By Dr. Gary Deel, Ph.D., J.D.
Faculty Director, School of Business, American Public University
Corporate America seems to be making progress — slow as it may be — toward more ethical and sustainable behavior.
Start a management degree at American Public University.
Public perception itself is altering business and industry through socially responsible investment (SRI) funds. Investors with strong ethical principles have chosen to restrict the types of businesses they are willing to invest in. Some of these restricted categories are more or less unanimously seen as immoral or at least morally questionable. Other industries, however, are more controversial. For example:
- Alcohol. Not all people abuse alcohol, and not all people view producers of alcohol as immoral. However, many SRI funds won’t include alcoholic beverage manufacturers in their portfolio because of the tragic effects that alcohol may produce, such as drunk driving, abusive behavior and negative impacts on health. Another article I wrote showed how Prohibition in the 20th century was largely ineffective at curbing alcohol use. Nonetheless, SRI investors want to limit the harmful effects of alcohol on society.
- Tobacco. Virtually the same arguments that apply to alcohol apply to tobacco, except that tobacco plays an unmistakable role in cancers, emphysema and early mortality. Thus, SRI funds typically avoid tobacco companies as well. In December 2019, the federal government raised the legal age for tobacco purchase to 21, so this change should have a negative impact on the tobacco industry.
- Gambling. Like alcohol, not everyone has a gambling problem or sees any ethical issues with the gambling industry. However, we know that gambling is another addictive behavior, and for this reason SRI funds typically exclude casinos. In spite of these anti-gambling efforts, sports betting is growing in popularity throughout the United States.
- Weapons. Firearms are a heated subject with the current political debate surrounding Second Amendment rights and the best ways to address gun violence in America. However, because of the enormously large number of violent gun-related crimes in the United States compared to other advanced nations, gun makers are taboo for SRI funds.
- Nuclear Power. This is one of the most controversial issues worldwide. Nuclear energy companies don’t intentionally mean to harm anyone; in fact, these companies seek only to provide sustainable, environmentally friendly power to the societies they serve. However, given the tremendous risks of nuclear power plant accidents and contamination — as exemplified by the Chernobyl and Fukushima incidents — SRI funds have generally blacklisted these companies.
- Illegality and Ill-Repute. In addition to these categories, companies will be excluded from SRI fund eligibility if they are found guilty of illegal activities such as collusion, price fixing, tax evasion, fraud, or disreputable behavior such as poor product safety, unfair labor practices, or environmental pollution.
Businesses Must Now Consider Additional Expectations, Not Just Shareholder Profit
Businesses themselves have seen an evolution in the expectations societies place on their conduct. These more recent views pressure businesses to consider more than just their shareholders’ returns in making corporate decisions.
The historical view was that a business’s only obligation was to make as much money as possible, pursuant to the principle of profit maximization. Proponents of this classical view argue that social responsibility dilutes a business’s purpose, that it is unreasonably expensive, and that businesses lack the skills and accountability to address societal concerns.
However, the modern view of businesses is that they benefit from the societies in which they operate. Therefore, they have an obligation to avoid any corporate behaviors that would degrade the quality of those communities or the people that comprise them. Arguments in favor of the modern view include:
- The importance of public expectations
- The benefit of long-term profits when businesses help to sustain the communities from which they profit
- The public image value of businesses that act in socially responsible ways
- The fact that self-regulation of social maintenance would mitigate the need for burdensome governmental oversight
There are a variety of ways in which businesses can pursue a course of social responsibility, such as through philanthropy, donations of money or resources, volunteering, sponsorships for public benefit, and other strategies.
Additionally, a business can measure its level of social responsibility by a number of different metrics.
A Business Might Decide to Seek New and Uncharted Ways to Contribute to Societal Welfare
For example, a business might look to industry standards and try to meet or exceed the efforts of its competitors. Another way would be to look to public opinion and try to address the most urgent concerns of the community in a responsive fashion. Finally, a business might decide to seek new and uncharted ways to contribute to societal welfare, blazing a trail and going above and beyond the scope of its current actions.
In addition to social welfare, environmental consciousness is another prominent goal for 21st century business ethics. Over 95% of scientists today agree that human activity and the burning of fossil fuels are harming the global climate. Their effects are among the biggest challenges of the new millennium. Notwithstanding the official policies of the current presidential administration, public perception is slowly shifting from the charlatans who for years denounced global warming as a hoax, and toward the direction of reasoned assessment of our actual circumstances.
With that in mind, businesses face increased pressure to do their part in conserving natural resources and reducing our carbon footprint to stem the runaway greenhouse gas effect. From this, several different positions have emerged regarding corporate commitment to environmentalism. They are listed below in order of environmental sensitivity:
- The ‘legal’ approach. The legal approach is the least sensitive environmental approach for businesses. As the name implies, this is a philosophy by which businesses obey the laws pertaining to environmental preservation — such as the Clean Air Act, the Clean Water Act, EPA regulations, and others — and nothing more. The current administration has gutted many of the federal environmental laws which has made compliance under the ‘legal’ approach much easier for businesses. The ‘legal’ approach is an example of pre-conventional moral reasoning.
- The ‘market’ approach. In the market approach, businesses base their level of environmental sensitivity on the amount of concern from their customers. If clients have little regard for environmental concerns, the business will usually follow suit. However, as a contrasting example, a “TripAdvisor.com survey of 1,300 U.S. travelers revealed that nearly two-thirds of them, or 62 percent, often or always consider the environment when choosing hotels, transportation and meals.” Thus, many corporate hotel chains actively seek ways to augment their environmental conservation programs in hopes of appeasing their customers.
- The ‘stakeholder’ approach. The stakeholder approach goes a step further than the market approach. In addition to considering the views of their customers, businesses adopting the stakeholder approach will also look to the concern of other parties involved in their operations, including employees, suppliers and the community at large. Both the market and stakeholder approaches are examples of conventional moral reasoning.
- The ‘activist’ approach. The final and most sensitive environmental position is the activist approach. This is when businesses actively look for ways to conserve resources, reduce carbon emissions, and improve the environment regardless of the views of their stakeholders or the effect on their bottom line. Rather, businesses take this approach because it is the right thing to do. The activist approach is an example of principled moral reasoning.
Corporate America Still Has a Long Way to Go
Corporate America still has a long way to go in terms of adhering fully to 21st-century ethics. But these trends reflect a shift in the winds that hopefully will guide all ships with a new moral compass.
About the Author
Dr. Gary Deel is a Faculty Director with the School of Business at American Public University. He holds a J.D. in Law and a Ph.D. in Hospitality/Business Management. He teaches human resources and employment law classes for American Public University, the University of Central Florida, Colorado State University and others.