Ethics are the moral code by which people live and conduct business. An entrepreneur should develop a written code of ethics to reduce the chance of unethical behavior occurring in his or her business. Employees should be involved in developing the code of ethics. Businesses often face ethical problems when there are conflicts of interest, when their economic survival is threatened, and when doing business abroad (where ethical practices may differ).
Ethical
Responsibility of a Business
Ethics are the moral code by which people live
and conduct business. An entrepreneur should develop a written code of ethics
to reduce the chance of unethical behavior occurring in his or her business.
Employees should be involved in developing the code of ethics. Businesses often
face ethical problems when there are conflicts of interest, when their economic
survival is threatened, and when doing business abroad (where ethical practices
may differ).
Approaches to Business Ethics
When business people speak about “business
ethics” they usually mean one of three things
Avoid breaking the criminal law in one’s
work-related activity;
Avoid action that may result in civil law suits
against the company; and
Avoid actions that are bad for the company
image.
Businesses are especially concerned with these
three things since they involve loss of money and company reputation. In
theory, a business could address these three concerns by assigning corporate
attorneys and public relations experts to escort employees on their daily
activities. Anytime an employee might stray from the straight and narrow path
of acceptable conduct, the experts would guide him back.
Obviously this solution would be a financial
disaster if carried out in practice since it would cost a business more in
attorney and public relations fees than they would save from proper employee
conduct. Perhaps reluctantly, businesses turn to philosophers to instruct
employees on becoming “moral.” For over 2,000 years philosophers have
systematically addressed the issue of right and wrong conduct. Presumably,
then, philosophers can teach employees a basic understanding of morality will
keep them out of trouble.
However, it is not likely that philosophers can
teach anyone to be ethical. The job
of teaching morality rests squarely on the shoulders of parents and one’s early
social environment. By the time philosophers enter the picture, it is too late
to change the moral predispositions of an adult. Also, even if philosophers
could teach morality, their recommendations are not always the most financially
efficient.
Although being moral may save a company from
some legal and public relations nightmares, morality in business is also
costly. A morally responsible company must pay special attention to product
safety, environmental impact, truthful advertising, scrupulous marketing, and
humane working conditions. This may be more than a tight-budgeted business
bargained for.
This cannot easily resolve this tension between
the ethical interests of the money-minded business person and the ideal-minded
philosopher. In most issues of business ethics, ideal moral principles will be
checked by economic viability. To understand what is at stake, look at three
different ways of deriving standards of business ethics.
a.
Deriving Business Ethics from the Profit Motive
Some business people argue that there is a
symbiotic relation between ethics and business in which ethics naturally
emerges from a profit-oriented business. There are both weak and strong
versions of this approach. The weak version is often expressed in the dictum
that good ethics results in good business,
which simply means that moral businesses practices are profitable. For example,
it is profitable to make safe products since this will reduce product liability
lawsuits. Similarly, it may be in the best financial interests of businesses to
respect employee privacy, since this will improve morale and thus improve work
efficiency.
Robert F. Hartley’s book, Business Ethics, takes this approach. Using 20 case studies as
illustrations, Hartley argues that the long-term best interests of businesses
are served by seeking a trusting relation with the public (Hartley, 1993). This
weak version, however, has problems. First, many moral business practices will
have an economic advantage only in
the long run. This provides little incentive for businesses that are designed
to exclusively to seek short-term
profits.
As more and more businesses compete for the
same market, short-term profits will dictate the decisions of many companies
simply as a matter of survival. Second, some moral business practices may not
be economically viable even in the long run. For example, this might be the
case with retaining older workers who are inefficient, as opposed to replacing
them with younger and more efficient workers. Third, and most importantly,
those moral business practices that are good for business depend upon what at that time will produce a profit. In a
different market, the same practices might not be economically viable. Thus, any overlap that exists between
morality and profit is both limited and incidental.
The strong version of this profit approach
takes a reverse strategy and maintains that, in a competitive and free market,
the profit motive will in fact bring
about a morally proper environment. That is, if customers demand safe
products, or workers demand privacy, then they will buy from or work for only
those businesses that meet their demands. Businesses that do not heed these demands
will not survive.
Since this view maintains that the drive for
profit will create morality, the strong version can be expressed in the dictum
that good business results in good ethics,
which is the converse of the above dictum. Proponents of this view, such as
Milton Friedman, argue that this would happen in the United States if the
government would allow a truly competitive and free market. But this strong
view also has problems, since it assumes that consumers or workers will demand
the morally proper thing. In fact, consumers may opt for less safe products if
they know they will be saving money. For example, consumers might prefer a
cheaper car without air bags, even though doing so places their own lives and
the lives of their passengers at greater risk, which is morally irresponsible.
Similarly, workers may forego demands of privacy at work if they are
compensated with high enough wages. In short, not every moral business practice
will simply emerge from the profit principle as suggested by either the weak or
strong views.
b.Business
Ethics Restricted to Following the Law
A second approach to business ethics is that
moral obligations in business are restricted to what the law requires. The most
universal aspects of Western morality have already been put into our legal
system, such as with laws against killing, stealing, fraud, harassment, or
reckless endangerment. Moral principles beyond what the law requires – or supra-legal principles — appear to be
optional since philosophers dispute about their validity and society wavers
about its acceptance. For any specific issue under consideration, such as
determining what counts as responsible marketing or adequate privacy in the
workplace, we will find opposing positions on our supra-legal moral obligations.
It is, therefore, unreasonable to expect businesses to perform duties about
which there is so much disagreement and which appear to be optional.
The unreasonableness of such a moral
requirement in our society becomes all the more evident when considered
societies that do have a strong
external source of morality. Islam, for example, contains a broad range of
moral requirements such as an alms mandate, prohibitions against sleeping
partners that collect unearned money and restrictions on charging interest for
certain types of loans, particularly for relief aid. Thus, in Muslim countries
that are not necessarily ruled by Islamic law, there is a strong source of
external morality that would be binding on Muslim businesses apart from what
their laws would require.
Similarly, Confucianism has a strong emphasis
on filial piety; thus, in Chinese and other Confucian societies, it is
reasonable to expect their businesses to maintain a respect for elders even if
it is not part of the legal system. In Western culture, or at least in the
United States, we lack a counterpart to an external source of morality as is
present in Muslim or Confucian societies. One reason is because of cultural
pluralism and the presence of a wide range of belief systems. Even within Christianity,
the diversity of denominations and beliefs prevents it from being a homogeneous
source of Christian values. In short, without a widely recognized system of
ethics that is external to the law, supra-legal moral obligations in our
society appear to be optional; and, it is unreasonable to expect business
people to be obligated to principles which appear to be optional.
In culturally pluralistic society, the only
business-related moral obligations that are majority-endorsed by national
social group are those obligations that are already contained in the law. These
include a range of guidelines for honesty in advertising, product safety, safe
working conditions, and fair hiring and firing practices. In fact, the unifying
moral force of businesses within our diverse society is the law itself.
Beyond the law we find that the moral
obligations of businesses are contextually bound by subgroups, such as with a
business that is operated by traditional Muslims or environmental activists. In
these cases, the individual businesses may be bound by the obligations of their
subgroups, but such obligations are contingent upon one’s association with
these social subgroups. And, clearly, the obligations within those subgroups
are not binding on those outside the subgroups. If a business does not belong
to any subgroup, then its only moral obligations will be those within the
context of society at large, and these obligations are in the law.
Corporations that assume an obligation beyond
the law, either in their corporate codes or in practice, take on
responsibilities that most outsiders would designate as optional. A good
example is found in the mission statement of Ben & Jerry’s Ice Cream, which
includes the following
Social Mission
To operate the company in a way that actively
recognizes the central role that business plays in the structure of society by
initiating innovative ways to improve the quality of life of a broad community
— local, national, and international.
Strictly following this legal approach to
business ethics may indeed prompt businesses to do the right thing, as
prescribed by law. Nevertheless, there are two key problems with restricting
morality solely to what the law requires.
Pp Even in the best legal context, the law will
lag behind our moral condemnation of certain unscrupulous, yet legal business
practices. For example, in the past, drug companies could make exaggerated
claims about the miraculous curative properties of their products. Now
government regulations prohibit any exaggerated claims.
Thus, prior to the enactment of a law, there
will be a period of time when a business practice will be deemed immoral, yet
the practice will be legal. This would be a continuing problem since changes in
products, technology, and marketing strategies would soon present new
questionable practices that would not be addressed by existing legislation.
Pp Problem with the law-based approach is that,
at best, it applies only to countries such as those whose business-related laws
are morally conscientious. The situation may be different for some developing
countries with less sophisticated laws and regulatory agencies.
Pp Deriving
Business Ethics from General Moral Obligations
The third approach to business ethics is that
morality must be introduced as a factor that is external from both the profit
motive and the law. This is the approach taken by most philosophers who write
on business ethics, and is expressed most clearly in the following from a well
known business ethics essay
Proper ethical behavior exists on a plane above
the law. The law merely specifies the lowest common denominator of acceptable
behavior. The most convenient way to explore this approach is to consider the
supra-legal moral principles that philosophers commonly offer. Five fairly
broad moral principles suggested by philosophers are as follows
Harm
Principle
Businesses should avoid causing unwarranted
harm. Fairness principle business
should be fair in all of their practices. Human
rights principle businesses should respect human rights.
Autonomy
Principle
Businesses should not infringe on the
rationally reflective choices of people.
Veracity
Principle
Businesses should not be deceptive in their
practices.
The attraction of these principles is that they
appeal to universal moral notions that no one would reasonably reject. But, the
problem with these principles is that they are too general. These principles do not tell us specifically what counts as harm, unfairness, or a violation of human rights. Does all
damage to the environment constitute harm? Does it violate an employee’s right
to privacy if an employer places hidden surveillance cameras in an employee
lounge area? Does child-oriented advertising mislead children and thus violate
the principle of veracity?
The above principles are abstract in nature.
That is, they broadly mandate against harm, and broadly endorse autonomy.
Because they are abstract, they will be difficult to apply to concrete
situations and consequently not give clear guidance in complex situations. An
alternative approach is to forget the abstract, and focus instead on concrete
situations that affect the particular interests of consumers, workers,
stockholders, or the community. The recent stakeholder
approach to business ethics attempts to do this systematically. It may be
expressed in the following
Stakeholder
Principle
Businesses should consider all stakeholders’
interests that are affected by a business practice.
A stakeholder is any party affected by a
business practice, including employees, suppliers, customers, creditors, competitors,
governments, and communities. Accordingly, the stakeholder approach to business
ethics emphasizes that we should map out of the various parties affected by a
business practice. But this approach is limited since proponents of this view
give us no clear formula for how to prioritize the various interests once we
map them out. Should all stakeholders’ interests be treated equally – from the
largest stockholder down to the garbage man who empties the factory dumpster?
Probably no defenders of the stakeholder approach would advocate treating all
interests equally. Alternatively, should the stockholders’ interests have
special priority? If we take this route, then the stakeholder principle is
merely a revision of the profit principle.
Another way of looking at concrete moral
obligations in business is to list them issue by issue. This is the strategy
behind corporate codes of ethics that address specific topics such as
confidentiality of corporate information, conflicts of interest, bribes, and
political contributions.
Although corporate codes of ethics are often
viewed cynically as attempts to foster good public relations or to reduce legal
liability, a corporate code of ethics is a reasonable model for understanding
how moral principles are articulated and introduce them into business practice.
The practical advantage of this approach is that it directly stipulates the
morality of certain action types, without becoming ensnared in the problem of
deriving particular actions from more abstract principles, such as the harm
principle. But, the limitation of the corporate code model is that the
principles offered will appear to be merely rules of prudence or good manners
unless we can establish their distinctly moral
character. And this requires relying on more general principles of ethic
described above, which, we’ve seen, comes with its own set of problems.
All these three approaches to business ethics
have limitations. If one hoped to find an approach to business ethics that is
free from conceptual problems, he will not likely find any. Ethics is a complex
subject and its history is filled with diverse theories that are systematically
refuted by rival theories.
However, following any of the above three approaches to business ethics will bring
closer to acceptable moral behavior than might otherwise be. Close attention to
one’s profit motive and the moral interests of consumers might in fact generate
some morally responsible business decisions. In gray areas of moral controversy
that are not adequately addressed profit motives and the law, turning for
guidance to a variety of general and specific moral principles is acceptable.
In addition to the above three approaches to
business ethics, it also helps to examine stories of businesses that have been
morally irresponsible. By citing specific cases deceptive advertising,
environmental irresponsibility, or unsafe products, insight for does/don’t will
be learnt. Such cases often reveal blatantly crude, insensitive, or reckless
attitudes of businesses, which can be viewed as warning signs of unethical
conduct.