ROLE OF CORPORATE ETHICS IN A
MARKET ECONOMY AND CIVIL SOCIETY
enterprises with their objectives, strategies, struc-tures, cultures and
performances are of paramount importance in con-temporary societies. They can
either be powerful engines for, or bulwarks against, the well-being and freedom
of human beings and the conservation of nature. In order to determine their
realms of res-ponsibility, this paper argues for the consideration of both
business conditions and business opportunities. Both issues involve choices and
thus are ethically relevant, i.e., the choices of constraints imposed on
companies and the choices made by companies within these constraints. In
the post Cold War era, these constraints are charac-terized as "civil
societies" and "market economies" in many countries, and it is
likely that their number will increase even more in the years to come.
Therefore, the role of corporate ethics should be discussed with a clear
understanding of these business conditions which, in turn, are subject to
1 briefly addresses the emergence and ambiguities of civil societies, while
holding nevertheless that the phenomena of a civil society represents an
important societal development in recent years. More specifically, advocating a
tripartite structural model of society that distinguishes "civil
society" from both state and economy, this sec-tion explores the relevance
of civil society to understanding business and corporate ethics. In contemporary
societies, the structural dif-ferentiation between the political, economic and
socio-cultural sys-tems is pervasive, but, at the same time, there are
considerable over-lapping areas; hence both differences and overlaps should be
taken into account. From this perspective, business and corporate ethics can be
seen as a learning process that needs both the internal com-mitment of the
economic actors and an external critique and support by non-economic actors.
2 discusses the basic conceptual issues of economic systems in general and of
market economies in particular. Although these issues do not directly involve
normative-ethical norms, they greatly matter for the ethics of economic systems
and market econo-mies; if such issues (e.g., distribution) are omitted or
misconceived the ethics of the economy is incomplete and misleading, and
corporate ethics is negatively affected as well. In addition, I point to two
other fun-damental questions: first, what informational basis is appropriate for
the ethical evaluation of markets, and second whether or not ethics can be
avoided in "social choices" in economics.
these conceptual clarifications concerning "civil society" and
"market economy," Section 3 turns to conceptual issues of cor-porate
ethics. The term "responsibility," a key notion of contemporary moral
sensitivity, is used to express the ethics of the company in-cluding economic,
social and environmental responsibilities. These three realms of responsibility
are different, yet partially overlap and in-volve three kinds of ethical
requirements: minimal ethical demands, positive obligations beyond the minimum
and aspirations for ethical ideals. As in Section 2 with regard to the economic
system and market economy, these conceptual considerations should help delineate
and clarify ethical issues of corporate conduct. But they cannot, and are not
meant to, substitute for normative-ethical reasoning. Perspectives for such
guidance may be the goal-rights-system approach, a morality of inclusion, and a
morality of good neighborhood, which I have dis-cussed elsewhere (Enderle 1996
their seminal work Civil Society and Political Theory (1992), Jean L.
Cohen and Andrew Arato highlight "the importance in East Europe and Latin
America, as well as in the advanced capitalist demo-cracies, of the struggle for
rights and their expansion, of the establish-ment of grass roots associations
and initiatives and of the ever re-newed construction of institutions and forums
of critical publics" (p. 2). They "are convinced that the recent
reemergence of the `discourse of civil society’ is at the heart of a sea
change in contemporary political culture" (p. 3). However, the concept of
civil society is currently used by intellectuals in, or close to, a number of
social and political move-ments in heterogeneous ways, four of which are
presented as ideal typical discourses: Polish (the democratic opposition),
French (the "second left"), German (the realist Greens) and Latin
American (the new democratic left).
a very different, global point of view, the report Our Global Neighborhood by
the Commission on Global Governance (1995) states that:
the important changes of the past half-century has been the emergence of a
vigorous global civil society, assisted by the communications advances (just
described), which have facilitated interaction around the world. This term
covers a multitude of ins-titutions, voluntary associations, and networks--wo-men’s
groups, trade unions, chambers of commerce, farming or housing co-operatives,
neighborhood watch associations, religion-based organizations, and so on. Such
groups channel the interests and energies of many communities outside
government, from business and the professions to individuals working for the
welfare of children or a healthier planet." (p. 32)
organizations have grown dramatically not only in in-dustrial countries with
high living standards and democratic systems, but also in developing countries
and in former Communist countries in Europe (see also the special chapter on
non-governmental organiza-tions in the UNDP’s Human Development Report 1993).
Therefore, the report concludes that the United Nations must take greater
account of the emergence of global civil society by establishing "a place
within the UN system for individuals and organizations to petition for action to
redress wrongs that could imperil people’s security" (pp. 253-263).
it possible to develop a consistent concept of civil society that goes beyond
the category of early modern political philosophy and is re-\levant to the
contemporary world? Adam B. Seligman is rather skeptical (Seligman 1992,
199-206). When the idea of civil society is used as a political slogan of
different movements and parties in order to criticize certain government
policies, it "should not detain us too long" (p. 201). As a
philosophically normative concept, an ethical ideal, and a vision of the social
order that overcomes the tension between in-dividualism and community, between
particular and universal in-terests, "civil society," he contends,
cannot cope with the contra-dictions of modern existence. Moreover, the
analytical aspects of civil society as a sociological concept cannot help either
to bring us any nearer to their resolution because its concept adds little to
existing ideas of democracy or of citizenship and ignores precisely the problem
of liberal-individualist ideology, that is, how to constitute a sense of
community among and between social actors who are conceived of in terms of
autonomous individuals (pp. 203-204).
contrast, Cohen and Arato argue that the concept of civil society articulates a
contested terrain in the West that could become a primary locus for the
expansion of democracy and rights. They con-cede that inadequate versions of the
concept have been unreflectively revived in the discussion so far: Struggles
against communist and military dictatorships that penetrate and control both the
economy and the various domains of independent social life have too often
focused on the confrontation of "civil society versus the state"
without suf-ficiently differentiating between the task of establishing viable
market economies, on the one hand, and strengthening civil society vis-à-vis
the state and liberated market forces, on the other hand; in Western liberal
democracies, often the concept of civil society either lost its critical
potential because its norms--individual rights, privacy, volun-tary association,
formal legality, plurality, publicity, free enterprise--were supposed to be
already achieved, or it has become, as an early form of political philosophy,
irrelevant to today’s complex societies.
and Arato suggest the following working definition:
understand ‘civil society’ as a sphere of social interaction between the
economy and state, com-posed above all of the intimate sphere (especially the
family), the sphere of associations (especially volun-tary associations), social
movements, and forms of public communication. Modern civil society is created
through forms of self-constitution and self-mobilization. It is
institutionalized and generalized through laws, and especially subjective
rights, that stabilize social differentiation. While the self-creative and
insti-tutionalized dimensions can exist separately, in the long term both
independent action and institutionalization are necessary for the reproduction
of civil society (Cohen et al. 1992, ix).
that this definition, first, does not identify civil society with all of
social life outside the administrative state and economic pro-cesses in the
narrow sense; rather, civil society is distinct from a poli-tical society of
parties, political organizations and political publics (in particular,
parliaments), as well as from an economic society com-posed of organizations of
production and distribution, usually firms, cooperatives, partnerships and so
on. Second, civil society does not include the whole socio-cultural lifeworld,
but only its structures of socialization, association and organized forms of
communication to the extent that these are institutionalized or are in
the process of being institutionalized. Third, civil society is not
seen in opposition to the eco-nomy and state by definition;
rather, they are conceived as mediating spheres through which civil
society can gain influence over political-administrative and economic processes.
Only if these mediations fail, will the relationship of civil society, or its
actors, to the economy and the state become antagonistic.
my view, the crucial contribution of Cohen and Arato is the tripartite
structural model of society in which "civil society" as a "third
realm" is differentiated from the economic and political (sub-) systems.
(This is also the case in Gramsci’s and Parson’s approaches, but not in the
Hegelian and many contemporary concepts including the one used by the Commission
on Global Governance). The economic and political systems are characterized by
the modern functional require-ments (hence the insufficiency of early modern and
utopian concepts which dismiss these demands) and they are, at the same time,
mediating spheres (in the Hegelian sense). However, their rela-tionship is not
overly functionalist (in the sense of Gramsci or Parson); it allows for tensions
and conflicts and can be constructive. "Civic cul-ture" which is most
appropriate to a modern society is not based on civil privatism and political
apathy. The involvement in one’s family, private clubs, voluntary associations
and the like does not deflect from political participation or activism on the
part of citizens. Rather, social movements are a key feature of a vital, modern,
civil society and an important form of citizen participation in public life;
they can and should supplement, but should not aim to replace, competitive party
concept of civil society appears to capture a number of essential features of
contemporary societies. In my opinion, it does not need the normative
foundations of Habermas’ discourse ethics pro-posed by Cohen and Arato, but it
should address explicitly the pervasive ecological embeddedness of society.
Moreover, like the two authors addressing the relationship between civil society
and the political system, scholars should also explore systematically its
rela-tionship with the economic system, which is little scrutinized, yet of
crucial importance. In what follows I attempt to emphasize three basic aspects.
of all, business and the economy can exist only if they are widely accepted by
society in general and the civil society in particular. The more articulated
civil society becomes, the more business and the economy depend on it.
Reputation and trust are precious assets; and cynicism about business seeking
exclusively its own interests hurts business inescapably (as is the case with
cynicism about govern-ment). Examples of U.S. publications monitoring and
critically sup-porting corporations are Ethikos (since 1987), Business
Ethics (since 1987), and the Research Report (since 1988) of the
Council on Econo-mic Priorities, New York.
the other hand, civil society too depends heavily on business and the economy
and cannot exist without the minimal economic security of its citizens. This,
however, does not mean that civil society could flourish only in countries with
high living standards. As the intern-ational reports mentioned above clearly
show, there is an enormous increase of non-governmental organizations in
developing countries. Still it remains true that:
depends on people’s ability to provide for themselves, for poverty translates
into a lack of options for the individual. Economic security is es-sential if
people are to have the autonomy and means to exercise power. While the number of
productive jobs world-wide has multiplied, particularly through the growth of
the small-scale private sector, prac-tically all societies are affected by
debilitating unem-ployment. And the situation seems to be worsening, with
marginalization eating away at communities. No empowerment will be sustained if
people lack a stable income" (Our Global Neighborhood 1995, 36).
the interactions between civil society and business and the economy are of
paramount importance for the business ethics movement understood as a
"learning process." It would be naive to assume that improvement
business conditions and business conduct could occur without sustained pressures
from outside business. In conjunction with government and legal regulation,
business needs external critique and support from civil society. At the same
time, internal commitment to business ethics by companies and business leaders
is necessary if such a learning process is to succeed. Merely reactive behavior
to external circumstances and incentive structures cannot meet the ethical
challenges business and economies face today. It would be interesting to
illustrate this double perspective with the current controversy about "The
Body Shop" (see Business Ethics 1994, and other documentation).
to the three-level conception of business ethics that includes the economic
system, economic organizations and indivi-duals, the relationship between civil
society and the economy should be discussed with regard to all three
interrelated levels. However, in the following I will address conceptual issues
at the macro- (Section 2 Market Economy) and meso-levels (Section 3 Coporate
Ethics), but not at the micro-level.
proper understanding of the role of corporate ethics requires a proper
understanding as well of the economic system in the broader societal context.
The need explicitly to address and include this macro-perspective becomes
particularly obvious when one examines the question of corporate responsibility
in other countries. For example, in China this question must take into account
the markedly different business conditions to which state-owned enterprises,
rural enter-prises in townships and villages, joint-ventures, foreign-owned
firms and other company types are exposed (see Enderle 1994b). The busi-ness
context of a "social market economy" as in Germany significantly
differs from that of the United States; correspondingly, this affects
differently the role of corporate ethics (see Enderle 1995). None-theless, the
inclusion of the macro-context often is disregarded, es-pecially in North
America; and even if it is discussed--as in The Role of the Modern
Corporation in a Free Society by John R. Danley (1994)--this is only in a
rather rudimentary way: Danley understands the "pol-itical economy"
only as the relationship between government and the economy, has no clear
concept of the economic system, and uses a vague notion of "free
What Constitutes an
the modern theory of economic systems, the prevailing view is that economic
systems should be characterized by several basic criteria because one single
criterium leads to a fundamental miscon-ception of what an economic system is
and how it works (Kromphardt 1993). Thus to concentrate on the ownership of the
means of produc-tion (Karl Marx) is as equally misleading as to concentrate on
the es-tablishment of economic plans (Walter Eucken). Nowadays three
dis-tinct sets of criteria with different reasons are suggested:
of ownership and control: Who participates in the pro-cesses of economic
planning, decision making and control over pro-duction, distribution and
of information and coordination: With the help of what systems of
information are the individual decisions coordinated?
of motivation: What motives cause economic actors to set up and pursue their
the first criteria, ownership with its various forms is still an essential
feature of an economic system. The dramatic privati-zation campaigns in Eastern
Germany and the Czech Republic were conspicuous signs of transition from the
socialist to the capitalist re-gime. However, many contemporaries mistakenly
took this to be the only decisive change (using one single, Marxian criterium).
On the other hand, the very slow process of privatization in China justifies to
some extent the term "socialist market economy," because public
enterprises still widely predominate there. Nonetheless, following the concern
of A. A. Berle and G. C. Means (1932), juristic ownership should be
distinguished from the effective control of resources. The more recent property
rights literature, emphasizing that ownership matters, cites three parts of the
rights of ownership of an asset: the right to use the asset the right to
appropriate returns from the asset, and the right to change the form and/or the
substance of an asset. In contemporary economies of a socialist as well as a
capitalist nature, property rights often are delegated to the board of directors
and other forms of governance. This involves numerous issues commonly dealt with
as the "principal-agent" problem and discussed, from a
business-ethical perspective, in Ethics and Agency Theory: An Introduction
(Bowie et al. 1992). Moreover, the distribution of property rights is more
complex and more economically relevant than the distribution of juristic
ownership. Both distributions characterize to a considerable degree the economic
system and the conditions under which business enterprises must operate. Hence,
they are subject to ethical evalu-ation at the macro-level and, at the same
time, determine some limits to the role of corporate ethics at the meso-level.
infrequently the second set of criteria (information and coor-dination)
is used to highlight the special feature of "market" economies which
supposedly operate through decentralized coordination of a my-riad of economic
plans (see, for instance, Rich 1990). Without doubt, this feature is of
paramount importance in understanding the func-tioning and the ethics of market
economies. However, besides the risk of disregarding the equal relevance of the
first and third sets of criteria, the second set too needs more qualification,
concerning not only the coordination of economic plans, but also the type of
information which the economic planners can and should use.
the coordination is effected through both markets and "hierarchies"
that exist in private enterprises as well as public administrations (see
Williamson 1975 and 1985). In order to be effi-cient and avoid waste and
failure, hierarchical coordination must know the potentials of performance at
all layers of the organization. How-ever, there is a risk of the actual
potentials being misreported to the coordinators with the intention of
negotiating stronger bargaining positions: as numerous examples show, premiums
for overfulfilling economic plans in socialist economies tend to increase this
risk even more. In addition, while hierarchical organizations can function
fairly efficiently and effectively, they normally do not pioneer and develop new
products and production procedures, which is also a problem from the viewpoint
of corporate ethics advocating a proactive stand (see Section 3).
economic plans are coordinated via markets, a number of conditions must be
fulfilled for a smooth functioning to achieve certain objectives such as
economic growth, creating jobs, fighting poverty, and sustainable development.
Each "decentralized" economic plan-ner must interpret the "market
signals" and know on its own what pro-ducts in what quantity and at what
price are to be supplied. This obviously depends on how complete the knowledge
is (which normally is highly incomplete because of many uncertainties), on
offerings by competitors and on the development of demand. Furthermore, enter-prises
are supposed to be small without influencing the prices; econo-mies of scale
through mass production are excluded in order to pre-serve competition; there
are no "externalities," i.e., non-market inter-dependencies; and, if
there is no perfect foresight, a central coor-dinator (like an auctioneer at the
stock exchange) would know all demand and supply curves of all economic actors
and calculate the optimal market prices.
these assumptions of the perfect market equilibrium model are unrealistic, the
claim that market economies guarantee the optimal use of existing potentials of
performance ("resources" in various senses) is unrealistic too: a case
in point being the high figures of unvoluntary unemployment. However, it remains
true that the decisive advantage of market coordination lies in the dynamic
expan-sion of those potentials, due to competition. Competition brings about the
risk for each single supplier of being removed from the market if it rests too
long on its present successes, while its competitors offer new and more
attractive products and increase productivity. The pressures of competition that
increasingly become international do not stop at the gates of the enterprises,
but strongly affect them at all layers; they are an enormous challenge not only
for the ethics of economic systems, but also for corporate ethics.
regard to the third criteria, discussions about economic systems often
disregard the question of motivation. If economic be-havior is understood in a
mechanistic sense, there is no role for the more complex psychological and
cultural reality of motivations be-cause they can influence economic behavior,
at best, from "outside" (as, for instance, culture impacts on
engineering). Crucial problems in radical transition from socialist to
capitalistic economies and in gradual transitions as in China are motivational
ones which cannot be changed over night. (The motivational conditions for such
changes have been investigated much less than for changes in the other
direction, namely, from a capitalistic to a socialist and communitarian regime.)
Therefore, it makes no sense to "uncouple" and disconnect motivations
from eco-nomic behavior, and it would be too simple to take self-interest as the
only driving force of modern capitalistic economies. Nor can such a narrow view
be based on Adam Smith’s legacy which is much more differentiated (see, for
instance, Werhane 1991).
strongly influence exchange, production and dis-tribution, albeit in different
forms and ways. While the motive of self-in-terest is important for exchange
(according to Smith’s famous remark about the butcher, the brewer and the
baker), it is insufficient to pro-duce "public goods" (in both
economies and companies) and to ad-dress distributional problems (see Sen
1993a). Moreover, the forms and ways of exchange, production and distribution
impact on the moti-vations of economic actors. Fair exchange relations may
strengthen the motives to more trade, while exploitative relations (if they can
be avoided) may weaken the interest of the exploited part to continue to trade.
The successful fight against unemployment and inflation will reinforce the
motivation to produce. Different patterns of income dis-tribution send different
motivational signals to producers; for ins-tance, a lack of motivation to
produce efficiently can be induced by either a very "flat" or a very
unequal distribution pattern.
addition, the question of motivation is closely linked to, but not identical
with, the question of the goals and meaning of economic behavior. Goals such as
building up a national economy after the Second World War in Germany and Japan,
and now in East Asian countries, can strongly motivate people for individual and
collective actions (see, for instance, Enderle 1994a). Generally speaking, the
goals can be the same, but the motivations may differ; or there might be common
motivations leading to different goals. (Regarding the im-portance of discussing
goals, see Enderle 1996.) In sum, the inter-relationship between motivations and
goals, on the one hand, and ex-change, production and distribution, on the other
hand, is crucial for the understanding and ethical evaluation of the long-term
and dynamic aspects of economic systems.
Ethical Questions of
a Market Economy
discussing the essential components of an economic system, some important
aspects of the "market economy" already have been addressed, to which
I now add a few complementary remarks. Com-monly "market economies"
are defined as "economic systems (or orders) in which voluntary economic
transactions between market par-tners cover a large part of business and
economic life" (see Watrin 1993). The principle of free market transactions
means that the state in a market economy does not have the task of
comprehensively se-curing the livelihood of all citizens, but has only limited
responsibilities. It is not up to the state to organize the production of goods
and ser-vices, nor the distribution of these products. Rather, the participants
of the market decide what, how much, where and by whom goods are produced, and
who receives the incomes. Consequently, the tasks of the state concern only the
provision of "public goods."
far this definition is straightforward. However, there is a wide range of
interpretations of what "public goods" involve; consequently, various
and significantly different forms of "market economies" should be
distinguished (see, for instance, Albert 1991). "Public goods" may
include just the legal provisions, above all the protection of private property
rights, that are necessary for the very functioning of market processes and the
division of labor (see libertarian conceptions). Towards the other end of the
spectrum, "public goods" also involve, besides competition and
antitrust laws, social security, employment, basic education and health care,
income redistribution, environment protection, international trade and
investment policies, ets. (see, e.g., the "social market economy" in
Germany). The definition of "public goods" is not only a question to
be solved by the political process. It also has an important economic aspect in
the sense that "public", as opposed to "private", are
characterized by nonexcludibility and non-rivalrous consumption and cannot by
definition be provided by market processes, although these are clearly economic
issues (see the dis-cussion about market failure, e.g., in Enderle 1991).
Moreover, the definition of "public goods" is a normative issue to be
addressed by moral and political philosophy.
the basis of the three sets of criteria of any economic system and the specific
features of market economies, there are a number of fundamental questions with
which an ethics of the market economy should deal: First of all, in face of the
ecological, economic and social challenges of "sustainable
development" (World Commission on Envi-ronment and Development 1987, 8), the
purpose and meaning of the market economy is a central and inescapable
question that profoundly influences the motivations of economic behavior.
Motivations such as self-interest, group loyalty, and the search for the common
good are driving forces for exchange, production, distribution and consumption,
and are relevant to the provision of both "private" and
"public" goods; hence, an exclusive set of motives which concerns the
production, distribution and consumption of solely "private" or
"public" goods has disastrous consequences for the economy.
the scarcity of resources is an unavoidable condition of human existence today
and will not ease in the future. Therefore, in business and economic life, too,
priorities must be set and decisions made. Scarcity implies the imperative to
use the resources efficiently in every aspect of the economy, i.e., not only
in exchange and pro-duction, but also in distribution and consumption.
Competition, which is not an end in itself, is often a powerful means, yet no
panacea, for efficiency.
exchange relations between market partners should be "fair" and follow
the imperative of "commutative justice." This means that those
who acquire an advantage should give an "equivalent" in ex-change.
This imperative concerns any price issue such as market prices for goods and
services, wages, interest rates, international commodity prices and exchange
to understand the economy as a process of merely pro-duction and exchange
dismisses the fact that each economic tran-saction necessarily involves also a
distributive aspect. By paying a higher wage or a higher rent, more income goes
respectively to the worker or to the landlord. The question of distribution and
thus the im-perative of "distributive justice" arise not only
at the "end" of the economic process when "re-distribution"
by the state is at stake. Rather, distributive issues are already involved at
the "beginning" concerning the initial endowments which the economic
actors pos-sess, such as juristic ownership, property rights and human capital;
and they pervade the market processes up to the market outcomes (see Enderle
it goes without saying that the concepts "purpose,"
"meaning," "efficiency," "commutative justice,"
and "distributive justice" are very general and controversial,
and their application causes a great number of difficulties. The problems are
aggravated even more if one takes into account that, already from a functional
point of view, exchange, production, distribution and consumption are interrelated
in many ways. Hence, it is too simple to direct the ethical examination
exclusively, say, to production or distribution or to both of them, as if they
were two separate entities.
from the Perspective of Individual Freedom
economies often are vigorously defended in terms of "freedom."
However, what "freedom" means beyond its language and rhetoric needs
closer examination. According to Amartya Sen, "The economic theory of
market allocation has tended to be firmly linked with a `welfarist’ normative
framework. The successes and failures of competitive markets are judged entirely
by achievements of individual welfare (for example, in terms of utility-based
Pareto optimality), rather than by accomplishments in promoting individual
freedom." (Sen 1993, 519) To elaborate this important topic does not lie in
the scope of this paper; yet some remarks, following Sen’s ideas, seem to be
comprehensive assessment of freedom should take into account both irreducible
features: "the opportunity aspect" and "the process
aspect." Freedom gives individuals the opportunity to achieve their
objectives--things that they have reason to value. The oppor-tunity aspect of
freedom is, thus, concerned with the individual’s actual capability to achieve
these things (no matter what the process is through which that achievement comes
about). On the other hand, the process aspect of freedom relates to the
procedure of free decision by the individuals themselves--having the levers of
control in their own hands (no matter whether this enhances the actual
opportunities of achieving their objectives).
start with the second view, the process aspect includes autonomy of
decisions and immunity from encroachment; this is par-ticularly advocated by
such libertarian philosophers as Robert Nozick (1974). According to them,
because the rights to exchange and act freely are to be protected, market
activities must be permitted without let or hindrance by others (including the
state). These antecedent rights basically justify the markets, regardless of
their welfare-gene-rating or welfare-weakening effects. However, this
unqualified and un-complicated defence of markets is questionable on the ground
that this reasoning cannot be really independent of results and is subject to
ethical examination. Nevertheless, it remains true that decisional au-tonomy as
well as immunity from encroachment are constitutive of the competitive market
functionings, provided that no externalities exist.
opportunity aspect of freedom has been emphasized by many
writers--individuals as diverse as Aristotle, Adam Smith, Karl Marx, Mahatma
Gandhi and Franklin Roosevelt--who have been much concerned not just with
procedures and processes, but with the substance of freedom and the actual
opportunities had by people. How can the performance of markets be evaluated in
terms of opportunity-freedom? The "performance of markets" includes
the questions of effi-ciency and unequal outcome; the
"opportunity-freedom" relates to the set of achievements from which a
person can choose, which also in-volves two questions, namely: in terms of what
criteria is such a set of achievements to be evaluated? and in what evaluative
`space’ are achievements to be considered?
proposes to evaluate opportunity-freedom not in the space of commodities, that
is, that whoever holds more commodities has more freedom; but rather in the
space of relevant capabilities and fun-ctionings such as being adequately
nourished, living the way one would like, etc. (see his extensive discussion of
the capability ap-proach in Inequality Reexamined 1992). On this ground,
he concludes that "competitive market equilibria are weakly efficient in
opportunity-freedom in terms of capabilities as well as commodity holdings"
(Sen 1993, 535), whereas a "weakly efficient" state of affairs means
that there is no alternative feasible state in which everyone’s
opportunity-freedom is surely unworsened and at least one person’s
opportunity-freedom is surely expanded (532). Moreover, as for the outcome of
market processes, problems of inequality are no less possible in the space of
capabilities and opportunity-freedoms than in that of com-modities and welfare.
In fact, they may be even accentuated due to the "coupling" of the
income-earning ability and the income-using ability. (That means, for instance,
that a disabled person takes less advan-tage from a certain income than a
course, in order to evaluate market economies, many more questions are to be
discussed, that transcend the scope of this paper (see, e.g., Amartya Sen’s
presidential address on "Rationality and Social Choice," Sen 1995).
Still, before discussing and applying ethi-cal criteria, it appears to be of
paramount importance to pay due atten-tion to the informational basis of market
evaluation and to enrich this basis in terms of functionings and capabilities,
which is also crucial for understanding the role of corporate ethics (see
CORPORATE ETHICS WITH
A BALANCED CONCEPT OF
proper conception of corporate ethics takes into account the conditions set by
the market economy, political regime and civil society. At the same time, these
conditions at the macro-level pre-supposedly cannot determine entirely the
conduct of companies and other economic organizations at the meso-level.
Therefore, corporate ethics explores the spaces of freedom companies enjoy and
should enjoy, and attempts to develop normative-ethical guidance. Needless to
say, in this endeavor the concept of the firm plays a pivotal role.
balanced concept of the firm captures a number of essential aspects: the firm as
a moral actor, having economic, social and en-vironmental responsibilities,
being related with other actors at various levels, and operating in a horizon of
uncertainty and change. It is assumed that all these aspects constitute the
firm, are interrelated and might be articulated in various degrees. None of them
must be ex-cluded; and all are to be taken into account in a
1 illustrates the conceptual framework in which the con-cept of the firm is
located. The front side of the cube indicates major domains of human activity,
i.e., the economic, political and socio-cultural, all of which are embedded in
"nature" (environmental dimen-sion). It also includes various ways the
national sphere can be linked to the international spheres. The third dimension
of the cube ex-presses different levels of human actors: individuals at the
micro-level, organizations at the meso-level and systems at the macro-level. An
example may help explain the working of the cube. A given point at the
intersection of the economic domain, the interconnection type and the meso-level
represents a multinational company with business units world-wide that
significantly influence each other. The firm at this point is linked with other
points: in the same intersection (i.e., with com-peting multinationals) and in
other intersections (i.e., with the Euro-pean Union, Greenpeace, etc.).
The Firm as Moral
first question concerns the nature of the firm. From the ethical perspective the
question can be articulated in terms of res-ponsibilities.
"Responsibility", a key notion of contemporary moral sensitivity,
appears quite appropriate to express the ethical dimension of human action by
including both practical and theoretical notions (see, e.g., Fischer 1986,
Zimmerman 1992, Nunner-Winkler 1993, Rendtorff 1993). Responsibility basically
involves three components: the subject who bears responsibility that
cannot be completely deter-mined by rules and laws; for what the subject
is responsible (the realms of responsibility); and the authority to
whom the subject is accountable.
beginning is who is responsible. Is the firm essentially a production
function, a legal entity, a business leader or the team of top managers, the sum
of all individuals in the company--managers and employees--or something else? It
is our assumption that the firm has its own identity, mission and conduct,
however, these be specified. This identity, mission and conduct of the firm as
an organization is qualitatively different from those of both individuals
and entities such as countries. Because the firm makes decisions and takes
actions, often through complex and opaque processes, it can be qualified as an actor
in its own right. Being an actor entails moral responsibility. The firm is thus
understood as a moral actor, meaning that it is capable of moral
behavior (which is not necessarily correct moral behavior). Hence, the
specification "corporate" in the term "corporate
res-ponsibility" refers to the firm or corporation as subject and moral
actor (and not to a specific--for instance, economic--realm of responsibility)
in the same way as "personal" responsibility relates to the person as
firm is exposed to varieties of changing circumstances and, therefore, has to
strive for consistency and flexibility over space and time in order to maintain
and develop its own identity and mission. From the ethical perspective this
means that the firm has to meet the challenges for corporate, ethically
map corporate responsibilities more concretely and to iden-tify the realms
for which the firm is responsible depends on how the role and purpose of the
firm is conceived in relation to society. If so-ciety is divided in distinct and
separable domains such as the eco-nomic, political and socio-cultural, the role
of the firm can be seen in purely economic terms, and the responsibility of the
corporation is limited to its economic purpose. In reality, the various domains,
while retaining a certain autonomy, are interconnected. They overlap to some
degree and, in addition, are embedded inevitably in "nature."
Accordingly, the concept of the firm should reflect this more complex
understanding of society. Since at the societal level numerous chal-lenges
include economic, political, socio-cultural and environmental dimensions which
cannot be separated from one another, the com-panies are affected by these
"mixed" challenges and can hardly act as pure economic organizations.
Rather, as moral actors they may attempt to meet those challenges translated to
the corporate level.
to the societal domains the following realms of corporate responsibility
can be identified: economic, political, socio-cultural and environmental. Each
one has a certain autonomy which means that it cannot be entirely
instrumentalized in favor of another realm. For instance, to assume
environmental or socio-cultural res-ponsibility cannot be justified by
fulfilling economic responsibility alone. Alternatively, to live up to economic
responsibility is not achieved solely by taking seriously corporate
responsibility in the other realms. It follows that a strictly hierarchical
concept of the firm which takes all non-economic activities as mere means to
achieve economic goals ignores the multi-purpose reality of society and
its relevance for corporate responsibility, and should be replaced by a circular
inter-relationship of these various responsibilities. This concept of the
firm is well expressed in Ciba’s mission statement: "We strive to achieve
sustainable growth by balancing our economic, social and envi-ronmental
responsibilities", and by the fact that Ciba now publishes, along with the
summary report and financial review, environmental and social reports (Ciba
1993, 1994a, 1994b).
realms of corporate responsibility, listed in Figure 1, can be characterized as
The economic realm includes numerous items in accordance with the
characteristically economic purpose of the firm. Like each economic activity
this realm involves both productive and distributive aspects, which in addition
are interrelated. This means, for instance, that the production process implies
a certain distributional pattern of resources which, in turn, impacts on this
process; or the distribution of salaries within the firm may reflect the roles
and productivities of the employees and, at the same time, influence them
positively or nega-tively. Thus both productive and distributive aspects are
relevant for understanding the following items which are listed, for the time
being, without any particular order and priority:
the short term
the long term
of production factors
of production processes
of products and services
Preserve/increase the wealth of shareholders
Be consistent and fair with suppliers
fair wages, provide social benefits
and empower employees
establish a ranking of priority among these items is up to the firm as far as it
is an autonomous actor. At the same time the ranking is also strongly influenced
by the economic system in which the firm is operating. Thus, in the Japanese
economic system, for example, the employees rank significantly higher than in
the North American system and also differ from their position in the market
economies in Germany and France. Moreover, the political and sociocultural
system of the firm’s environment, too, have an undeniable impact on the
(b) The political and sociocultural realm of corporate
respon-sibility can be combined as the "social" realm.
"Social responsibility" in this sense refers to what the firm
is responsible for in the political and sociocultural system of society.
Essential items are:
Respect the spirit and letter of laws and regulations
Respect social customs and cultural heritage
Engage selectively in cultural and political life.
first two items require that the firm accepts the legal and socio-cultural
standards of a given society, e.g., the tax laws, the gender relationship or the
role of the family (which may be "extended" as in China). This
acceptance, in principle, should be both external and internal. But under
numerous circumstances, the internal acceptance might be difficult or even
impossible when, for instance, the cultural norms of the host country and the
multinational deeply conflict; the ex-ternal acceptance, too, can be
questionable, if the standards violate basic ethical principles as was the case
in the apartheid system of South Africa.
third item presents a more active role, though only through selected activities,
in the political and sociocultural systems. This includes active participation
by the firm in setting up the legal frame-work of business and in solving public
policy problems; it can also imply engaging in philanthropy, educational
The environmental realm reflects the fact that society in general and the
firm in particular are intrinsically and unescapably embedded in nature.
Whatever decision the firm makes and whatever action it takes is related to the
"environment" and impacts in terms of both consuming natural resources
(as "inputs" of the firm’s production process, like raw materials,
energy, etc.) and burdening the envi-ronment (as "outputs" such as
waste and pollution of various types). The now widely accepted general standard
of environmental sound-ness is "sustainability" which was defined by
the World Commission on Environment and Development (1987, 8) as "to meet
the needs of the present without compromising the ability of the future
generations to meet their own needs." With regard to corporate
responsibility in the environmental realm the relevant item can be generally
stated as follows:
Be committed to "sustainable development":
Consume less natural resources
Burden less the environment with effluents.
to the broad societal level, these various realms partly overlap and interrelate
with each other at the corporate level. Consequently, by assuming economic
responsibility the firm may act in a socially responsible manner as well, when,
e.g., it preserves jobs or promotes female managers and employees to positions
in which they can better use their productivity. Or the company may fulfil
economic and environmental responsibilities simultaneously by inven-ting more
"sustainable" processes and products which are of higher productivity
and lower costs. Hence a great deal of corporate activities can be justified in
both economic and non-economic terms and thus have a broader theoretical
foundation and more practical stability than if it were justified from solely an
economic or a non-economic point of view.
Figure 2. Realms of Corporate Responsibilities
with interrelated productive and distributive aspects:
- Make/maximize profit:
the short term
the long term
- Improve productivity:
of production factors
of production processes
of products and services
- Preserve/increase the
wealth of shareholders
- Be consistent and fair
- Regarding employees:
fair wages, provide social benefits
educate and empower employees
- Serve customers
- Respect the spirit and
letter of laws and regulations
- Respect social customs
and cultural heritage
- Engage selectively in
cultural and political life
- Be committed to
fewer natural resources
less the environment with effluents
the overlapping of different realms of corporate responsibility is only partial.
Social and environmental responsibilities cannot be assumed entirely by taking
solely economic responsibilities, since economic responsibilities cannot be
fully replaced by social and environmental responsibilities. Conceptually
speaking, there are tradeoffs where one type of responsibility has to be
balanced against another type, and economic responsibility must not
always override other responsibilities. The question is on what basis these
decisions are to be made and how they are to be concretized. (These issues of
overlaps and tradeoffs are discussed in more detail in Enderle and Tavis 1995.)
understand the firm as moral actor having economic, social and environmental
responsibilities implies an approach to business that is not value-free.
Business actors and activities are not only value-oriented and regulated from
outside by political, educational and other institutions and persons, but also
have their own moral motivations and purposes. In other words, as distinct from
the "engineering ap-proach", the "ethics-related approach",
which Amartya Sen (1987) relates to economics in general, is here applied to the
corporate level. Note that recognizing an ethical dimension in corporate life
does not involve any particular set of ethical values and norms. It means only
that such a dimension exists and has to be taken into account. This
"ethics-related" approach is relevant for theory as well as practice.
is crucial to distinguish three kinds of ethical challenges (or
responsibilities) and to link them to the three realms discussed above (see
Figure 3). To talk about "ethics" in very general terms, to demand
"ethical" conduct from companies or to blame them for unethical
be-havior can be confusing unless a distinction is made between minimal ethical
requirements, positive obligations beyond the minimum and aspirations for
ethical ideals (see this distinction in De George 1993, especially 184-193). The
first kind includes basic ethical norms such as not to kill (e.g.,
competitors), not to deceive (e.g., customers), not to rob (e.g., shareholders),
not to exploit (e.g., employees). Of course, the contents of these basic norms
have to be specified at a more concrete level, which is where most difficulties
arise. As for these minimal requirements it is fair to assume that consensus can
be attained even in a pluralistic society: if it be not achieved in a society,
business cannot survive.
obligations beyond the minimum, the second kind of ethical challenges,
are to create and maintain trust relationships with the stakeholders, to help
employees in need, to recompensate the community for the damage unintentionally
done by the firm, to engage for fair market conditions, etc. Here it is
certainly more difficult to find consensus than in the first case. Still, a
certain set of positive obligations of the firms is necessary for the effective
and thriving fun-ctioning of the economy.
moral actors--individuals as well as companies--are characterized by aspiring to
ethical ideals, if they are to overcome purely re-active behavior and take a
pro-active stance. These as-pirations are able to mobilize a great deal of
motivation and energy in the economic, social and environmental realms (see,
e.g., Merck’s policy to develop, produce and distribute Mectizan, a drug that
helps prevent river blindness). Still, to a large extent, these aspirations
create the very specific identities and missions of companies. To reach a
consensus for these positive aspirations in a pluralistic society is not
possible. Indeed consensus at this level of idealism is not desirable.
the three kinds of ethical challenges to the three realms of responsibility
covers a wide range of possible, ethically res-ponsible corporate policies (see
Figure 4). Firm A may aspire for high economic responsibilities (e.g., by
substantially increasing its pro-ductivity), fulfill its social obligations
beyond the minimum (e.g., to provide health care insurance for all employees)
and meet minimal environmental standards. Firm B excels in its environmental
record (e.g., by producing biodegradable detergents), preserves the jobs at a
reasonable profit margin and helps employees to engage in com-munity work. Firm
C is committed to its human rights policy world-wide as it lives up to this
standard within the company; it is fairly competitive in international business
and participates in setting up environmental laws in various countries without
being a "green pioneer."
conclusion, all three firms strike a balance between eco-nomic, social
and environmental responsibilities, but they do so in different ways, which
depend on both their own mission and their busi-ness environment. There are, of
course, numerous other pos-sibilities where companies do not assume one or more
of those respon-sibilities even at the minimum level and, consequently, fail to
strike a balance.
Responsible to What
outlined above, the concept of responsibility includes three components, i.e.,
the moral actor, the realms of responsibilities and the question to what
higher authority one is accountable and respon-sible. As the term indicates
the moral actor is supposed to be res-ponding to a request, demand, requirement
or invitation. What is this higher authority? It can be one’s own conscience,
other human beings, one’s superior, the society, a court of law, life, nature,
God. Because this question cannot be discussed in this paper, it suffices to
em-phasize that this third component of the concept of responsibility should not
be confused with the second one, as so often occurs in daily life as well as in
academic discussions. Consequently, what is meant by "social
responsibility" should be made clear. Does "social" relate to the
specific realm discussed above? Or does it pinpoint the authority of other human
beings or society in general to whom one is assumedly responsible? The term
"profit responsibility," too is ambiguous. It can signify the
responsibility to make profit, i.e., to the realm of respon-sibility. Or it can
mean that profit itself becomes the authority to which the manager is
accountable. In such a case, the means have been perverted into the ends.
far the emphasis has been placed upon what the firm as moral actor with its own
identity and mission can do and how it can use its spaces of freedom (or
discretion). The reason for this emphasis is that this view often tends to be
neglected or ignored by overem-phasizing all kinds of constraints with which the
firm has to struggle. Nevertheless the constraints impose factual and normative
require-ments on corporate decision making and acting. For example,
"facts" such as global competition impose exogenous constraints on the
range of activities available to the corporations, and factual sets of values in
a given society to some extent condition their spaces of free-dom. They must be
taken seriously for the sake of the very under-standing of responsibility.
"Ought implies can"; one cannot be held res-ponsible for what one
cannot control. Therefore, the art of business ethics consists in identifying
both the spaces of freedom and their constraints, using these spaces responsibly
and, for the time being, accepting their limits.
context of corporate decision making can be characterized by a framework that
includes multiple actors at different levels and in various types of domestic
and international spheres. Summarized in Figure 1, it has been developed in more
detail elsewhere (Enderle 1991, 1993a and 1995b). The basic idea is to elaborate
both a com-prehensive and sufficiently differentiated conception of business
ethics that helps perceive as concretely as possible the links between decision
making, acting and responsibility. This perception is crucial for each moral
actor, including the firm, since no single actor can escape responsibility and
push off his or her responsibility to other actors. At the same time, it is also
important for the actor to know clearly that for which he or she is not
distinction between the micro-, meso- and macro-level of acting highlights the
decisive, qualitative differences between per-sons, organizations and (whole)
systems (which, in business ethics, are related to economic activities). Hence
corporate responsibility must be confused neither with personal responsibility
nor with the res-ponsibility of the economy represented by its authorities. With
regard to international relations, the differentiation of four types (i.e.,
"foreign country", "empire", "interconnection",
and "globalization") attempts to clarify the widely nebulous usage of
the terms "international" and "global" and how these types
impact on, and qualify, domestic rela-tions in different ways, be it at the
micro-, meso- or macro-level.
Horizon of Decision
Making: Uncertainty and Change
addition to being context-related, the concept of the firm should take into
account the "horizon" of corporate decision making and acting which is
relevant to understanding and evaluating the firm’s long-term planning and
performance from both the empirical and the (normative) ethical points of view.
In contrast with mechanistic and biological analogies, corporate decision making
in modern business is future-related and deeply exposed to uncertainty and
change. This implies that the firm has limited knowledge and control of the
future. What is really going to happen after the commitment is made is
uncer-tain and may change. Therefore, corporate responsibility must come to
grips with uncertainty and change. (This is somewhat ironical in so far as
"responsibility" emphasizing the importance of consequences cannot
adequately grasp them). The problem is to be consistent and flexible at the same
time; in ethical terms, to abide by generally accepted standards and to
use moral imagination. A balanced concept of the firm will account for this
horizon characteristic of modern business.
ETHICS WITH BUSINESS AND
main motive of this section has been to explore corporate ethics in terms of
responsibilities, on the assumption that business enterprises have more or less
large spaces of freedom and should use them responsibly. However, having
highlighted the important role of corporate ethics, I do not want to conclude
without recalling that com-panies are confronted with numerous ethical conflicts
which demand too much from them and can be solved only at the macro-level by
reshaping the economic system, and perhaps even the political and sociocultural
systems. In other words, corporate ethics needs to be "re-linked" to,
and integrated into, business and social ethics. North American approaches to
business ethics often emphasize the free-dom and the corresponding
responsibility of decision making and acting, with a tendency to overlook its
limits. On the other hand, Euro-pean approaches frequently underline the
importance of business conditions which should be shaped in an ethically
responsible way, with the inclination not to use fully the existing spaces of
freedom (see Enderle 1995a). A more balanced approach to business and corporate
ethics attempts to address both the ethical choices within constraints
and the ethical choices of constraints.
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methodological question can be very significant in ap-proaching corporate
studies in civil society. This is manifest in the very concept of civil society
and in its reemergence as a topic of urgent interest in our day.
the concluding pages of their work on the subject, Cohen and Arato note that
they have essentially depended on the theory of communicative action of Habermas
which they have attempted to enrich by elements from Rawls. In so doing they
take particularly en-lightened representatives of the two sides of the Cold War
and attempt to make incremental progress thereupon. This could make sense if one
supposes that we are now in another stage of modernity. If, how-ever, the Cold
War manifested the radical insufficiency of modernity, and we are now in a
post-modern period, then such an approach is essentially anachronistic and will
character of this change could be studied in many terms, such as the emerging
awareness of the inadequacy of the exclusions implied by Descartes’
Enlightenment requirement of clarity and distinctness or its elaboration by
technical or instrumental reason. But it can be seen as well in terms of the
ethical implications of civil society for business enterprises and their
interchange. At the structural level, Habermas’ study of communicative action
promises significant contri-butions, but its Kantian restriction to the level of
formal requirements limits it to identifying some prerequisites for civil
interaction such as equal access. It impedes taking up the essential issues of
the goals of such interaction or the nature of the participants, based upon
which ethics could provide normative guidance. The same would seem to be the
case for Rawls. Thomas Bridges, The Culture of Citizenship: In-venting
Postmodern Civil Society, however, suggests an interesting opening in the
recognition by J. Rawls’ Political Liberalism of the poli-tical origin
of the norms of democratic practice, not as Platonic ideas but as the result of
political decision making. This Aristotelian turn if extended to a sense of the
common good after the fashion of Amitya Sen and Marth Nusabaum, and to a
recognition of the existential cha-racter of the exercise of political freedom,
could open the way to a much richer and more adaptive sense of civil society
with normative implications for the economic and political orders.
is, however, another issue of method which is in need of consideration. Modern
rationality employs an analytic approach to all issues. Nothing is considered
adequate if it is not broken down into components which can be described in
universal terms and then reassembled in a way that provides for a clear
definition. This has two effects on the present issue. First of all civil
society loses the spon-taneity and free creativity of conscious and free persons
and groups; it can be treated as a set of abstract structures, but not as a
living entity which can claim recognition for itself and found moral
the analytic approach of separating components tends to emphasize contrasts and
conflicts, whereas a synthetic ap-proach requires an integrating and holistic
vision in order to appreciate the congruences and convergences required for
is reflected as well in the division of civil society from the political and the
economic orders. In an analytic mode, it is important to speak of each in its
own right and delineate what for each is most characteristic. But if, as here,
the horizon is human persons not as material atoms but as fully human
beings--both body and spirit, both unique and socially engaged--then the ethical
issues of corporations as well as of civil society consist rather in their
interaction than in their isolation.
is true as well of the political order as reflected in the experience of the
United Nations. This began 50 years ago as a group of nations, each represented
by their political delegate. The inter-vening experience, however, has shown the
increasing ineffectuality of this body when restricted to political power
interests. Hence, the United Nations has increasingly turned to the NGOs
(non-govern-mental organizations) for effective representation and negotiation
of the deepest human concerns for family, education, culture and envi-ronment;
indeed its 50th anniversary conference was devoted to the role of NGOs. This
suggests that just as military matters are commonly said to be too important to
be left to the military, political and economic matters respectively are too
important to be left to separate political or economic norms alone. This
implies, in turn, the need for a strong civil society and a strong interaction
between it and these other two dimen-sions of social life.
other elements were noted, one was the need for cor-porations to show that they
really mean the ethical regulations they propose. Employees look not only at the
words which are written in corporate ethics statements, but at the actions which
back them up in setting policies and evaluating--and even censuring--their
adherence. As the two major 1995 disasters in corporate trading in Singapore and
Japan show, it is quite possible for employees in business to draw disastrously
short-sighted conclusions that company declarations of ethical principles can be
bypassed as long as economic results are obtained. These recent disasters show
that ethics is not a matter of formal laws or ideals separated from the
concrete, but of the proper exercise of freedom in concrete life: hence that
there is no substitute for ethics and for responsible oversight in that regard.
cannot be successful, however, without a moral cor-porate culture set within a
moral civil society. It is in the latter that the employees of a business are
born and bred and in the former that they form there actual business practice.
Further, only a people as a whole through its expectations are broad enough to
hold a company to ethical practices, for it is a matter of the character and
quality of the life of a people. For this reason an ethical civil society is
essential to the ethical character of its business community.