Chapter 12 Corporate Ethics
Chapter 12 Corporate Ethics
Chapter 12 Corporate Ethics
Some people might think that business ethics is an oxymoron. How can business,
with all of its shady dealings, be ethical? This is a view that can be taken even by well
educated people. But in the end, such a position is incorrect. Ethics is a study of morality,
and business practices are fundamental to human existence, dating back at least to
agrarian society, if not even to pre-agrarian existence. Business ethics then is a study of
the moral issues that arise when human beings exchange goods and services, where such
exchanges are fundamental to our daily existence. Not only is business ethics not
something oxymoronically, it is important.
Many social scientists felt that the deregulation of business would encourage the
business to reverse back to its orthodox objective of profit maximization by whatever
means including practicing unethical conduct. But sooner or the later, a number of
incidents around the world proved that businesses should carry out their operations
ethically for the sake of basic survival. The following example is a point in fact.
In Practice:
The Ford Motor Company decided to produce the first lowest-priced car in the USA.
The Company President Mr. Lee Lacocca wanted to rush the development of a car costing
less than $2,000, as he promised the public that his company will bring out a car at that
price (as low as $2,000) and also fight the growing popularity of Volkswagen’s Beetle.
Preliminary tests showed that it involved an additional cost of $11 to enhance the safety
of the car.
The car was released and sold at $2,000. After six months of release, one of the
cars was involved in an accident killing all the passengers. Competitors influenced
newspapers to publish this accident and the newspapers in the U.S.A. highlighted the
absence of the safety feature. This incident resulted not only in the loss of sales, but also
in the closure of the unit resulting in a loss of $250 million to the company.
This case indicates that business should consider ethical principles while making
decisions in order to achieve its basic objective of survival. Thus, competition forces
businesses to conduct their business ethically. Increasing literacy, widespread use of
information technology and declining sellers’ markets after globalization reduce the scope
for debating on the need for conducting business ethically.
6. Effective Decision-Making:
Ethics help to improve the business ethical decision-making with the appropriate
knowledge and tools that allow them to correctly identify, diagnose, analyse, and provide
solutions to the ethical problem and dilemmas they are confronted with day to day decision
making having implications for the stakeholders.
7. Business Effectiveness:
Ethics develop the ability to assess the benefits and problems associated with
different ways of managing ethics in organizations. It also improves the knowledge that
transcends the traditional framework of business studies which have focused on the
relevance of ethics in business.
Since business exists and operate within the society and is a part of a subsystem
of society, its functioning must contribute to the welfare of the society. To survive, develop
and excel, business must earn social sanction of the society wherein it exists and
functions.
Without social sanctions, a business cannot earn loyal customers, cannot operate
in the marketplace and will soon wither and die away. George A. Steiner, in ‘Business &
Society’, says “The managers of the biggest companies know that as a business gets
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larger, the public takes more interest in it because it has a greater impact on the
community. The antennae of these managers are tuned to public opinion and they react
to it. They seek to maintain a proper image of their company in the public mind. This leads
to the assumption of greater social responsibilities.”
Business needs to remain ethical for its own good. Unethical actions and decisions
may yield results only in the very short run. For the long run existence and sustained
profitability of the firm, business is required to conduct itself ethically and to run its
activities on ethical lines. Doing so would lay a strong foundation for the business for
continued and sustained existence.
All over the world, again and again, it has been demonstrated that it is only ethical
organizations that have continued to survive and grow, whereas unethical ones have
shown results only as a flash in the pan, quickly growing and even more quickly dying and
forgotten.
Ethics in Finance:
Ethics in Marketing:
Ethics in Production:
As for its widespread effects, business influences our values and well-being, it
shapes social policies, and impacts the natural environment on a large scale. The
important social role of business and its widespread effects are strong reasons for why we
should be concerned about the morality of the business activity. But what makes it
appropriate to subject this activity to a moral evaluation is the fact that business acts
have all the morally relevant features, foremost of which are as follows.
First, business acts can be done knowingly and freely in that their agents
(businessmen, corporate executives, company supervisors, and others) can be
aware of the morality of these acts, either as morally good or bad, and can have
a choice on whether or not to perform their acts. This feature of business of business
acts makes them appropriate objects of moral evaluation in terms of moral
accountability—whether their agents deserve moral blame or praise.
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For instance, a manager of a drug company who decides to continue selling a
product, despite being informed of its negative effects, will be morally accountable for the
injuries that this product may cause.
Second, business acts can lead to serious human injuries. Business, for
instances, that cater to the destructive needs of humans, such as those selling illegal
drugs and fire arms will surely pave the way for the occurrence of serious human injuries.
This specific characteristic of business acts subjects them to a moral evaluation using
consequentialist moral standards, such as the utilitarian moral standard which looks at
the aggregate benefits and costs of action.
Third, business acts can violate moral rights, which makes them
appropriate objects of moral evaluations using deontological moral standards.
They can, for instance, be evaluated as morally good or bad on the basis of whether or
not they use persons merely as means to achieve greater profits.
Based on Adam Smith’s argument, this contends that the economic forces
governing the business activity such as the law of supply and demand, are sufficient to
ensure that this activity will lead to the common or social good. While people are engaging
in this activity are only their own personal gains, they eventually end up likewise
promoting the good of the community. There is as if, an invisible hand steering the
business activity towards the promotion of the social good. For without really intending it,
their selfish actions harmonize to produce what is most beneficial to everyone.
This argument simply states that the law is sufficient to ensure that the business
activity will not result in morally undesirable behaviors. Making the law as the standard
for the morality of business, this view, consequently, claims that as long as business do
not violate the laws of the government, then there is nothing morally wrong with their
policies, decisions, and practices.
The argument claims that the primary motive of engaging in business namely profit
making or the profit motive is inherently incompatible with the motives of morality,
especially the motive of benevolence.
Morality in Capitalism
- The business practices morally evaluated in business ethics are usually those
done in a free market system or capitalist economic system. Capitalism is
generally characterized by minimal government control over the operations
of business.
- Some of the questions raised about the morality of capitalism are based on
the socialist critique of capitalism, such as whether the goods and services
being sold in the market are harmful to consumers and society in general,
and whether they cultivate the nobler qualities.
- Capitalism finds its moral justification in its ideal of perfect competition, a
state where no buyer or seller has the power to significantly affect the prices
at which goods are being exchanged.
- Perfect Competition happens when there is interplay between the supply and
demand of goods, and between the amount of good sellers are willing to sell
and buyers are willing to buy, will naturally reach an equilibrium point.
- At the equilibrium point, the prices of goods shall be fair to both buyers and
sellers in that they are not unreasonably high for the buyers and not
unreasonably low for the sellers.
- When business practices deviate from the perfect competition that capitalism
loses its moral justification. Example, one seller in the market. Second, there
are only few sellers in the market.
CORPORATE ISSUES
- Questions about the morality of the activities, policies, practices, or
organizational structure of an individual company taken as a whole.
- Issues arises from moral status of corporations (or personhood) and from
corporate dealings with the various sectors of society.
INDIVIDUAL ISSUES
- Questions about the morality of the decisions, actions, or character of an
individual done in a business setting. In the context of the workplace, these
issues involve acts of employees directed towards either their company or
their fellow employees.
CONFLICT OF INTEREST
- It arises when the self-interest of an employee leads to him/her to make
decisions for his/her company in ways that may not be in the best interests
of the whole company.
EMPLOYEE THEFT
- Company properties may be stolen by employees. Using company resources
for personal use without the company’s consent, or using them in ways not
sanctioned by the company, also counts as theft. Theft of company
information involves the so called “trade secrets” and “inside information.”
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Trade secrets and inside information are confidential or nonpublic information
about a company. These kinds of information are owned by the company,
and thus when employees use them for purposes not sanctioned by the
company, it is in effects an act of employee theft.
WHISTLEBLOWING
- In general, it is the act of reporting a wrongdoing to an authority or exposing
it to the public.
SEXUAL HARASSMENT
- In a workplace, it is usually regarded as a form of sex discrimination.
Harassment is sexual when it comes in the form of unwelcome sexual
advances, requests for sexual favors, and other verbal or physical contact of
a sexual nature.