Business Ethics

Contents

1 General definition

2 Related disciplines

3 Typical issues in business ethics

4 Conflicting interests

5 Some ethical issues and approaches

6 Corporate ethics policies

7 Ethics officers

8 Religious views on business ethics

8.1 Jewish business ethics

8.2 Christian business ethics

8.3 Muslim business ethics

9 Political theories and business ethics

9.1 Property rights, libertarians, and Marxists

9.2 Libertarian socialist view

General definition

Business Ethics is the branch of ethics that examines ethical rules and principles within a commercial context; the various moral or ethical problems that can arise in a business setting; and aany special duties or obligations that apply to persons who are engaged in commerce. Those who are interested in business ethics examine various kinds of business activities and ask, „Is the conduct ethically right or wrong?“

Business ethics is a form of applied ethics, a branch of philosophy. As such, it takes the ethical concepts and principles developed at a more theoretical, philsophical level, and applies them to specific business situations. Generally speaking, business ethics is a normative discipline, whereby particular eethical standards are assumed and then applied. It makes specific judgements about what is right or wrong, which is to say, it makes claims about what ought to be done or what ought not to be done. While there are ssome exceptions, business ethicists are usually less concerned with the foundations of ethics (metaethics), or with justifying the most basic ethical principles, and are more concerned with practical problems and applications, and any specific duties that might apply to business relationships.

Related disciplines

Business ethics is related to the philosophy of business, which deals with the philosophical, political, and ethical underpinnings of business and economics. The philosophy of business deals with matters such as what, if any, are a the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to tthe business enterprise.

Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.

Typical issues in business ethics

While hardly exhaustive, some typical issues addressed in business ethics include accounting and financial standards; advertising deception; animal rights (e.g., in agriculture); black market sales; bbribery and kickbacks; ebusiness legal business intelligence and industrial espionage; political contributions; competition versus cooperation; corporate governance; corporate crime; competitive disinformation; creative accounting; discrimination and affirmative action; dumping; employee rights and duties; environmental issues; hostile take-overs; illicit drug testing; insider trading; fiduciary responsibility; globalism; grey marketing; key employee raiding; labor union strikes and union busting; marketing, sales, and negotiation techniques; covert marketing research and scientific testing; negligence; patent and copyright enfringement; payola and kick-backs; planned obsolescence; ponzi schemes; predatory pricing; price discrimination; price fixing); privacy rights of employees and customers; professional conduct; product churning; product placement; promotions; product liability and product defects; property rights; pyramid schemes; sex in advertising; sexual harassment; slave and child labour; spamming; hostile take-overs; tax avoidance and tax evasion; telemarketing; tort law; trade secrets; undercover marketing; and whistleblowing.

Conflicting interests

Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad ffor the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

Some ethical issues and approaches

Philosophers and others disagree about the purpose of a business in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged. Some believe that the only companies that are likely to survive in a competitive markeplace are those that place profit maximization above everything else. However, some point out that self interst would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The economist Milton Friedman is a leading proponent of this view.

Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholderes, and that these duties consist of more than simply obeying the law. They believe a business has moral rresponsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would even suggest that this even includes rights of governance.

Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company’s operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls’ A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the „quality movement“ that emerged in the 1980s. Philosophers Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a „fair agreement“ between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-princples formulated by actual agreements among the interested parties. Critics say the proponents of

contract theories miss a central point, namely, that a business is someone’s property and not a mini-state or a means of distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the ddeveloping country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business.Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham’s law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in aa competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits. On this view, the competitive system fosters a downward ethical spiral.

Corporate ethics policies

Many companies have formulated internal policies pertaining tto the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements (typically called corporate ethics codes). They are generally meant to identify the company’s expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding business conduct, which often include discussion of the company’s policies, specific case studies, and legal rrequirements. Some companies even require their employees to sign agreements stating that they will abide by the company’s rules of conduct.

Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company’s legal liability, or to curry public favor by giving the appearance of being aa good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly.

Sometimes there is disconnection between the company’s code of ethics and the company’s actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.

To be successful, most ethicists would suggest that an ethics policy should be:

Given the unequivocal support of top management, by both word and by example.

Explained in writing and orally, with periodic reinforcement.

Doable..something empoloyees can both understand and perform.

Monitored by top management, with routine inspections for compliance and improvement.

Ethics officers

Since 2002, many companies have appointed ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company’s activities, making recommendations regarding the company’s ethical policies, and dissiminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction tto a number of well-publicized corporate scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders’ investments might be affected by the company’s decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually eminates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behaviour: a more systemic programme with consistent support from general management will be necessary.

Obviously, the foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual’s early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.

Religious views on business ethics

Jewish business ethics

Judaism has an extensive literature and legal code on the accumulation and use of wealth. The basis oof these laws is the Torah, where there are more rules about the kashrut (fitness) of one’s money than about the kashrut of one’s food. These laws are developed and expanded upon in the Mishnah and the Talmud.

There are sections on business ethics in all the major codes of Jewish law, including the Mishneh Torah (12th century) and the Shulkhan Arukh (17th century.); a wide array of topics on business ethics are discussed in the responsa literature.

Rabbi Yisrael Lipkin Salanter (19th century), founder of the Mussar movement in Eastern European, taught that just as one checks carefully to make sure their food is kosher, so too should one check to see if their money is earned in a kosher fashion. (Chofetz Chaim, Sfat Tamim, chapter 5).

Al Chet: Sins In The Marketplace Meir Tamari, Jason Aronson, 1996

The Challenge of Wealth: A Jewish Perspective on Earning and Spending Money Meir Tamari, Jason Aronson, 1995

Christian business ethics

Christianity has an extensive literature on the accumulation and use of wealth. The basis of this theology is the Old Testament and the New Testament.

Muslim business ethics

Islam has an extensive literature and legal code on the accumulation and use of wealth. The basis of these laws is

the Quran, and they are amplified in the Hadith.

Political theories and business ethics

Property rights, libertarians, and Marxists

Libertarians and others believe that a business is property, and that a person has certain rights over his property, including the right to dispose of it as he sees fit. They contend that a business is not a social arrangement or association whereby people contract with one another in order to promote social justice, but that it is someone’s property. A person who voluntarily eexchanges his labor for wages does not thereby gain rights over the owner’s use of his property, in this case, the business enterprise, much as the business owner does not get to tell the worker how to spend his wages, which is property belonging to the worker.

Followers of John Locke would suggest that the first instance of property is the property that one has in himself, and that one’s labor is an extension of this. The labor theory of value ssuggests that when one mixes his labor with an object, he thereby makes it his property, and that his labor is the principal means of measuring value. Marxists subscribe to this view, and they also believe that modern production, which iinvolves many inputs, makes an equitable division of this property impossible, which, among other reasons, necessitates that the state hold property and the factors of production in common for everyone.

Critics of Marxism say that value is subjective and that labor is incommensurable (e.g., comparing the labor of a house painter to the labor of Picasso), and that only price itself is objective, which is the product of multiple, subjective valuations (see Ludwig von Mises) Moreover, what really matters for assigning ownership is whether or not property was acquired or exchanged fairly (see Robert Nozick), which is known as the historical entitlement theory.

Libertarian socialist view

Libertarian socialists, sometimes known as left-anarchists, hold that, as Proudhon said, „Property is theft“ — that is, iin reference to the ownership of productive resources, property is not the right to use, but the right to keep others from using. Advocates of this philosophy therefore hold the „institution of property“, as they sometimes call it, to be immoral in itself, so the accumulation of wealth that includes productive resources, especially land, is also immoral. This means that no business can really be ethical, since the very foundation of business as we know it is private property.