Business Ethics and Social Responsibility

Ethics: The code of moral principles and values that govern the behavior of a person or group concerning what is right or wrong.

Richard L. Daft, Management (5th ed.), p. 135

Many argue that corporations–in their efforts to maximize the value per share of their stock–should also behave ethically, beyond the need to obey the law.

Business ethics seeks to provide guidelines for behaving in a morally acceptable manner in business settings. Specifically, business ethics helps corporations and managers decipher between right and wrong, offering prescriptions for a company’s attitude and conduct toward its employees, customers, community, and stockholders. High standards of ethical behavior demand that a firm treat each party that it deals within a fair and honest manner.

Business ethics has received additional focus in recent years in the wake of many highly publicized scandals (e.g., Enron, WorldCom). The firm’s behavior can gauge a firm’s commitment to business ethics in such areas as:

Most firms today have a code of ethics in place, and might also conduct training programs designed to ensure that employees understand the correct behavior in different business situations. However, it is imperative that top management— the chairman, president, and vice-presidents— be openly committed to ethical behavior, and that they communicate this commitment through their own personal actions as well as through company policies, directives, and punishment/reward systems.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) has become popular among business leaders. CSR requires firms to consider the effects of their actions on all of their stakeholders (rather than just the firm’s shareholders). Stakeholders could include employees, customers, communities within which the firm operates, and the natural environment.

Being committed to CSR could pose challenges. The socially responsible firm may incur costs, which its less socially responsible competitors do not, making these competitors a more attractive investment opportunity. Governments can intervene with regulations— such as fair hiring practices, product safety standards, antitrust regulation, and pollution abatement programs— to level the playing field.

People use different ethical systems (or moral philosophies) to govern their behavior. These systems provide guidelines or frameworks for making ethical decisions.

Utilitarianism is a pragmatic philosophical approach that seeks the “greatest good for the greatest number of people.” In the business arena, then, it operates from a cost-benefit perspective. (Most famous proponent: 18th century English philosopher John Stuart Mill).

Utilitarianism can encourage ethical behavior because of its potential for pragmatic benefit: companies that abide by ethical rules and principles are rewarded by consumer loyalty, enthusiastic employees, and sustainable profits.

Concerns: Pure utilitarianism can lead to the tyranny of the majority: where the rights of an individual are sacrificed to “the greatest number of people.” In practice, utilitarianism is often moderated by a consideration of rules (for example, seeking the greatest good for the greatest number unless it violates predetermined boundaries.

Question Asked When Facing Ethical Issue

“How can I act so I do the greatest good for the greatest number of people?”

Duty-based ethics (“Deontology”) maintains that ethical conduct is adhering to a rule or rules that are universally regarded as moral, regardless of the consequences. (Most famous proponent: 18th-century German philosopher Emmanuel Kant).

In a business context, this would mean that decisions would be made based on these moral laws without regard to their impact on the enterprise.

Concerns: It can be difficult to get agreement on what rules should be followed; simply adhering to the law is clearly not enough.

Question Asked When Facing Ethical Issue

“How can I act so I meet obligations under absolute universal moral law?”

Virtue Ethics is a philosophical approach to ethics that focuses on moral character as the basis for moral action. Its origins are attributed to Aristotle and the ancient Greeks, although there has been a revival of interest in Virtue Ethics over the past 50 years. When confronted with an ethical question, Virtue Ethics considers how someone of moral character would respond.

Concerns: It can be difficult to get agreement on what represents virtuous behavior and on what constitutes moral character.

Question Asked When Facing Ethical Issue

“How can I act in a way that someone with high moral character would?”

Relativism is the view that morality is not absolute, and ethical standards should be adjusted according to societal norms, or the law. It assumes an action is ethical if it conforms to those standards.

Concerns: In essence, the argument for Relativism is: “we’re behaving the way everybody else is.” But if “everybody else” is taking bribes or fixing prices, then it is easy to fall into unethical or illegal behavior.

Question Asked When Facing Ethical Issue

“How can I act in a way that someone in this society or culture would?”

Justice Ethics maintains that ethical decisions should be made based on equity, fairness, and impartiality. In a business context, this would mean assessing all decisions based on whether they were fair and treated people equally.

Concerns: It can be difficult to get agreement on a definition of “fairness” and “equity.” Should we seek equality of opportunity or equality of outcome?

Question Asked When Facing Ethical Issue

“How can I act so I treat others equally and fairly?”

Egoism maintains that the pursuit of self-interest should be the basis of morality. (Most famous proponent: 20th-century libertarian philosopher Ayn Rand).

In the business context, this would mean making decisions that benefit the enterprise regardless of their impact on others. (Most of those advocating Egoism argue for obeying societal laws.)

Concerns: An ethical system based on self-interest will encourage greed and selfishness. In the long run, it will not prove effective because of how others (customers) are likely to react.

Question Asked When Facing Ethical Issue

“How can I act so I benefit my self-interest?”

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Review Checkpoint

To test your understanding of the content presented

1. True or False?

A corporate commitment to social or environmental responsibility can create financial challenges for the company.Choose only one answer below.

a. True

Correct. This is a true statement. Socially responsible companies may incur higher costs than their less socially responsible competitors.

b. False

2. What are some regulations that governments can use to make sure companies are socially responsible?

1. Fair hiring practices
2. Product safety standards
3. Antitrust regulations
4. Pollution abatement programs

Choose only one answer below.

a. I and II only

b. I, II, and IV only

c. II, III, and IV

d. I, II, III, and IV

Correct. All of these are regulations a government can use to make sure companies are socially responsible.