Business Ethics

The concept of ethics has a long history in western philosophy. Usually, ethics is understood as reflecting on and recommending concepts of right and wrong behavior. Following this definition, business ethics is the reflection on the ethical behavior of business organizations.

Much discussion of business ethics focuses on the ethical consequences of the pursuit of economic interests by business. On the one hand, some argue ‘‘good ethics is good business,’’ suggesting that the pursuit of economic interests within law-given restrictions will automatically lead to ethical behavior. On the other hand, more critical ethicists argue the pursuit of economic self-interest by firms is fundamentally opposed to ethical conduct. In their perspective, financial profit and moral principles cannot be aligned. Such considerations engender considerable debate both within organizations and in the public sphere more generally. The practical implications of this in contemporary times is that organizations are more and more under pressure to rethink the ethical con sequences of their behavior and readjust their actions accordingly (for a business example, see Royal Dutch/Shell Group 1998).

The young but rapidly growing body of academic literature reflects the importance of business ethics. Although ethics have their antecedents both in ancient philosophy and religion, business ethics is an emerging discipline. Further, while a consideration of the ethics of business can be traced to the seminal work of Adam Smith (1863), the explicit development of business ethics as a field of research and study is much more recent. The first Journal of Business Ethics was founded in 1981, quickly followed by others such as Business and Professional Ethics Journal, Journal of Business and Professional Ethics, and Business Ethics Quarterly. The breadth of research areas within business ethics includes ethics and trust, ethics, management and leadership, ethics and organizational reward systems, ethics and organizational culture, ethics and empowerment, ethics and organizational power, interpersonal relationships and ethics, corporate social responsibility, corporate sustainability, ethics and financial investment, and ethical decision making.

Normative and Descriptive Ethics

For some, business ethics is conceived of as a normative ethics in that it seeks to establish means of judging whether business practices are right or wrong. This can be done both to assist managers in dealing with moral dilemmas and to enable past actions to be judged as to their ethicality. Business ethics is also an applied ethics because it seeks to use such normative models in order to investigate the ethicality of the nature and consequences of particular events or practices in business. In this normative approach, business ethics in practice is generally understood as being related to the rules and/or cultural norms that govern, or should govern, organizational conduct. In organizations this commonly means that managing ethics is done through formalized codes of conduct that should govern everyday actions and decisions. Indeed, it is reported that 78 percent of the US top 1000 companies have a code of conducts (Nijhof et al. 2003). This approach is also used in theories of business ethics which develop normative models for pas sing ethical judgment on business practices (Gatewood & Carroll 1991) or propose the development of ethical rules for organizations (Beyer & Nino 1999).

The study of business ethics has also been pursued as a descriptive exercise because it uses scientific analysis to describe the actual behavior of organizations and their members. This descriptive approach would not seek normative guidelines that ought to be applied in practice, but rather monitor and describe what actually happens. The key question in both approaches is whether ethics are relative to history and tradition (e.g., given that bribery might be an established part of one country’s business culture, it would be considered unethical in other countries) or whether is a set of absolute norms that are valid anytime, anywhere in the world (e.g., men and women should be treated equally regardless of religious belief). These differentiators are contested in the face of key issues in business ethics such as corruption, manipulative advertising, whistle blowing, the environmental impact of business, customer rights, workplace harassment, and equal opportunities for women and minorities. Business ethics is also concerned with the ethical treatment of employees, echoing longstanding concern over the possibilities of worker exploitation in the capitalist labor process. Conversely, there have also been controversies over rising levels of remuneration for chief executives and other top level managers.

Relationship Between Ethics and Business

A key issue that has been addressed and debated within business ethics is the possible relationship between ethicality and business activity in general. One approach suggests that ethics and business can and should be aligned in order to create competitive advantage (Raiborn & Payne 1996). The core argument is that ethics does not contradict the driving forces behind business organization and that there is no conflict of interest between profits and principles. As an example, Francis and Armstrong (2003) argue an ethically informed risk management strategy increases commercial outcomes, prevents fraud, and lifts corporate reputation. This reflects a more general position that an organization’s ethical commitment is aligned with its self-interest. Such a perspective dates back to Adam Smith’s argument that maximizing personal advantage will lead through the mechanism of self-interested actors competing in the market to a maximum of collectively beneficial out comes. In sum, this suggests that ‘‘good ethics is good business’’ and that profits and principles are mutually inclusive. Another example of this is the practice of ‘‘strategic philanthropy’’ (Porter & Kramer 2002), where organizations choose to make charitable and philanthropic donations in order to strengthen their competitive position by, for example, developing the business environment in the markets where they operate or enhancing their public image. Similarly, it has been argued that an increased focus on ethics by organizations can lead to an increase in organizational commitment and hence productivity (Cullen et al. 2003). According to this approach, good management will be by definition both a harbinger of profits and ethical outcomes.

More critical approaches to business ethics question the convenience of the arguments outlined above and are skeptical about the possibility of profit seeking organizations being ethical. This approach criticizes the core assumptions that provide the cornerstones of classic management and organization theory by suggesting that moral principles are of higher priority than profits (Quinn and Jones 1995). Here, ethics are seen as confronting business rationality because each abides by different and contradictory values. At an extreme, this approach asks whether business ethics is possible in a (capitalist) system driven by the pursuit of profits (Jones 2003). This suggests that the reason for labeling strategic behavior as ethical, or for developing ethical rules, is seen as calculative by nature and thus ethically dubious. Further, even when ethical rules are developed, this may be done not with a concern for the ethicality of organizational action, but rather for external consumption (Kjonstad & Willmott 1995) by shareholders, customers, governments, and other stakeholders. The argument is that the very idea of business ethics is an oxymoron.

Organizational and Individual Responsibility

Another key issue for understanding business ethics is a consideration of the relationship between the ethical responsibility of individuals and that of the organization as a whole. For some, ethics resides very much with the individual human being (manager or employee) who has to defend ethical values and make ethical choices, often in spite of their organization. This also suggests that unethical organizational behavior results from the individual actions of ‘‘bad apples’’ who are either amoral or guided by immoral principles. Such an individualization of ethics suggests that it is particular people who are ultimately responsible for ethical behavior and that the organizational requirement is for an ‘‘empowering ethics’’ which supports moral learning and development instead of restricting ethics through codes (Konjstad & Willmott 1995). Business ethics thus emerges when people are ‘‘morally assertive’’ and use their personal ethics to mediate corporate priorities (Watson 2003). In short, this suggests that ethics is a moral task of managers who are personally ‘‘in charge’’ of ethics. In relation to ethical rule systems in organizations, such a view has been used to argue that because rules reduce individual margins of freedom they provide a form of discipline that can prevent people from acting ethically in order to transform organizations (Ibarra Colada 2002: 178). In this scenario, the organization (and its rules) is a powerful, restricting machine, against or within which the ethical individual can/should act ethically. From this perspective, an organization is an ethically questionable entity whose ethicality can only be tempered by individuals who act in relation to the rules that constitute organizations through behavior guided by a personal ethics (ten Bos 1997).

In contrast, others have argued that organizational systems can provide the basis for ethics in a way that transcends individual action alone. Such an approach can be traced to Weber’s seminal work on bureaucracy in the early twentieth century. In contemporary times this has emerged from a critique of changes to organizations that have seen them move away from bureaucratic forms of organizing. This suggests that organizational changes favoring flexibility, enterprise, and short-termism wither away trust, loyalty, and mutual commitment in organizations (Sennett 1998). Thus, organizations can and should be organized such that they pursue a communal ethics. This opposes an individualistic ethics which stresses autonomy, moral responsibility, and freedom towards one of mutual obligation and respect for standards.

From this perspective, it is argued that it is precisely formal organization that makes ethics possible by training managers in technical expertise, and through a clearly defined hierarchy that describes everybody’s responsibility, duty, and rights, through the understanding of the office as ‘‘vocation,’’ detached from personal privileges, passions, and emotions (du Guy 2000).

Given the growing impact of business organizations on the lives of individuals, global politics, and the environment, a consideration of business ethics is critical to responsible forms of business. As corporate disasters such as Enron, the rise of NGOs such as Green peace, and the success of ‘‘ethical’’ businesses such as the Body Shop show, business ethics will be one of the key future challenges for businesses. Thus, managing ethics will be just as important as managing finance, production, or distribution.

References:

1. Beyer, M. & Nino, D. (1999) Ethics and Cultures in International Business. Journal of Management Inquiry 8(3): 287-98.
2. Cullen, , Parboteeah, K., & Victor, B. (2003) The Effects of Ethical Climates on Organizational Commitment: A Two-Study Analysis. Journal of Business Ethics 46: 127-41.
3. du Guy, (2000) In Praise of Bureaucracy: Weber, Organization, Ethics. Sage, London.
4. Francis, & Armstrong, A. (2003) Ethics as a Risk Management Strategy: The Australian Experience. Journal of Business Ethics 45: 375-85.
5. Gatewood, D. & Carroll, A. B. (1991) Assessment of Ethical Performance of Organization Members. Academy of Management Review 16: 667-91.
6. Ibarra-Colada, (2002) Organizational Paradoxes and Business Ethics: In Search of New Modes of Existence. In: Clegg, S. (Ed.), Management and Organization Paradoxes. John Benjamins, Amsterdam, pp. 165-84.
7. Jones, (2003) As If Business Ethics Were Possible, ‘‘Within Such Limits.’’ Organization 10: 223-48.
8. Kjonstad, & Willmott, H. (1995) Business Ethics: Restrictive or Empowering? Journal of Business Ethics 14: 445-64.
9. Nijhof, A., Cludts, S., Fisscher, O., & Laan, A. (2003) Measuring the Implementation of Codes of Conduct: An Assessment Method Based on a Process Approach of the Responsible Journal of Business Ethics 45: 65-78.
10. Porter, & Kramer, M. (2002) The Competitive Advantage of Corporate Philanthropy. Harvard Business Review (December): 37-68.
11. Quinn, D. P. & Jones, M. (1995) An Agent Morality View of Business Policy. Academy of Management Review 20: 22-43.
12. Raiborn, & Payne, D. (1996) TQM: Just What the Ethicist Ordered. Journal of Business Ethics 15: 963-72.
13. Royal Dutch/Shell Group (1998) Profits and Principles: Does There Have To Be A Choice? AIA,
14. Sennett, R. (1998) The Corrosion of Character: The Personal Consequences of Work in the New Capital ism. W. Norton, New York.
15. Smith, (1863) The Wealth of Nations: An Inquiry Into the Nature and Causes of the Wealth of Nations. Black, Edinburgh.
16. ten Bos, (1997) Business Ethics and Bauman Ethics. Organization Studies 18: 997-1014.
17. Watson, J. (2003) Ethical Choice in Managerial Work: The Scope for Moral Choices in an Ethically Irrational World. Human Relations 56: 167-85.

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