Ethics in Business
U58023
Assignment A:
Should you sign a contract with Bell?
Student Name:
Rebecca Watson
Student Number:
15064603
Word Count: 1885 words
The Case
The CEO of the small construction firm, Morty & Co, is faced with the decision of whether or not to sign a contract with Bell, a multi-national oil company planning to build an oil refinery in their region. Whilst this contract may allow Morty & Co to expand as a company, there is a history of significant opposition from both local and regional communities (including stakeholders in the business) who fear the impacts, both economic and environmental, this refinery could have on the surrounding areas. This decision requires the CEO to assess the issues of the built refinery and which stakeholders should be should be satisfied in this situation.
The ethical issues
There are significant ethical issues surrounding a decision to sign the contract with Bell. The first ethical issue is that the proposed site for Bell's refinery is very close to a major river which is one of only 5 in the country where the increasingly rare wild salmon spawn. The building of the refinery will lead to environmental implications such as the possibility of the wild salmon dying due to suspected pollution, but also major economic consequences as fewer tourists will visit the site for the wild salmon and the refinery will impact on the salmon fishing industry.
The second ethical issue is that Bell plans to build a pipeline travelling along 20 miles of agricultural land belonging to small-scale farmers. This has led to significant opposition from farmers and local residents who are concerned about the impact of such construction on the area and the potential of pollution this pipeline could bring.
The final ethical issue is that there is major opposition both from regional and local residents, some of whom are employees of the company. This raises the issue of whether the company should satisfy the interests of some of the stakeholders (the employees, the local community, customers etc.) and not sign the contract with Bell, or the interests of business by signing the contract, enabling growth of the business.
The stakeholders
A stakeholder is ‘an individual or group…whose rights the corporation should respect' (Crane and Matten, 2016, p59). Clarkson (1994) defined primary stakeholders as those who ‘bear some form of capital, human or financial, something of value, in a firm' (p 5, cited in Hillman and Keim, 2001, p 126). In this case, the primary stakeholders would be the employees, local community, customers and the CEO. Clarkson (1995) defines secondary stakeholders as ‘those who influence or affect, or are influenced or affected by, the corporation, but…are not engaged in transactions with the corporation and are not essential for its survival' (Clarkson, 1995, p 107). In this case, the only secondary stakeholder would be the government.
The possible alternatives
Sign the contract
Do not sign the contract and invest in renewable energy
The ethics of the alternatives
Utilitarianism, strongly associated with the theorists, Jeremy Bentham and John Stuart Mill during the eighteenth and nineteenth centuries, argues that in a decision-making process, it is what brings the greatest happiness to the greatest number of people that is the morally right thing to do (McEwan, 2001). This makes it a consequentialist theory as it focuses on the consequences of an action, weighs the good outcomes against the bad outcomes, encouraging the greatest happiness for everyone involved (Crane and Matten, 2010). It focuses on the collective welfare produced by a certain decision rather than only looking at the desires and interests of each individual involved (Crane and Matten, 2010).
From constructing a utilitarian analysis (see appendix 1) it can be seen that alternative 1 firstly benefits the government because the results from the oil field could help boost the Scottish economy in the short term. Additionally, this alternative has the potential to benefit the customers of the construction firm due to the investment Bell makes into the company potentially leading to the firm being able to improve the resources they have to offer to customers. Finally, the CEO could personally benefit financially from signing the contract in the form of a personal bonus resulting from a good deal being done for the business.
However, Alternative 1 could cause a significant amount of upset to a number of different stakeholders due to the proposed pipeline passing through agricultural land and farms, and the proposed site of the refinery being near the major river where the wild salmon live. One group of stakeholders who would be opposed to this alternative is the local and regional community. 62% of the regional community have stated that they are opposed to the signing of the contract with the agreement of many of the local community too who fear that the building of the refinery and pipeline may cause destruction in the area and that the oil may lead to pollution in the area. There is an added complication in that some of the employees working for the construction firm could come from the farming families who are opposed to this alternative. This could cause problems if the business chooses to go ahead with the proposed plan as there is a possibility that these employees could leave the business. However, there is evidence that people are willing to move into the area in order to obtain work which may help overcome this issue.
Whilst some of the stakeholders benefit from alternative 1, there is overwhelming evidence this alternative will not produce the greatest amount of happiness for the greatest amount people and therefore in accordance with the utilitarianism theory, alternative 1 is not the ethically correct decision to make.
Alternative 2 benefits the local community and the employees as no construction will take place and therefore no damage will be made to the local area and land. Additionally, there will be an investment made into renewable energy which 62% of the regional community were in support of.
In the cases of the customers and the government, they will not benefit from alternative 2, however, there is no evidence to show that they necessarily are in need of the benefits that signing the contract could bring. Therefore, it is unlikely significant upset of these two stakeholders will be caused by alternative 2.
However, alternative 2 has the potential to cause upset to the CEO as they will lose a good deal for business and potentially a personal bonus for themselves. There is a question to be raised that if Morty&Co do not sign the contract, then will Bell just find another company to deliver on the planned construction work, causing the damage to the land anyway? If this is the case, then the CEO has to question whether it is really worth losing out on this deal due to the upset from other stakeholders.
In terms of the utilitarianism, alternative 2 is the more morally correct thing to do as more stakeholders will be happier with the outcome at the end of the decision making process.
Amartya Sen developed an alternative and more philosophical approach in contrast to the utilitarianism theory in the form of the capabilities approach (Stewart and Deneuline, 2002). Sen presents the argument that in development, the focus should be on "the freedom to live the kind of life one would like" (Sen, 1989, cited in Millar and Koning, 2018). There are two main characteristics of this approach; capabilities and functionings. Capabilities are seen as the freedoms or valuable opportunities which enable people to live the life they want to lead whilst functionings are different variables that make a life valuable, for example, working, resting, being healthy and being part of a community (Robeyns, 2005).
According to Sen's theory, alternative 1 could be seen as the morally correct decision to make because Morty & Co have the capability to improve the economic balance of the local area and therefore improve the lives of all stakeholders. By this contract improving the economy through the development of oil in the area, there may be an improvement in the stakeholders', such as the local community and employees, capabilities "to live the kind of life" they would like to live (Sen, 1989, cited in Millar and Koning, 2018) through an improvement in their functionings.
On the other hand, it can be argued that alternative 1 may take away some stakeholders ability to lead valuable lives. This is because the proposed plans are likely to cause significant damage to the environment through the destruction of land on generations-old farms and the impact that this planned refinery and subsequent pollution will have the wild salmon spawn. This destruction may take away people livelihoods especially if they depend on the farmland or the fishing industry for their main source of income. This contract could take away some stakeholders capabilities to complete some basic functionings in life.
According to Sen, alternative 2 is the more morally correct decision to make. This is because without signing the contract, stakeholders lives are maintained and they keep their capabilities to lead valuable lives with important functionings. However, not signing the contract does affect the capability of the CEO as they will no longer receive the possible personal bonus for securing a good deal. Despite this, there is no evidence to show that the CEO needs this bonus.
Whilst alternative 2 seems to be the more morally correct decision to make from this evidence, it is also important to consider that Bell may still make this deal with another construction if Morty&Co choose not to sign. This will result in the capabilities of all stakeholders being negatively affected and raises a question of whether it is worth not signing the contract for ethical reasons when the proposed plans may be still completed by another firm?
The practical constraints
Alternative 1 is a possible option for the business to take, although a constraint would be the environment (damage of farmland and effect on wild salmon spawn) and the economic consequences (relating to tourism in the area) of this proposal.
Alternative 2 seems like the more plausible option for the business as it leads to the least amount of upset among stakeholders, although a constraint would be that there is no guarantee this proposal would not still be completed by another firm if they choose not to sign, therefore the firm could lose out for no reason.
What actions should be taken?
After careful consideration, I believe that alternative 2, to not sign the contract and invest in renewable energy, is the best option for the firm. Despite, the contract benefiting the local government and the CEO, I believe there is too much opposition from numerous groups of stakeholders and that signing the contract would cause too much upset to these stakeholders who may lose vital capabilities and functionings from this deal going ahead. This decision fully complies with the ethics of utilitarianism as the greatest amount of people will be happy with this decision. The decision also complies with the ethics of Sen's capabilities approach as all stakeholders are still left with the capabilities to lead valuable lives.
In regards to whether this proposed plan will still go ahead if Morty&Co do not sign the contract, there is evidence to say that other firms will have similar stances on the issue due to the ‘background of sustained local and regional opposition to the refinery' being present.
Appendix 1: Utilitarian Analysis
Action 1: Signing the contract
Action 2: Not signing the contract and investing in renewable energy
Pleasure
Pain
Pleasure
Pain
Employees
Possible expansion of business could mean more work and more money for employees
Many come from farming families whose livelihood could be destroyed by the proposed building of the pipe
Livelihoods will not be affected. Things will remain the same.
Could lose out of future work or money.
Local Community
Potential economic benefits to the planned refinery.
Disruption of local farm and agricultural land. Many opposed to the planned refinery. No investment in renewable energy as wanted by many.
No disruption to local land. Many want investment in renewable energy.
Negative effects on the environment and tourism of wild salmon.
Loss of potential economic benefit – however, do they need this extra money, no evidence to suggest they are struggling economically?
Customers
Expansion of the business – could possibly lead to the business gaining access to more resources to make construction work even better for customers.
A possibility that as the business expands, the business will look to bigger companies for business or raise their prices. Small companies may lose out or not be able to afford work to be done.
No chance of Morty&Co becoming too big to provide business to small local businesses.
No possibility of the business expanding and gaining more resources to help small local businesses.
CEO
Good deal for the business. CEO may benefit financially in the form of a personal bonus.
Could possibly cause backlash from customers, local community and employees – bad reputation for the business
No backlash – reputation remains the same
Loses out on a good deal and possible personal bonus – could Bell just take their business to another company who will turn down the business? Is it worth saying no if the refinery will still be built?
Can also be expensive to invest in renewable energy.
The government
Produce of oil field can help boost the Scottish economy
Loses out on economic benefits from the building of the refinery.
References
Clarkson, M.B.E. (1995) ‘A Stakeholder Framework for Analysing and Evaluating Corporate Social Performance', The Academy of Management Review, 20(1), pp. 93-117
Crane, A. and Matten, D. (2010) Business Ethics. 4th edn. Oxford: Oxford University Press.
McEwan, T. (2001) Managing Values and Beliefs in Organisations. Essex: Pearson Education Limited
Millar, J. and Koning, J. (2018) ‘From capacity and capability?: rethinking the prime agenda for inclusive development in management education', African Journal of Business Ethics,12(1), pp. 22-37
Morrison, J. (2015) Business Ethics: New Challenge in a Globalized World. London: Palgrave
Robeyns, I. (2005) ‘The Capability Approach: a Theoretical Survey', Journal of Human Development, 6(1), pp. 93-114
Stewart, F. and Deneulin, S. (2002) ‘Amartya Sen's Contribution to Development Thinking', Studies in Comparative International Development, 37(2), pp. 61-70.