Business ethics

Ethics

Theoretical

Meta-ethics Consequentialism / Deontology / Virtue ethics Ethics of care Good and evil | Morality

Applied

Medical ethics / Bioethics Business ethics Environmental ethics Human rights / Animal rights Legal ethics Media ethics / Marketing ethics Ethics of war

Core issues

Justice / Value Right / Duty / Virtue Equality / Freedom / Trust Free will

Key thinkers

Aristotle / Confucius Aquinas / Hume / Kant / Bentham / Mill / Nietzsche Hare / Rawls / MacIntyre / Singer / Gilligan

Business ethics is a form of applied ethics (see the article metaethics). Business ethics deals with ethical rules and principles within a business or commercial context, the various moral or ethical problems that can arise in a business setting, and any special ethical duties or obligations that apply to persons who are engaged in commerce, including workers and managers, customers and suppliers, and the larger group of people who have some interest in the business.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions is increasing. Many colleges and universities and most business schools are now offering courses in business ethics. Many articles and books and textbooks on the topic are being written and published, and many businesses and corporations now have ethics panels, codes of ethics, ethics review boards, and other attempts to foster and uphold higher or better ethics awareness and practices. Simultaneously, pressure is increasingly being applied on business and industry to improve business ethics. This is done through attempts at persuasion as well as through new public initiatives and laws (e.g. in some places, a higher road tax for higher-emission vehicles).

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

Content of Business Ethics Courses

Most courses and textbooks in business ethics begin with general considerations of ethics. This usually includes some or all of these issues: What ethics is, the distinction between ethical and non-ethical or extra-ethical considerations, general criteria of adequacy for an ethical system or principle, the distinction between and relationship between ethics and law, the question or problem of self-interest and its relationship to ethics, the relationship or lack thereof between ethics and religion, the question of ethical relativism, moral reasoning, individual integrity and responsibility, and the problem or question of collective responsibility and action.

Next, the most important or most widely used normative theories of ethics are presented and briefly explained and developed. This includes utilitarianism or consequetialism; deontological or nonconsequentialist ethics, especially Kantian ethics and the categorical imperative; ethical egoism; sometimes contractarian ethics, especially as developed by John Rawls in his A Theory of Justice; sometimes libertarian theory especially as presented by Robert Nozick in Anarchy, State, and Utopia; and sometimes ethics based on religion "usually known as divine command ethics." Since business ethics is a form of applied ethics, the question here is whether and to what extent any or all of those received ethical theories can be usefully applied to ethical issues or problems in business.

Overview of issues in business ethics

Business ethics texts and courses differ, but most of them will be divided into units or chapters, and will cover, in some fashion, some or most of the following areas of inquiry. (Additional topics and questions, beyond those presented here, may also occur or be covered.)

The Problem of Justice and Economic Distribution

This is sometimes called the problem or question of distributive justice. Some main questions here are: What is fair and just in the distribution of the costs and the rewards of an economic system? What different principles of distribution can be used, and what are the consequences of each different scheme or principle? Shoould some version of lassiez faire be adopted, or should some communitarian/socialist scheme be used? What, if any, ethical or quasi-ethical principle is helpful here: Utilitarianism, John Rawls' Theory of Justice, Robert Nozick's libertarianism, Adam Smith's invisible hand, Marxist (secular) or Christian or Jewish or Islamic (religious) socialism, or some other ethical principle?

Should there be government regulation in this sphere, and if so, how much, how should it be done, and is government and its bureaucrats competent and trustworthy? Is it fair that, in the United States, the ratio of CEO pay to that of ordinary workers has been increasing to the point where it is now frequently 500:1 or even greater? If this high ratio is objectionable—as many people, including some writers on business, hold it to be—what, if anything, should be done about it, how should whatever is done be done, and who should do it?

The Nature and Effects of Capitalism

Business in the developed world takes place more-or-less within a capitalist economic system. What is capitalism and what are its key features? (The answer is: companies, the profit motive, competition, and private property.) What are the ethical justifications of capitalism, and what ethical and other criticisms of it have been given? Which of those has the stronger arguments in its favor? What problems does capitalism face today? Today the world is becoming globalized so that a kind of worldwide capitalism is coming into existence—what are the consequences of that and what ethical problems and issues does it raise? Who are the winners and losers in globalization, and what, if anything, should be done about that? By whom, and for what ends? Is there a necessary collusion between capitalist business interests and repressive political regimes?

Corporations and Their Consequences

Most business today—especially business of any appreciable size—is conducted by or through corporations. What powers does incorporation grant, and why do people form corporations?

Another major issue here is known as the question or problem of corporate social responsibility. The main question is whether corporations can be or have the power to be ethically responsible, or, as it is sometimes put: Can corporations make ethical decisions? Or: Can a corporation have a social responsibility?

Some philosophers have seen the corporation as a machine and have argued that, because of its structure, a corporation cannot make ethical decisions, and thus that it cannot be held to be ethically responsiblle. Only the individuals within the corportation and not the corporation itself, they hold, can act ethically or inethically, and thus be held to be ethically responsible. But other philosophers, such as Kenneth Goodpaster and John Matthews, have argued the the corporate internal decision (DID) structure, like an individual person, does collect data about its actions, monitor work and employee and business conditions, attends to environmental impacts, etc. Thus, those philoosphers argue, there is no reason why a corporation cannot exhibit the same rationality and thus be responsible in ways similar to an individual person.

Even if we hold that a corporation can be socially responsible, however, the question of the degree and scope of this responsibility remains unanswered. Two different answers have been given: The narrow view of corporate social responsibility and the broad view. The narrow view, expressed most clearly by Milton Friedman, is that the social responsibility of a corporation is solely to maximize profits, within the rules of law and ethics, for its shareholders. The broad view, held by expressed by thre large majority of philosophers and theorists who deal with this issue, is that business has other social obligations in addition to pursuit of profits. The main reason in favor of the broad view is that, as a matter of fact, corporations have great economic and social power. With holding and exercising power comes social responsibility. As professor of business administration Keith Davis put it, social responsibility arises from social power.

A distinction frequently made here is between stockholders and stakeholders. Stockholders, because of their ownership of stock, have a direct financial interst in the fortunes of the company. But stakeholders—suppliers, customers, family members of employees, the owner of the barbership in the town where the company is situated, political figures in that town, teachers of employees' children, and others—also are affected, financially and otherwise, byt the fortunes and actions of the company, thus they have a stake in it. Stakeholder thheory holds that the company has some responsibility to its stakeholders in addition to its stockholders.

Ethical Issues in the Workplace

What do employers owe, ethically speaking, to their employees? What is the state of civil liberties in the workplace: Should employees have the same civil rights—freedom of speech, freedom of religious expression, freedom of petition—in the workplace as they have outside of it? Most businesses say no.

What are good or ethically permissible hiring and personnel policies and procedures? What about nepotism—is it ethically objectionable? What criteria should be used for hiring and promotions? For Discipline and discharge? What are fair wages and how should this be determined? What is the ethical status of labor unions, and their strikes and boycotts?

What about an employee with AIDS, if the fellow-employees or customers learn of this and begin to shun the business (making its profits drop substantially) because of it—is it ethically permissible for the business to fire the employee with AIDS in such a case?

What about employer monitoring of employees in order to prevent theft or misuse of computer time—how far can the company go in doing this, ethically speaking?

How much may the organization influence and interfere in the private lives of its members? Is it permissible for the employer, for example, to forbid the employee from smoking, even off the job? What about the policewoman who poses for a nude picture in a magazine such as Playboy—is it ethically permissible for the department to fire her for this? What about the employee who engages in unconventional sexual practices, such as swinging—if this becomes public knowledge, should the employer be permitted to fire the employee? How far can teh employer go to obtain information about potential employee misconduct, such as theft from the employer, or taking illegal drugs? What kinds of drug tests are ethically permissible, and under what circumstances? Is it ethically permissible for the employer to demand that the employee submit to polygraph tests? To personality tests to see whether the employee is filled with rage, for example?

What are bonafide occupational qualifications (BFOQs), and what are spurious? (E.g., It is clearly permissible for a company to ask its delivery truck drivers to pass a driving test. But what if were to demand that they pass a test in Spanish language? What if most of the company's customers are Spanish-speaking—would that make a difference?)

Clearly the employer has a responsibility for the health and safety of its employees while on the job. How far does this responsibility extend, ethically speaking?

If the employees of a company are dissatisfied with their job situation, does the company have an ethical responsibility to redesign the job and the working situation to make the employees happier and more fulfilled? Does an employer have an ethical responsibility for the personal growth and fulfillment of its employees? If so, to what extent?

Ethical issues Facing Employees

Clearly, there are some things that are ethically wrong for employees: Stealing from the employer, lying to the employer, working to undermine the business, company, employer, or other employees. Beyond that, what ethical obligations does the employee have to the firm? Clearly some degree adn type of loyalty is due ethically of the employee to the employer, but how much, and under what circumstances?

What about conflicts of interest that arise because of the employee's position and power within the business? There are numerous ways that the employee can abuse his position: Some of them main ones are by making financial investments in competitors, padding expense accounts, using company property such as computers or vehicles or other company assets for private purposes, engaging in insider trading, giving or selling proprietary data to competitors, or engaging in taking or giving bribes or kickbacks.

Another issue that is dealt with in nearly all business ethics courses and texts is whistleblowing. Whistleblowing occurs when an employee becomes aware of an unethical or illegal practice being done by the company, and the employee tells about or otherwise exposees this unethical practice to outsiders: to the media or to law enforcement officials or to someone else outside the company, situated in such a way to bring pressure on the company to change the offensive practice. Ethical issues here are: When is whistle blowing justified? What steps should the potential whistleblower take in order to behave ethically and enhance the likelihood of success in this effort? What can be done to prevent retaliation by the company or the profession against the whistleblower, i.e. to protect those people who do the right thing even though that right thing hurts the employer or the company? What if the motivation of the whistleblower is not to protect the third party or parties who are being harmed by the unethical practice, but is instead to profit in some way—financially, or in enhanced prestige or power or in some other way—by the process or act of whistleblowing? To put it differently, what if the whistleblower is doing so out of self-interest instead of for the benefit of the larger good?

Discrimination in Hiring or Entry Into Desirable Schools

Discrimination in itself is not ethically objectionable. All of us do it every time we make a choice: We discriminate in favor of the thing or person we have chosen and we discriminate against the person or thing we do not choose. So the ethical problem is not discrimination itself, but the basis on which we make the choice: Did we choose on the basis of an ethically good reason or on the basis of an ethically wrong one.

Historically, members of certain disfavored races and ethnic groups have been discriminated against in hiring, promotions, and entry into desirable schools (such as law or medical school). This is now recognized by nearly everyone as being an unethical basis for discrimination or choice. The question then is what to do about this. One widely-accepted answer is the adoption of an affirmative action program in an effort to rectify the problem.

In the United States, at least, there have been two different understandings, coupled with two different epochs of affirmative action. The first could be called negative affirmative action (using “negative” as it is used in speaking and writing about “negative rights”); in this understanding affirmative action consists of the assertion that race or ethnicity may not and will not be used as a basis for discrimination. This notion of negative affirmative action occurred in Martin Luther King’s call for people to be judged by the content of their character instead of the color of their skin. But that understanding of affirmative action was soon replaced by another one that we could call positive affirmative action (again, “positive” as it is used in the conception of “positive rights”). In affirmative action, understood positively, members of previously discriminated against racial or ethnic groups are given some form of special preferential treatment (sometimes called being given a “leg up”) in hiring, promotion, or entry into desirable schools. Today, when people speak of affirmative action, they almost always mean this positive, preferential, form of affirmative action.

Business ethics texts and classes, then, usually have some presentation and discussion of the reasons for and the reasons against the use of positive affirmative action. This often includes a discussion of the way the law courts have dealt with the problem over the years.

Affirmative action remains a highly controversial area, and the reasons both for and against affirmative action are usually presented in business ethics courses and texts, and highly disputed, with partisans on both sides.

Ethical Issues of Women in the Workplace

Women have always worked, but until the 20th century most women did not work in businesses outside their homes or farms. With the coming of World War I, however, and especially with World War II and following, large numbers of women entered the workforce. With the entry of women into the workforce a number of ethical issues and problems arose that did not exist before, or that were at least much smaller and much less prevalent at that earlier time.

One issue has to do with child care. Women have usually had more responsibility for caring for children than men, so the entry of women into workforces meant that businesses and fellow employees had to deal with childcare issues. Do businesses and fellow employees have an ethical responsibility to provide or make provisions for childcare for women (or parents of either gender) with children? Are fellow workers ethically entitled to feelings of resentment if a fellow worker lets them in the lurch in order that this worker can care for her children?

Ethics is constrained by a biological fact: Women get pregnant and have babies; men do not. Besides the child-care problem, this has led to a number of additional ethical issues: Should women of child-bearing age be prevented from working in environments where something exists that might harm their fetuses, should they become pregnant, such as a factory where lead batteries are made and therefore there is lead in the air? Should pregnant women be given on-job benefits (extra break time, being put in physically more comfortable situations, etc.) that are not given to men and non-pregnant female co-workers?

Another issue is differences in physical strength between men and women. Is it ethically permissible to set up two different test tracks for men and women for entry into a job, such as firefighting, where male firefighters must pass physical tests including such exercises as climbing up long ladders while burdened with many pounds of firefighting equipment or carrying a heavy person from a burning building and down a ladder—tests that few if any women could pass? The military services have also had to institute different physical requirements for men and women in order to have women become members of those services—is that ethically permissible, or does it constitute unfair discrimination on the basis of sex?

Do businesses have an ethical right or responsibility to divide women into two groups, a career primary group and a career-and-family group (this came to be called a “mommy track”), and treat members of the two groups differently, expecting the first group to advance more and invest more in the job and company than the second, with the first group also reaping greater rewards in terms of pay, salary, bonuses, advancement, responsibilities, and so on? “In most organizations the mommy track is a millstone around your neck,” according to Richard Belous, an economist at the National Planning Association. He warned, “CEOs and rainmakers don’t come out of the mommy track,” and “If you go part-time you’re signaling to your employer you’re on the B-team.” If a “mommy track” exists or is created, should there also be a “daddy track”? If a “mommy track” exists, who should determine for each woman whether or not she is on it—should she decide for herself, or should the employer decide?

Since women were historically discriminated against in business and many professions, should there be positive affirmative action for women, just as is done for members of historically disfavored racial and ethnic groups?

Another issue is traditional lower pay for what was historically “women’s work,” (often known as “pink collar” jobs) compared to the pay for male-dominated blue-collar and white-collar work. To cope with this the notion of comparable worth was developed. This doctrine holds that all the jobs done within an organization are necessary for the overall success of the organization, thus traditional pink collar work, such as clerical work, is comparable in worth to traditional men’s work (such as operating a forklift truck in the warehouse) and should be paid comparably. At least some lawsuits have been won by women demanding back-due pay and compensation on the basis of this doctrine of comparable worth.

Another problem that arose with men and women working together in the workplace was dating and mating within the workplace or between co-workers. (This could, of course, occur in single-sex workplaces, but is much less prevalent there.) What ethical rights and responsibilities does the company or employer have, if any, to try to stop, control, or otherwise manage such activity of its employees?

Finally, the problem of sexual harassment became a large issue when women entered the workforce. To cope with this, most businesses have instituted strong guidelines and rules, along with penalties for those persons who break the rules.

Products and Consumers

Who has the primary responsibility, ethically speaking, to ascertain whether products are safe, efficacious, and appropriate for the needs and desires of a particular purchaser or consumer: The manufacturer, the seller, or the consumer? Law and tradition have changed over the years on this problem, so that today the doctrine of strict product liability puts the onus on the manufacturer. Today three are also a host of government regulations dealing with product safety; the U.S. Food and Drug administration, for example, was set up to regulate the purity and quality of drugs and foodstuffs. Most people favor those regulations, but a few philosophers and economists, such as Milton Friedman, have argued against them. There does remain the problem, however, of both the effectiveness of government regulations and the competence of government and its officials and bureaucrats to set up and carry out such regulations. In any case, business still has a great deal of responsibility, ethically speaking, to se to it that its products are safe and good. But consumers also have their own ethical and practical responsibility in this area—responsibility is shared by both producers and consumers.

Other ethical issues are product pricing, price fixing, price gouging, labeling and packaging, and the formation of trusts and cartels and other means of restricting competition.

A big ethical controversy here concerns advertising and marketing: Should advertising and marketing speech be encompassed within freedom of speech protections, as granted by the First Amendment? Even if you say yes to that question, there are still many remaining ethical problems or concerns: Deception and unfairness in advertising, including ambiguity, concealed facts, exaggeration, and psychological appeals (often relying on sex).

Regardless of how they think about advertising directed at adults, most philosophers, observers, and ethicists are troubled by one form of advertising: Ads directed at children. We assume—probably inaccurately—that adults have sufficient maturity and wisdom to sort out for themselves what is believable and useful and good in advertising and reject the rest. But we know that children lack that ability, thus they are vulnerable and advertising directed at them has a strong taint of being inherently unethical.

There is the additional fact that most mass media—radio and TV, newspapers, magazines—are primarily supported by advertising revenue. Thus our ability to have those media, with all the information, entertainment, and other goods they bring, is dependent on advertising, so railing against advertising is short-sighted or at least somewhat disingenuous.

Professional ethics

Professional ethics is sometimes included as part of business ethics, and sometimes treated as a different branch of applied ethics. Most learned professions—i.e. professions that require some advanced study, usually more than a bachelor's degree—have more-or-less elaborate codes of ethics and concerns about ethics for their profession. Examples are the codes of ethics for lawyers, doctors, engineers, accountants, and others.

Professional ethics covers the myriad of practical ethical problems and phenomena which arise in specific professions. Some of the professions usually included within the scope of professional ethics are business management (as a profession), engineering, health care (the medical professions, including physicians and nurses and other health care professionals), counseling, law (lawyers and judges), journalism, education (as a profession), and accounting and auditing.

One of the questions in professional ethics is just what constitutes a profession, as distinct from other human endeavors. Another is whether professionals, qua professional, have ethical problems and duties beyond those of non-professionals. The answer usually given is that they do because as professionals they provide a service to humans that is necessary for human life and well-being that humans cannot get without the aid of the profession and its professionals, and that professionals are given special powers and immunities—things not given to other non-professionals—to carry out their role(s)(e.g., a surgeon is given the right and even the responsibility to cut open another human's body if the surgeon deems that doing so will aid the health of the one who is cut); such powers and immunities convey ethical responsibilities.

Ethics of accounting information

• Creative accounting, earnings management, misleading financial analysis.
• Insider trading, securities fraud, bucket shop, forex scams: concerns (criminal) manipulation of the financial markets.
• Executive compensation: concerns excessive payments made to corporate CEO's.
• Bribery, kickbacks, facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society.

Cases: accounting scandals, Enron, WorldCom

Ethics of human resource management

The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.

• Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment.
• Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking.
• Issues affecting the privacy of the employee: workplace surveillance, drug testing. See also: privacy.
• Issues affecting the privacy of the employer: whistle-blowing.
• Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law.
• Occupational safety and health.

Ethics of sales and marketing

Marketing which goes beyond the mere provision of information about (and access to) a product may seek to manipulate our values and behaviour. To some extent society regards this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics.

• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. See: anti-competitive practices, antitrust law.
• Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence.
• Content of advertisements: attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful
• Children and marketing: marketing in schools.
• Black markets, grey markets.

See also: memespace, disinformation, advertising techniques, false advertising, advertising regulation

Cases: Benetton.

Ethics of production

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

• Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
• Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading
• Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health.
• Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

See also: product liability

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law.

Ethics of intellectual property, knowledge and skills

Knowledge and skills are valuable but not easily "ownable" objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee or the employee themselves? The country in which the plant grew, or the company which discovered and developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.

• Patent infringement, copyright infringement, trademark infringement.
• Misuse of the intellectual property systems to stifle competition: patent misuse, copyright misuse, patent troll, submarine patent.
• Even the notion of intellectual property itself has been criticised on ethical grounds: see intellectual property.
• Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess.
• The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them.
• Bioprospecting (ethical) and biopiracy (unethical).
• Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

International business ethics and ethics of economic systems

The issues here are grouped together because they involve a much wider, global view on business ethical matters.

International business ethics

While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:

• The search for universal values as a basis for international commercial behaviour.
• Comparison of business ethical traditions in different countries.
• Comparison of business ethical traditions from various religious perspectives.
• Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.
• Issues such as globalisation and cultural imperialism.
• Varying global standards - e.g. the use of child labour.
• The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries.
• The permissibility of international commerce with pariah states.

Ethics of economic systems

This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, focussing on the rights and wrongs of various systems for the distribution of economic benefits. The work of John Rawls (1921-2002) is a notable contribution.

Theoretical issues in business ethics

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 for 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.

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 marketplace are those that place profit maximization above everything else. However, some point out that self interest 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 was 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 stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities 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. Professors 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-principles 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 developing 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 a 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.

Business ethics in the field

Corporate ethics policies

As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to 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 requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.

Many companies are assessing the environmental factors that can lead employees to engage in unethical 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 a 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 example.
• Explained in writing and orally, with periodic reinforcement.
• Doable....something employees can both understand and perform.
• Monitored by top management, with routine inspections for compliance and improvement.
• Backed up by clearly stated consequences in the case of disobedience.
• Remain neutral and nonsexist.

Ethics officers

Ethics officers (sometimes called "compliance" or "business conduct officers") have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) — originally the Ethics Officer Association (EOA)— was founded at the Center for Business Ethics(at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization.

Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.

In the wake of numerous corporate scandals between 2001-04 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium-sized companies have begun to appoint 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 disseminating 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 to the above 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 emanates 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.

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

The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values.

Examples include:

• Islamic banking, associated with the avoidance of charging interest on loans.
• Traditional Confucian disapproval of the profit-seeking motive. [3]

Related disciplines

Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible — those who dispute that premise, such as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are 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 the 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.

See also

• Bribery
• Business law
• Corporate behaviour
• Corporate crime
• Corporate social responsibility
• Corruption
• Ethicism
• Ethics
• Ethical code
• Fiduciary
• List of business ethics, political economy, and philosophy of business topics
• Management
• Political economy

References

ISBN links support NWE through referral fees

• Essays on Ethics in Business and the Professions, Jack N. Behrman, Englewood Cliffs, NJ: Prentice Hall, 1988
• Business Ethics, A Kantian Perspective, Norman E. Bowie, Blackwell, 1999.
• Ethical Dilemmas in the Modern Corporation Gerald F. Cavanagh, Prentice-Hall, 1988
• Perspectives in Business Ethics, Laura Hartman, Burr Ridge, IL: McGraw-Hill, 2004
• Business as Ethical and Business as Usual, Sterling Harwood, Belmont, CA: Wadsworth Publishing, 1996.
• Ethics and the Management of Computer Technology: Proceedings of the Fourth National Conference on Business Ethics National Conference on Business Ethics (4th: 1981: Bentley College) Cambridge, MA: Oelgeschlager, Gunn & Hain, 1981
• The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business, Jeffrey L. Seglin, Spiro Press, 2003
• Above the Bottom Line: An Introduction to Business Ethics Robert C. Solomon, Harcourt Brace Jovanovich, 1983
• The excellence of the efficiency of the learning organisation that is the Hellenic features of current economics moral. Lea B. Virághalmy, Budapest, 2003 (Abstract)
• "Companies With A Conscience, 3rd Edition", Howard Rothman and Mary Scott, Denver, CO: MyersTempleton, 2004

• Knight, Frank (1935/1980). The Ethics of Competition and Other Essays. Univ. of Chicago Press. ISBN 0-226-44687-5. 
• de George, Richard T. (1999). Business Ethics. Prentice Hall. ISBN 0-13-079772-3. 
• Project Governance: Implementing Corporate Governance and Business Ethics in Nonprofit Organizations", Patrick S. Renz, Heidelberg: Physica-Verl., 2007. (Contributions to Economics)

External links

• Business Ethics in Knowledge@Wharton, the Wharton School's online business journal.
• Business ethics section from the website of the Markkula Center for Applied Ethics
• Economics and Economic Justice in the Stanford Encyclopedia of Philosophy
• Commerce with a conscience. Dame Anita Roddick (The Body Shop founder) asks: Can business deliver social change?
• The Conference Board Ethics Program
• Baylor University's Hankamer School of Business Annual Business Ethics Forum

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