not companies Corporate Social Responsibility 21 Corporate Social Responsibility Caroll’s Pyramid of CSR 22 Enlightened self-interest An alternative view also needs to result in increased shareholder wealth: Ethically sound organisations are rewarded with extra customers Opposite is more true – unethical organisations are boycotted Employee attractiveness Promote independence from Government interference Better educated and equitable community creates stable business environment Corporate Social Responsibility 23 Accounting profit Social justice Environmental sustainability Triple bottom line 24 Poor credit history – high risk Higher rates than for prime loans Higher fees – risk-based pricing: Pre-payment penalties Balloon maturities Low initial payments that grow substantially Unnecessary products Predatory lending: Subprime lending Fees of approximately 5% of the loan as compared to 1% (usual) 25 The good: Increased opportunities and purchase power (e.g. homeownership) Increase of home equity Opportunities for disadvantaged groups Predatory lending: The bad: Expensive (drains wealth) Increased risk (sub-prime mortgage crisis) Subprime lending 26 Distinguish between ethics and morality Describe the range of ethical and moral issues that arise in management, business and organisations. Define Corporate Social Responsibility (CSR) Analyse the ethical and moral issues in regards to predatory lending Learning objectives: 27 The Third Sector and Circular Economy Reading: Gray and Adams (2014) - Chapter 12; Ridley-Duff and Bull (2011) – Chapter 1 Next week: 28