Business Ethics

Introduction to Business
Ethics
What is business ethics?
A book on business ethics? Well that wont take long to read!
Youre taking a course on business ethics? So what do you do in the
afternoon?
Business ethics? I didnt think there were any!
These are not very good jokes.
Still, that does not seem to have stopped a lot of people from responding with
such comments (and others like them) whenever students of business
ethics start talking about what they are doing.
And even if they are not particularly funny things to say, nor even very original,
they do immediately raise an important problem with the subject of business
ethics:
some people cannot even believe that it exists!
Business ethics, it has been claimed, is an oxymoron (Collins 1994).
By an oxymoron, we mean the bringing together of two apparently
contradictory concepts, such as in
a cheerful pessimist or a deafening silence.
To say that business ethics is an oxymoron suggests that there are not, or
cannot be, ethics in business:
that business is in some way unethical (i.e. that business is inherently bad), or
that it is, at best, amoral (i.e. outside of our normal moral considerations).
For example, in the latter case, Albert Carr (1968)
notoriously argued in his article Is Business Bluffing Ethical that the game
of business was not subject to the same moral standards as the rest of society,
but should be regarded as similar to a game of poker where deception and
lying were perfectly permissible.
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To some extent, it is not surprising that some people think this way.
Various scandals concerning undesirable business activities, such as
The despoiling of rivers with industrial pollutants,
The exploitation of sweatshop workers,
The payment of bribes to government officials, and
The deception of unwary consumers
have highlighted the unethical way in which some firms have gone about their
business.
However, just because such malpractices take place, does not mean that there
are not some kinds of values or principles driving such decisions.
After all, even what we might think of as bad ethics are still ethics of a sort.
And clearly, it makes sense to try and understand why those decisions get
made in the first place, and
try to discover whether more acceptable business decisions and approaches
can be developed.
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Many everyday business activities require the maintenance of basic ethical
standards, such as
honesty, trustworthiness, and co-operation.
Business activity would be impossible if
Corporate directors always lied; if
Buyers and sellers never trusted each other; or
If employees refused to ever help each other
Similarly, it would be wrong to infer that scandals involving corporate
wrongdoing mean that the subject of business ethics was in some way nave
or idealistic.
On the contrary, it can be argued that the subject of business ethics primarily
exists in order to provide us with some answers as to why certain decisions
should be evaluated as ethical or unethical, or right or wrong.
Without systematic study, how are we able to offer anything more than vague
opinions or hunches about whether particular business activities are
acceptable?
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What are business ethics?
Ethics are moral guidelines which govern good behaviour
So behaving ethically is doing what is morally right
Behaving ethically in business is widely regarded as good business
practice. To provide you with a couple of quotes:
Business ethics is the study of business situations, activities, and
decisions where issues of right and wrong are addressed.
It is worth stressing that by right and wrong we mean morally right and
wrong as opposed to, commercially, strategically, or financially right or wrong.
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Business ethics is the critical study and analysis of the ethical dilemmas and
issues that are raised by business activity.
We will try to encourage ethical literacy in students by allowing them the
opportunity to think about and debate the sorts of ethical problems they may
face in the world of commercial activity.
Let us first differentiate between Plain personal Ethics and Business Ethics.
Ethics:
Moral principles and values applied to social behavior.
A reasoned set of principles of conduct.
Usually has a religious underpinning, which is logical.
Business Ethics:
Moral principles and values applied to situations arising in a business
setting.
In other words, the fairness, rightness, or wrongness, if you will, of an action.
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Unfortunately, companies have conflicting duties:
To make a profit,
To work efficiently, and still stay within the law or suffer dramatic
consequences.
As you might imagine, it is sometimes like putting a square peg into a round
circle.
For example, a company can make a higher profit if it uses overseas labor or
raw materials, but
what about the legality and ethics of such a decision?
It would seem in recent years there has been an emphasis on the bottom line,
rightly or wrongly.
Questions generally asked by companies:
Is the proposed action:
profitable? If so, is it:
Legal?
Ethical?
Notice the ordering.
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Legal Behavior:
Many actions are clearly legal or illegal, but many items also fall into a gray
area.
While legal compliance is achieved, i.e., a minimum accepted standard,
what about:
Advertising
How far can we stretch the truth and get away with it and attract new
customers?
Product Misuse?
Are we responsible for the foolishness of consumers?
How can a company defend itself when pushing the limits?
General rule:
If the company can demonstrate that it has acted in good faith and
responsibly, it has a good opportunity to defend its actions.
So, following the law makes many ethical decisions for us.
This is often called the moral minimum
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Well, just because it is legal, does it make it ethical?
Lets see:
Ethical behavior: even when a contemplated action is legal (or even illegal),
business decision makers must also consider whether the action is ethical.
Certain guides are available to meet or exceed the moral minimum (usually
legal compliance).
General Guides for such compliance:
Corporate or professional codes of ethics.
Optimizing (making the best) versus maximizing (making the most)
behavior (more on this later)
Public opinion and sentiment- i.e., the general public, what does it want or
perceive?; and
Personal Morality ( Gordon Gekko??)
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An important distinction to remember is that behaving ethically is not quite
the same thing as behaving lawfully:
Ethics are about what is right and what is wrong
Law is about what is lawful and what is unlawful
An ethical decision is one that is both legal and meets the shared ethical
standards of the community
Businesses face ethical issues and decisions almost every day.
In some industries the issues are very significant.
For example:

Should businesses profit from problem gambling?

Should supermarkets sell lager cheaper than bottled water?

Is ethical shopping a luxury we cant afford?

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How do businesses ensure that its directors, managers and employees act
ethically?
A common approach is to implement a code of practice.
Ethical codes are increasingly popular, particularly with larger businesses
and cover areas such as:
Corporate social responsibility
Dealings with customers and supply chain
Environmental policy & actions
Rules for personal and corporate integrity
Lets get back to the conflicting duties of the company previously noted above.
So, just what are the priorities among the various folks involved?
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Shareholders: Their concern is profits and return on their investment. And,
they want a good company.
Versus:
Employees: They are concerned about their wages, jobs and benefits.
They want to work for a good company.
Versus:
Consumers (advocates): Those vocal groups who are upset when products
are introduced that hurt the user, environment or other similar such situation.
Recall the boycotts of Exxon during Exxon-Valdez mess in Alaska.
Query:
What if a toy company produced a
product that might have dangerous fluid
in a teething ring, but yet no one had
ever complained or been injured?
Should they stop, fix, recall or remove the
product? Or
should they wait?
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Under utilitarian approaches, all that matters is
what is the best for the most matters.
Here the item wasnt illegal.
(The Utilitarian Approach assesses an action in terms of its consequences or
outcomes; i.e.,
The net benefits and costs to all stakeholders on an individual level.
It strives to achieve the greatest good for the greatest number while creating
the least amount of harm or preventing the greatest amount of suffering.
It holds that every entitys interests should be considered equally when
making the decision, and this includes those of other species since they also
are capable of suffering.)
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Contrast:
Under the duty based Kantian approach, it is hard to defend any product
that hurts people, even if due to misuse by the persons using it.
Business Ethics- Duty versus Outcome
Duty based Ethics:
Based on underlying concept of duty regardless of consequences of action
taken.
Usually arise from religious belief and/or philosophic reasoning, i.e.,
compassion, basic rights.
Recall
Kantian: moral- each of us is unique.
If treated as a means to an end, people become objects.
Therefore, if even one person is/could be hurt, there needs to be corrective
action.
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Outcome based ethics
Utilitarianismdictates that a decision to act or not act should be directed
towards producing the greatest good for the greatest number of people.
Occasional Injury to individuals is therefore an acceptable risk.
This, of course, is a COST BENEFIT ANALYSIS.
In other words, who will be affected by the action?
The cost/benefit of such an action, and
A choice among alternative actions that produces the greatest return or
social utility.
The question arises:
Is it right to allow (non-voluntary or without the subjects knowledge)
drug testing on people if it helps many people?
Doesnt this fly in the face of human individuality and rights?
So, how does a business consider the issues from a more common
perspective.
Its profits?
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Maximum vs. Optimum Profits
Maximum profits implies maximum return without considering other
factors, such as legality and morality.
Optimum profits implies the maximum return you can achieve within legal
and moral constraints
Example:
You could make huge (maximum) profits selling a controlled substance
illegally.
You would make optimumprofits selling the same controlled substance
following all rules and ethical considerations
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Thus in summary:
Is it Profitable?
Legal?
Ethical?
Really, it depends on the
first two questions.
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Employment Relationships- Ethical Behavior
Some common elements, forgetting a moment about the Legality of the situation:
Sexual harassment
who has the responsibility- the company or the individual?
Downsizing (laying off) of persons
Is your severance notice via e-mail or voice mail ethical?
What about giving you 10 minutes or less to pick up your personal effects
before you are escorted out of the building?
Consumer Welfare (Sales activities)
Product misuse (change of the buyer beware to seller beware)
Duty to warn (except where open and obvious- like a knife)
So, What is ethical?
All I can say is that the standard is constantly evolving, and you will be part of
that changing target!
Other ethical issues / laws
Foreign Corrupt Practices Act:
A law to prevent the paying of bribes to foreign government officials, a practice
that was once common.
Established in 1977.
Sometimes called the Internal auditors job enhancement act.
Foreign Suppliers employment issues
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Questions
&
Answers