Crane and Matten

Business Ethics (3rd Edition)

Chapter 9
Suppliers, Competitors and Business
Ethics

Lecture 9
 Overview
• Show how other businesses – suppliers and
competitors – exist in mutual interdependence with a
given organization
• Describe the ethical issues and problems that arise in
an organisation’s dealings with its suppliers and
competitors
• Outline how globalization reframes these problems
• Discuss whether corporations should assume some
degree of extended responsibility for the ethics of their
suppliers
• Assess the arguments suggesting that attention to
business interrelationships and the network economy
may contribute to more sustainable business models
Suppliers and competitors as
stakeholders
 Suppliers as stakeholders
• A stakeholder of a corporation is an individual or a
group that either is harmed by or benefits from the
corporation or whose rights can be violated, or have
to be respected, by the corporation (Evan and Freeman 1993)
• Organisations and their suppliers can be seen as
mutually dependent
 Competitors as stakeholders
• Forgotten stakeholders? (Spence et al. 2001)
– Legal rights (e.g. not influencing other’s pricing)
– Moral claims (e.g. right to fair play)
• So, businesses should not be seen as isolated
islands of economic activity, but as actors operating
within a web of other businesses, bound by mutual
interests and interlinked flows of resources and
rewards
– Firms thus best understood as part of industrial network
 Supplier relationship as part of an
industrial network
Potential
Supplier’s supplier
supplier Competitor

Supplier

Corporation
Supplier’s
supplier

Supplier

Competitor

Supplier’s
supplier Potential
supplier
Ethical issues and suppliers
 Ethical issues (I)
• Misuse of power
– Resource dependence theory can help understand relative
power of buyer and seller
• The question of loyalty
– Doesn’t fit easily with economic view of firm, but can create
mutually-beneficial outcomes
• Preferential treatment
– Big challenge: procedural justice approach can help
• Conflicts of interest
– A conflict of interest occurs when a person or organization’s
obligation to act in the interests of another is interfered with by a
competing interest that may obstruct the fulfilment of that
obligation
 Ethical issues (II)
Gifts, bribes and hospitality
• Consider the intention of the gift giver
• Look at the impact on the receiver
• Focus on the perception of other parties
• Many large organizations have a formal purchasing
code of ethics
• Guidelines provided by professional bodies such as
the International Chartered Institute of Purchasing
and Supply
 Ethics of negotiation (I)
• Ethics and negotiation – oil and water?
• Here are ten popular negotiating actions, all of which
can be challenged on ethical grounds (Reitz et al.,1998):
– Lies
– Puffery
– Deception
– Weakening the opponent
– Strengthening one’s own position
– Non-disclosure
– Information exploitation
– Change of mind
– Distraction
– Maximisation
 Ethics of negotiation (II)
A more ethical approach to negotiating should
steer clear of these tactics. This is because:
• It is the right thing to do
• Such practices incur costs for the negotiator. These
are:
– Rigid negotiating – encourages narrow tactics
– Damaged relationships – risk of enmity
– Sullied reputation – making future bargaining troublesome
– Lost opportunities – tends to prevent progressive discussions
that open up new issues
• Basic idea: negotiation is not so much zero-sum as a
chance to build mutually-beneficial relationships
Ethical issues and competitors
 Problems of overly aggressive
competition
• Intelligence gathering and industrial espionage
create ethical questions when
– Questionable tactics
– Private or confidential information
– Purpose for which information gathered is against public
interest
• ‘Dirty tricks’
– Negative advertising
– Stealing customers
– Predatory pricing
– Sabotage
• Anti-competitive behaviour
 Problems of insufficient competition
• Collusion and cartels
– Select groups of competitors band together in a
cartel or trading group to fix prices and other
trading arrangements for their own mutual benefit
• Abuse of dominant position
– E.g. Microsoft
Globalization, suppliers, and
competitors

The ethical challenges of global

business networks
 The ethical challenges of global
business networks
• Reshaping of ethical consideration with
suppliers and competitors brings up:
– Different ways of doing business
– Impacts on indigenous businesses
– Differing labour and environmental standards
– Extended chain of responsibility
 Different ways of doing business (I)
Rank Country Score
1 Belgium 8.8 Bribe paying for multinational
1 Canada 8.8 companies according to country of
3 Netherlands 8.7 origin
5 Germany 8.6
Note: Scores based on 0 to 10, where
5 United Kingdom 8.6
a perfect score, indicating no
5 Japan 8.6
8 Australia 8.5
perceived propensity to pay bribes, is
9 Singapore 8.1
10. Thus, companies headquartered
9 USA 8.1
in those countries with a lower score
12 Spain 7.9 have a higher perceived propensity to
14 South Africa 6.5 bribe
14 South Korea 6.5
Source: figures extracted from 2008
17 Italy 7.4
Bribe Payers Index at
17 Brazil 7.4
www.transparency.org
19 India 6.8
20 Mexico 6.6
21 China 6.5
22 Russia 5.9
 Different ways of doing business (II)

Business Sector Score Top ten sectors for bribe paying

Public works/construction 5.2
Note: The scores range from 0 to 10,
Real estate/property development 5.7
where 0 represents the view that
Oil and gas 5.9 ‘bribes are almost always paid’ and
Heavy manufacturing 6.0 10 that ‘bribes are never paid’ by a
Mining 6.0 sector.
Pharmaceuticals/medical care 6.2
Source: figures extracted from 2008
Utilities 6.3
Bribe Payers Index at
Civilian aerospace 6.4 www.transparency.org
Power generation and transmission 6.4
Forestry 6.5
 Impacts on indigenous businesses
• Size, power and political influence of MNCs often
means that they enjoy considerable cost and other
advantages compared to local competitors
• Offer employment alternatives to people who would
otherwise start their own business (Spencer, 2008: 341)
• Exposure to the competition of a major multinational
can severely threaten the business of indigenous
competitors (Klein, 2000)
 Differing labour and environmental
standards
• Western firms increasingly sourced through global
supply chains
• ‘Race to the bottom’ occasioned by demand by
MNCs for lower-cost production in developing
countries
• Ethical problem = lower costs often accompanied by
‘sweatshop’ conditions
– poorer labour conditions
– less environmental protection
– lower attention to health and safety
 Extended chain of responsibility
Shifts towards global supply and competition
mean that individual firms appear to be faced
with prospect of an extended chain of
responsibility
• No longer acceptable to argue that the ethics of a
firms suppliers or a firms impact on its competitors
was simply not any of its business (see Emmelhainz and
Adams 1999)
The corporate citizen in the business
community

Ethical sourcing and fair trade

 Ethical sourcing
• Ethical sourcing is the inclusion of explicit social,
ethical, and/or environmental criteria into supply chain
management policies, procedures and programmes
• Suppliers’ willingness to comply or resist pressure to
certify (e.g. ISO 14001) is strongly determined by the
type of relationship they have to the companies that
purchase from them (Delmas and Montiel 2009)
– Suppliers with a high dependence on their customers are more
likely to comply
– as are relatively new entrants to the industry
– For suppliers, the public act of gaining ethical certification can
act as a way of reducing information asymmetries between
themselves and potential buyers
 Business-business regulation
• Ethical sourcing as business-business regulation
– Pressure exerted by powerful corporate customers to comply
with ethical sourcing guidelines and criteria constitutes strong
and often very effective regulation of supply chain members
(Locke and Romis, 2007)
Strategies of business-business regulation
• Disengagement
– Setting of clear standards for suppliers and a means for
assessing compliance with those standards
– Failure to meet standards in short- medium term will result in
disengagement by the company
• Engagement
– Rely on longer-term ‘aims’ together with incremental ‘targets’ in
order to foster a step-by-step approach to improving standards.
– Firm likely to work with their suppliers to achieve improvements
 Fair trade
• Fair trade is a system aimed at offering ‘the most
disadvantaged producers in developing countries the
opportunity to move out of poverty through creating
market access under beneficial rather than exploitative
terms. The objective is to empower producers to develop
their own business and wider communities through
international trade’ (Nicholls & Opal 2005: 6)
• Aims of fair trade movement
– Foster the protection and empowerment of growers
– Encourage community development by guaranteeing minimum
prices and conditions
• In 2008, Fair Trade sales grew 22% (est. €2.9Bn)
– But success could put pressure on ethical standards
– Challenges also from recruiting employees with mainstream
business skills (Davies & Crane, 2010)
Comparison: Fairtrade & New York
Prices for Cocoa, 1994-2009

Source: Fairtrade Foundation

Sustainability and business
relationships

Towards industrial ecosystems?

 From supply chains to supply loops
• Supply loops are product end-of-life management
strategies that fulfil two criteria (Geyer and Jackson, 2004):
– They divert end-of-life products from landfill or incineration
by collecting them for economic value recovery
– The reprocessing of these end-of-life products produces
secondary resources that replace primary resources in
forward supply chains
• To proponents, such closed loop supply chain models
have are not only waste reducing, but eliminate the
very concept of waste (Lovins, Lovins, and Hawken 1999).
• Also, important potential sources of value recovery
 Industrial ecosystems
Kalundborg industrial ecosystem
Fly ash &
ASNAES limestone gunk GYPROC
POWER PLANT
WALLBOARD
Low-grade
Used Fly ash cement
steam CEMENT
Surplus COMPANY
heat High
NOVO NORDISK sulphur gas
CITY OF Chemicals
ENZYME PLANT KALUNDBORG
Waste as CHEMICAL
fertilizer Steam
for heat PLANT
Used Wastewater
steam for cooling
FARMS
STATOIL FISHERY
REFINERY Heavy oil Source: Shrivastava, 1995
 Summary
• Discussed the stake held by other companies in a
corporation
• Argument that there were issues of an ethical nature
that went well beyond the legal protection of fair
competition
• Globalisation substantially increased scope of these
problems suggesting expanded responsibilities for
corporations over their operations
• Business relationship also increasingly seen as one
of main levers for effecting greater attention to social
and environmental problems