Business Ethics and Corporate Responsibility
Governance
Business Ethics and Corporate Responsibility
Syllabus tag: KASNEB CPA | Advanced Level | CA31 Leadership and Management | Topic 8 Business Ethics and Corporate Responsibility
Lesson objectives
By the end of this topic, you will be able to:
- Distinguish the main ethical perspectives
- Apply an ethical decision framework to a business dilemma
- Compare views on the purpose of the corporation
- Explain corporate social responsibility and its critiques
- Describe whistleblowing and its protection
Why this matters
CA24 covered the accountant's professional ethics. This topic is wider: what the organisation owes to those affected by it, and how a manager decides where law and profit point in different directions.
Ethical perspectives
Consequentialist — an action is right by its outcomes. Utilitarianism seeks the greatest good for the greatest number.
Its difficulty is that consequences are uncertain and unequally distributed. A decision benefiting many while devastating a few is defensible on this view and often not acceptable.
Deontological — an action is right or wrong in itself, regardless of outcome. Duties, rights and rules bind independently of consequences.
Its difficulty is that duties conflict, and it can require an action whose consequences are plainly bad.
Virtue ethics — asks what a person of good character would do. It suits professional judgement, where rules cannot anticipate every case, and offers less guidance where the virtuous course is genuinely unclear.
Most practical frameworks draw on all three, and the point of knowing them is to recognise which one an argument is using. A manager saying "the numbers justify it" is arguing consequentially; a colleague saying "we gave our word" is arguing deontologically, and they are not disagreeing about facts.
A decision framework
- Establish the facts — what is actually proposed, and what is assumed
- Identify the ethical issues and who is affected
- Consider the alternatives, including those not yet raised
- Test each — is it legal, does it accord with policy and professional codes, how would it appear if published, could you explain it to someone whose opinion you value
- Decide and act
- Document the reasoning
The publicity test is the most useful in practice. A decision the person would not want reported accurately is usually one they already know is wrong.
The purpose of the corporation
The shareholder view holds that a company's responsibility is to maximise returns within the law and ethical custom. Managers spending shareholders' money on social causes are taxing without authority, and social problems are for governments answerable to voters.
The stakeholder view holds that a company depends on employees, customers, suppliers, lenders and the community, and owes obligations to each. Ignoring them destroys value in the long run, so the two views converge over a sufficient horizon.
The practical position most organisations take: stakeholder interests are pursued because doing so serves long-term shareholder value, which avoids the difficulty of a manager choosing between constituencies with no mandate to do so.
An examiner asking which view is correct wants the argument set out, not a declaration.
Corporate social responsibility
Carroll's pyramid places four responsibilities in order:
| Level | Responsibility |
|---|---|
| Economic | Be profitable — the foundation |
| Legal | Obey the law |
| Ethical | Do what is right beyond the law |
| Philanthropic | Contribute to the community |
The economic level is the base, and deliberately so. An unprofitable company employs nobody, pays no tax and contributes nothing. CSR that undermines viability is self-defeating.
Criticisms worth knowing:
- Greenwashing — presentation substituting for substance
- Cost borne by shareholders or customers without their agreement
- Measurement — social outcomes are hard to verify
- Legitimacy — unelected managers deciding social priorities
- Distraction from the company's actual competence
The defence rests on the business case: reputation, access to capital, employee attraction and retention, regulatory goodwill, and risk reduction. Where it succeeds, CSR and profitability are not in conflict.
Sustainability reporting under IFRS S1 and S2, covered in CA32, is the reporting arm of this — moving CSR from voluntary narrative towards standardised disclosure.
:::checkpoint A manufacturer can meet Kenyan effluent standards at low cost or a stricter international standard at high cost. Set out the argument on each ethical perspective and say what further information you would want. :::
Whistleblowing
Raising concerns about wrongdoing, internally through a designated channel or externally to a regulator or the public.
Effective arrangements require a channel independent of line management — often reporting to the audit committee — confidentiality, protection from retaliation, and evidence that reports are acted on.
The dilemma is real. An employee owes duties of confidentiality and loyalty to the employer, and a wider duty where serious wrongdoing is concerned. The usual expectation is that internal routes are exhausted first, unless doing so would allow serious harm to continue or the wrongdoing implicates those the report would go to.
A channel nobody uses is not evidence of an ethical organisation. It is more often evidence that staff do not believe the protection is real — which connects directly to the risk management point that no framework survives a culture where bad news is unwelcome.
:::checkpoint An accountant discovers that a director has authorised payments that appear to be bribes. Set out the steps they should take, in order, and identify the point at which external reporting becomes appropriate. :::