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Moral Justification and Ethics in Business

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Moral Justification and Ethics in Business essay

In Albert Bandura’s paper, Moral Disengagement in the Perpetration of Inhumanities, he refers to ‘moral justification’ as a process where ‘detrimental conduct is made personally and socially acceptable by portraying it as serving socially worthy or moral purposes ’. This can be interpreted as a method to alleviate one’s guilt through the rationalisation of harmful acts. Moral justification is utilised on a personal level; however, it is also adopted on a much larger scale by companies to defend their business activities. The title is phrased in a manner so as to allow for many different interpretations, which raises a plethora of questions that can be further analysed. Does it depend on whether the negative impact of the business activity is as a result of the consumer’s voluntary decision or is it caused by negative externalities of consumption or production? If the harm to the community is not directly inflicted by the firm itself, rather by other stakeholders in the process (hence the negative impact can be avoidable), does that justify the firm’s activities? If harm is still being imposed upon society, and yet a company is carrying out all their contractual obligations and abiding by the laws of the nation it is operating in, is that an acceptable practice?

Before the advent of corporate social responsibility (CSR) in the late 20th century, it was commonly acceptable to carry out activities which might have a negative impact on people, as the companies’ sole aim was to make a profit. This is because society, especially in less developed nations, did not have a set standard to determine what was morally right or wrong, because of the lack of emphasis in the field of business ethics. It is only after the establishment of CSR, when companies started to ‘take responsibility for the social and environmental impacts of their business operations’ , awareness of good corporate citizenship spread, and moral justification for detrimental activities was no longer acceptable, even if the blame could be shifted to other stakeholders. Despite this, there is a still a need to assess moral justification as it provides us with an indicator of the magnitude and severity of an activity’s impact on society.

Through the use of real-life examples such as the Rolah McCabe trial, I will consider the first question that I have raised considering on whom the impact should fall upon. Exploring a more in-depth case study of Shell’s operation in Nigeria’s Niger Delta region in the 1990’s will allow me to analyse the other claims I have raised, whilst bringing in the aspect of corporate social responsibility, before coming to an overall conclusion of my thesis.

Negative externalities are costs that are suffered by a third-party when an economic transaction takes place. These can be as a result of people consuming the product or the firm producing these goods, hence negative externalities of consumption and production. A common yet fundamental example of a negative externality of production is how air/water pollution and chemical waste from factories globally induce a myriad of health issues and diseases . In this scenario, society is being involuntarily affected despite, in most cases, not being involved with what the firm may be producing. Firms would previously argue that the benefits of industrialisation and growth outweighed the health-related consequences described above. Yet in recent times, this line of argument would no longer be accepted due to the commitment towards ethical and sustainable business practices. Strategies such as carbon capture techniques and the implementation of renewable technologies are being adopted to lower carbon emissions. Firms have realised that in order to enhance long-term profit, they need to embrace sustainability as society prefers to deal with transparent and ethical companies.

On the other hand, if a consumer voluntarily purchases a product from a firm, which they are aware could affect their lives by damaging their health, it is more difficult to decide who is to blame. A prime example of the debate between the individual and corporate responsibility is the Rolah McCabe trial. In 2001, Rolah McCabe, who was dying of smoking-attributed lung cancer sued the British American Tobacco Australasia (BATA) company and was subsequently awarded AUD $700,000 as compensation. McCabe claimed BATA should have taken extra measures in helping to tackle her addiction and had targeted their advertising towards children – hence how she started smoking at the age of 12 . On the contrary, many argued that since McCabe used her free will to start smoking, BATA should not be liable, and the smoker should be held accountable for any negative effects on their health. The fact that the judge ruled in favour of McCabe demonstrates how prominent, at that time, this new idea of corporate social responsibility had become. Despite BATA not actively forcing society to smoke, they still advertised and distributed a harmful product without publicising the possible negative consequences – this was deemed morally unjustifiable.

The case study of Shell’s oil exploration activities in Nigeria in the 1990s is extremely relevant as it spanned the timeline over which business ethics, in the form of CSR, started to force its way into corporate boardrooms. Many activists claim Shell had a detrimental effect on the environment in its zone of operations and the job security of the local people, whilst other parties argue that the real perpetrators were the Nigerian government. After oil was discovered in the Niger Delta in 1958 , it quickly overtook the local palm oil industry as the region’s main economic product. Subsequently, Shell sought and obtained several joint government ventures for oil drilling in this region and were granted it, with the Nigerian government being the major shareholder. Shell’s initial investment in Nigeria was later criticised, with many human right activists claiming that multinational corporations had exploited the region by providing low wages and unacceptable working conditions, whilst neglecting the effect on the environment. There is a lack of data available to measure the environmental effect of Shell’s activities region, yet many activists have claimed that the area has suffered due to numerous oil spills and gas flaring. The ‘Movement for the Survival of the Ogoni People’ (MOSOP) was the primary activist group campaigning against Shell’s activities within Nigeria, claiming that they had displaced the local palm oil industry, the primary source of income for people working on the land. Instead of increasing the livelihood of the region, the operations of Shell and the environmental degradation caused in the Niger-Delta sank the communities deeper into poverty, due to under/unemployment arising from the fact that Shell only hired overseas expatriates or highly-skilled Nigerians. From these arguments, however credible they may be, there seems to be no moral justification for Shell’s operation, as according to Bandura’s definition there is no ‘socially worthy purpose’ arising from their business activities. However, was Shell the only party to blame?

The Nigerian Government negotiated with the oil companies and all exploration and drilling activities in Nigeria were joint ventures between them and the corporations. In the case of Shell, the Nigerian government was the majority (55-60 %) shareholder in the operation and as a result amassed billions of dollars in revenue. The reason why this wealth did not ‘trickle-down’ to the people living in the oil-producing region, is due to the extreme corrupt political structure in Nigeria. Many local leaders, government officials and army generals extorted large commissions from themselves to support Shell’s activities, hence increasing the wealth disparity in an already poor nation. The government’s strategy was to use their tax revenue to invest in oil drilling, however the increased profit received was not invested back in the welfare of the people living in the Niger Delta but diverted to other parts of the country, thereby subjecting the region with food shortages, lack of electricity and poor infrastructure. It can be argued that if the government acted in a responsible and ethical manner, that Shell’s presence in the region would not only be morally justifiable but would have brought economic benefits to the Ogoni people. With respect to the scrutiny Shell received for its adverse effects on the environment, it argued that the blame for this does should not only not fall on them but rather on the negligence of the Nigerian government and its local laws. The oil company claimed that they adhered to the highest environmental standards set by the nation, yet Nigerian environmental laws were at that time much inferior to international equivalents and were often not thoroughly enforced. Furthermore, Shell was allowed to decide the cause of any oil spillage that occurred and if they decided the spills were a result of ‘sabotage’ they were not subject to pay any compensation, in accordance to Nigeria’s relaxed and compromised environmental policy. Shell was executing all its required fiduciary duties in its operations, whilst following the view of the free market economist Milton Friedman , (‘the one and only social responsibility of a business is to increase profits’) hence before the idea of CSR changed the definition of what was morally correct, the company could justify its actions.

With a paradigm shift occurring in global business ethics in the mid 1990’s, activists such as MOSOP mounted increased pressure on MNCs to ensure there was an international standard of corporate behaviour. The idea that an oil company such as Shell needed to take on more responsibility, rather than merely meeting its contractual obligations, was an initially shocking concept. However, it was Shell who became the ambassadors for change in Nigeria, by enforcing their changing role in the local community. Shell increased its development spending budget exponentially from US$330,000 in 1989 to US$ 43 million in 1998, taking on relevant projects in Ogoniland such as improvements in local healthcare and youth education schemes, allowing people to possess the necessary skill levels to eventually be hired by Shell. With regards to Nigerian laws, Shell started to ‘express support for fundamental human rights’ by paying attention to the opinions of environmentalist and activists, and rather than solely complying with financial standards they demonstrated their capabilities to improve safety and environmental standards in the Niger Delta region. Through the publishing of Shell’s first social responsibility report in 1998, Shell justified that its business approach in Nigeria was now morally acceptable, as while continuing to make a profit, it operated in accordance with the Universal Declaration of Human Rights.

In conclusion, moral justification is undoubtedly a requirement in society as the concept of morality has not only become more amplified over the years, it is ubiquitous in our lives. Firms need to realise that they must achieve a socially worthy purpose, through or alongside their business strategies. I strongly believe, one cannot justify a business’s activities if it neglects to worry about their impact on the community. We need to be aware that certain industries have environmental costs, such as energy production firms and the carbon emissions that arise from this, yet the majority of these companies have started to take steps in the right direction by spending more on research and development. Even after Shell adopted CSR, their oil drilling continued to be problematic to the environment, yet they the way in which the firm combatted these issues and took responsibility for their actions is what made the difference. It is no longer possible for companies to grow and keep a loyal customer base by just doing the bare minimum in accordance with local laws. CSR has become so critical that 76% of American consumers will refuse to patronise a company that supports an issue contrary to their beliefs and 60% expect firms to drive social and environmental change without government intervention. This notion of a socially responsible corporation has become so crucial in the eyes of the public, that it has become the new standard of morally justifiable business ethics.

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