Lecture: What the Business Owes: Ethics & Social Responsibility
Lecture script · about 15–20 minutes spoken · Week 5
Opening
Picture a cook in a hospital kitchen during the lunch rush, a bike shop owner holding a note from a parts supplier, and a factory owner weighing a machine that could do the work of 40 people. None of them is breaking a law. All three are facing the same question. What does a business owe, beyond what the law demands?
Wherever you end up working, in a kitchen, a shop, a factory floor, or a boardroom, you'll meet choices that are legal and still raise the question of whether they're right. You'll also meet the bigger question of whom a business should answer to.
Here's where we are. In Week 1, The Idea and Its Environment, we mapped a business's stakeholders: everyone who can affect it or is affected by it. In Week 2, The Market It Sells Into: Economics for Business, we placed the coffee cart in its market. In Week 3, From Idea to Plan: Entrepreneurship, Small Business & the Business Plan, we built its plan and funding. And in Week 4, Choosing a Legal Form: Ownership, Franchising & Mergers, we learned what a corporation and its stockholders are. Now that you know who owns a corporation, we can ask what it's for.
Here's the route through this lecture. We separate legal from right, look at how a workplace shapes conduct, climb a pyramid of responsibilities, weigh three bottom lines, and set out two positions on a corporation's purpose. Then we try both positions on one factory's decision.
1. Allowed is not the same as right
Let's start with the bike shop. Over two years it fitted one brand of brake pad on about 80 bikes. Then the supplier sends a note: those pads wear out faster than anyone expected. In this illustrative case, no rule requires the shop to warn its past buyers. Calling all of them would eat a few days of staff time.
So the owner has two questions, and they're easy to blur. Is staying quiet allowed? And is staying quiet right?
Those two questions have names. Business ethics is the standards of right and wrong that guide the choices people make in a business, including choices the law leaves open. Legality is whether the law allows an act; the law sets a minimum that conduct must not fall below, so a legal act can still be unethical.
I like to picture the law as the floor of a building. Nobody may go below it. Ethics asks how far above the floor you choose to build. And it works the other way too: believing something is right doesn't make it legal.
When a decision sits in that gap, you need a way to think it through. This course uses three ethical-reasoning questions: a short set of questions a manager can run on any decision. Is it legal? Is it fair to everyone it touches? Would I be comfortable if it were public?
Run them on the bike shop. Staying quiet is legal here, and so is calling, so the first question doesn't separate the choices. Is silence fair? The 80 riders depend on their brakes and can't see the problem, so silence leaves the risk with them. Would the owner be comfortable seeing a neighborhood post that says the shop knew and said nothing? Probably not.
Pause and try this. Which of the three questions does staying quiet pass, and which does it struggle with?
Take a moment and run each question in order.
Here's the answer. Staying quiet passes the legal question and struggles with the fairness and public-comfort questions, because the riders carry a risk they can't see.
The questions don't print an answer for you. They show you where the weight of a decision sits.
2. Four tools, not one poster
Now picture a hospital kitchen. Some of the people it feeds have food allergies, so each of their trays gets an allergy label and a second check. During the lunch rush, a new cook notices a few labels being skipped. Will that cook say something? That depends a lot on what the kitchen has built.
Organizations use four tools to shape how people act. A code of ethics is a written statement of the values and the conduct an organization expects from its people, including what to do when something goes wrong. Ethics training is instruction that teaches people an organization's code of ethics and how to use it when the right choice at work is unclear. Leadership by example is shaping conduct by having managers follow the same rules they ask of others, in plain view of the people they lead. And a protected reporting channel is a way for a worker to report suspected wrongdoing, such as a hotline or a named contact, that shields the person reporting from punishment for a good-faith report.
The person who uses that channel is a whistleblower: a worker or other insider who reports suspected wrongdoing in an organization to someone who can act on it.
Here's how the four fit the kitchen. The code says every allergy tray is labeled and checked twice. Training walks new cooks through sample rush-hour orders. The head cook checks every allergy tray in full view, even when the line backs up. And the new cook has a named contact outside the line, with a promise that a good-faith report won't cost a shift.
Pause and try this. The kitchen has a code on the wall, but the head cook skips checks during the rush. Which tool is missing?
Think about what the new cook actually sees the leader do.
Here's the answer. Leadership by example is missing, because a rule the head cook breaks in plain view tells everyone the rule doesn't really count.
So a code works only alongside the other three: write it, teach it, live it, protect it.
3. Earn, obey, do right, then give
Let's go back to the coffee cart. In Week 1 you drew its stakeholder map. Take five of those stakeholders: the customers in line, the part-time helper, the bean supplier, the neighbors who share the sidewalk, and the city's permit office. Each one expects something different.
That whole set of expectations is corporate social responsibility: the responsibilities a business carries toward the society it operates in, covering earning its way, obeying the law, acting ethically, and giving back.
A widely taught way to organize it comes from Carroll (1991), "The pyramid of corporate social responsibility", in the journal Business Horizons. The pyramid of corporate social responsibility is a classroom model from Carroll (1991) that stacks four kinds of responsibility: economic at the base, then legal, then ethical, with philanthropic at the top.
Let me give you each level with a cart example. Economic responsibility is a business's duty to make goods or services people want and to earn enough to stay in business. For the cart, that's pricing drinks so it stays open and the helper keeps a job. Legal responsibility is a business's duty to obey the laws and rules that apply to it, like holding the city permit and following food-safety rules. Ethical responsibility is a business's duty to do what is right and fair even where no law requires it, like telling customers the oat milk ran out instead of quietly swapping it. Philanthropic responsibility is a business's voluntary giving back to its community, like coffee for volunteers at a neighborhood cleanup.
Pause and try this. The cart keeps the sidewalk clear for the neighbors, beyond what its permit asks. Which level is that?
Ask whether any rule requires it.
Here's the answer. It's ethical responsibility, because no rule requires it and it's done because it's fair to the neighbors.
And notice where the free coffee sits: at the top, resting on three levels below. A cart that can't pay its bills has no pyramid left to give from.
4. Three lines, one decision
Now picture a family farm that waters its fields by flooding them, the way it always has. Someone offers drip lines that put water right at the roots. The owners could look only at the cost. Or they could look wider.
The triple bottom line is a classroom model associated with Elkington that weighs a business's results on three lines, profit, people, and planet, instead of on profit alone. Elkington's 1997 book is Cannibals with Forks: The Triple Bottom Line of 21st Century Business. In a 2018 essay he recalled coining the phrase about 25 years earlier, and he proposed a "recall" of it.
Here's the farm on three lines. On the profit line: the drip lines cost money to install and may lower the water bill. On the people line: workers spend less time moving flood gates, and neighbors who share the valley's water have more of it. On the planet line: the farm draws less water from the shared supply.
The model doesn't choose for the farm. It makes sure people and the planet are on the table next to the cost before anyone chooses.
Pause and try this. Is the triple bottom line a report every firm is required to file?
Think about what the word model means.
Here's the answer. No; it's a classroom model and a way of weighing a decision, not an accounting standard every firm must report.
Even the person who named it asked businesses to rethink how they use it, which is a good reminder to treat any model as a lens.
5. Two positions, no verdict
Picture two people on a corporation's board reading the same report. One thinks the board's job is to do well for the owners who hired it. The other thinks the job is to do well by everyone the company touches. Both are serious, and I'm going to give you each one at full strength. The verdict is yours.
The shareholder position is the view argued by Friedman (1970) that, within the law and ethical custom, a corporate executive's duty runs to the owners who employ them. Friedman set it out in an essay called "The Social Responsibility of Business Is to Increase Its Profits", in The New York Times Magazine. Supporters reason like this. The owners put their money at risk and hired the executives to manage it. An executive who spends that money on causes the owners never chose is deciding for them, and owners can give on their own.
The stakeholder position is the view set out by Freeman (1984) that a firm is managed for everyone who can affect it or is affected by it, not for its owners alone. Freeman set it out in his book Strategic Management: A Stakeholder Approach. Supporters reason like this. Workers, customers, suppliers, and towns carry risk when a firm decides. The firm depends on all of them, so managing for all of them protects the firm too.
Each side has critics. Critics of the shareholder position say the law can lag behind new harms. Critics of the stakeholder position say a manager answerable to everyone may end up answerable to no one.
Pause and try this. A classmate says Friedman's position means anything goes for profit. What two limits does the position keep?
Listen again to the words right after "within".
Here's the answer. The law and ethical custom; the shareholder position keeps both as limits on what an executive may do for the owners.
So whenever you state the shareholder position, state it with both of its limits.
6. Count it first, then weigh it both ways
Last, picture an appliance-parts plant in a small town with 120 employees. It's an illustrative case, with no names and no verdict. The owners are weighing whether to automate one line. Automation is using machines or software to do work that people used to do by hand.
Let's count. Automating one line eliminates 40 positions. The plant plans retraining, teaching current workers new skills so they can move into different roles instead of leaving, and it retrains 15 of those 40 workers for maintenance roles. That gives us the net change in positions: the positions an automation decision eliminates minus the workers retrained into new roles. Here that's 40 minus 15, which is 25 positions.
Pause and try this. If the plant starts with 120 employees and has 25 fewer positions, how many employees does it have afterward?
Subtract the net change from the starting count.
Here's the answer. 120 minus 25 is 95 employees, so the plant goes from 120 to 95 after automating one line.
That count is a fact both positions accept. The question they answer differently is whether the change is right. So name the stakeholders by role. The owners get lower costs. Customers get steadier quality. The 15 retrained workers start new roles, and the maintenance staff gain colleagues. The 25 workers whose positions end lose their jobs at the plant. And the town sees a smaller payroll.
From the shareholder position, the managers were hired to run the plant well for its owners, and lower costs and steadier quality serve them, within the law. Supporters add that a plant that falls behind on cost may later put all 120 jobs at risk. From the stakeholder position, the line workers, the maintenance staff, and the town are affected, so their interests count too. Supporters ask whether more workers could be retrained, or whether the change could be slower.
I'm going to stop there on purpose. Weighing those two readings is your work this week.
Closing
Let me pull it together in the order we built it. Legal is the floor, and ethics asks what you build above it; three questions help you check: is it legal, is it fair, would I be comfortable if it were public. A workplace shapes conduct with four tools: a code, training, leaders who live it, and a safe way to report. Carroll's pyramid runs from economic to legal to ethical to philanthropic, so giving sits on top of earning and obeying. Elkington's triple bottom line puts profit, people, and planet side by side. The shareholder position runs an executive's duty to the owners, within the law and ethical custom, and the stakeholder position manages for everyone a firm touches. And at the plant, 40 positions end, 15 workers are retrained, and the plant has 25 fewer positions, 95 employees instead of 120, a count that settles no verdict on its own.
Next in this module come the slide deck, the Readings and Resources page, the lecture tutorial, the practice set, and the quiz. Then, in Week 6, Making the Product: Operations, Quality & Information Systems, we follow the coffee cart into how it makes its drinks and how many it can make in an hour.
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