What are Business Ethics?
Business Ethics is the study of proper business policies and practices regarding potentially controversial issues. Some of these crisis points include corporate governance, insider trading, bribery, discrimination, corporate social responsibility, fiduciary responsibility and data protection. The reason why business ethics is important can be seen every day on the news whenever some corporation is held accountable for questionable behavior, and their brand is tarnished. Business ethics enables you to make responsible decisions and maintain highly ethical behavior when running a business. Business ethics might sound like an oxymoron, but it should be a cornerstone of every industry.
Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. These kinds of practices ensure the public receives fair treatment. The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on so-called social issues was a hallmark of the decade. Since that time period, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.
Understanding Business Ethics in Three Parts
To truly break down business ethics, it’s important to understand the three basic components that the term can be dissected into.
- History: The first part is the history. While the idea of business ethics came into existence along with the creation of the first companies or organizations, what is most often referred to by the term is its recent history since the early 1970s. This was when the term became commonly used in the United States. The main principles of business ethics are based in academia and on academic writings on proper business operations. Basic ethical practices have been gleaned through research and practical study of how businesses function, and how they operate, both independently and with one another.
- Scandals: The second major meaning behind the term is derived from its close relationship and usage when scandals occur. Companies selling goods in the U.S. that were created using child labor or poor working conditions is one such scandalous occurrence.
- Integration: Perhaps the most recent and continually developing aspect of ethics is the third piece – the idea that companies are building business ethics into the core of their companies, making them a standard part of their operational blueprint. As the world continues to grow more political – and more politically correct – an increased focus on proper business ethics and strong adherence to them become ever more the norm.
The Importance of Business Ethics
Business ethics are important for a variety of reasons.
- First and foremost, it keeps the business working within the boundaries of the law, ensuring that they aren't committing crimes against their employees, customers, consumers at large, or other parties. However, the business also has a number of other advantages that will help them succeed if they are aware of business ethics.
- Businesses can also build trust between the business and consumers. If consumers feel that a business can be trusted, they will be more likely to choose that business over its competitors. Some businesses choose to use certain aspects of business ethics as a marketing tool, particularly if they decide to highlight a popular social issue. Leveraging business ethics wisely can result in increased brand equity overall.
- Being an ethical business is also highly appealing to investors and shareholders. They will be more likely to sink money into the company, as following standard ethical business practices and leveraging them properly can be a path to success for many businesses.
- Following business ethics can also be beneficial for the business' employees and operations. Attracting top talent is significantly easier for ethical businesses. Employees not only appreciate a socially aware employer, but will also perceive them as the kind of business that will act in the best interest of their employees. This produces more dedicated employees and can also reduce recruitment costs.
Principles of Business Ethics
These are five fundamentals most businesses value:
- Trustworthiness: Trust is being dependable to clients, supervisors, and other employees. This means performing a task you were assigned to or agreed to complete, practicing discretion on company information, and being punctual to meetings and other work events.
- Honesty: This principle includes telling the truth, being transparent, and taking ownership of your words, work and actions. If you are part of a team project, you make sure all your team members receive credit for their work. Should you make a mistake, own up to it as soon as possible and do what you can to make things right.
- Integrity: Both trustworthiness and honesty factor into integrity. If you are a person of integrity, you always try to do the right thing in any given situation, even when it is not advantageous to you. You put the good of your team and the company as a whole above your own desires.
- Loyalty: This principle involves promoting a positive image of your employer and organization, especially to clients, coworkers, family, and friends outside the company and on social media.
- Respect: Your conduct should reflect both respect for yourself and your coworkers. Respect for yourself is reflected in the way you present yourself and communicate. You show respect for team members’ individual opinions, even if they differ from yours. You think before you speak, allowing time to gather your thoughts so you can make your case in a way that maintains a reverence for others.
Managing Ethics Programs in the Workplace
Organizations can manage ethics in their workplaces by establishing an ethics management program. Brian Schrag, Executive Secretary of the Association for Practical and Professional Ethics, clarifies. "Typically, ethics programs convey corporate values, often using codes and policies to guide decisions and behavior, and can include extensive training and evaluating, depending on the organization. They provide guidance in ethical dilemmas." Rarely are two programs alike. "All organizations have ethics programs, but most do not know that they do," wrote business ethics professor Stephen Brenner in the Journal of Business Ethics (1992, V11, pp. 391-399). "A corporate ethics program is made up of values, policies and activities which impact the propriety of organization behaviors." Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility, adds: "Balancing competing values and reconciling them is a basic purpose of an ethics management program. Business people need more practical tools and information to understand their values and how to manage them."
There are numerous benefits in formally managing ethics as a program, rather than as a one-shot effort when it appears to be needed. Ethics programs:
- Establish organizational roles to manage ethics
- Schedule ongoing assessment of ethics requirements
- Establish required operating values and behaviors
- Align organizational behaviors with operating values
- Develop awareness and sensitivity to ethical issues
- Integrate ethical guidelines to decision making
- Structure mechanisms to resolving ethical dilemmas
- Facilitate ongoing evaluation and updates to the program
- Help convince employees that attention to ethics is not just a knee-jerk reaction done to get out of trouble or improve public image
Frameworks for Business Ethics
Business ethicists seek to understand the ethical contours of, and devise principles of right action for, business activity. One way of advancing this project is by choosing a normative framework and teasing out its implications for a range of issues in business.
- One influential approach to business ethics draws on virtue ethics (see, e.g., Alzola 2012; Sison & Fontrodona 2012). Moore, in a number of articles (Beadle & Moore 2006; G. Moore 2005), develops and applies MacIntyre’s (1984) virtue ethics to business. For MacIntyre, there are certain goods internal to practices, and certain virtues are necessary to achieve those goods. Building on MacIntyre, Moore develops the idea that business is a practice, and thus has certain goods internal to it, the attainment of which requires the cultivation of business virtues. Scholars have also been inspired by the Aristotelian idea that the good life is achieved in a community. They have considered how business communities must be structured to help their members flourish (Hartman 2015; Solomon 1993).
- Another important approach to the study of business ethics comes from Kantian moral theory (D.G. Arnold & Bowie 2003; Bowie 1999). Kant’s claim that humanity should be treated always as an end, and never as a means only, has proved especially fruitful for analyzing the human interactions at the core of commercial transactions. In a competitive market, people may be tempted to deceive, cheat, or manipulate others to gain an edge. Kantian moral theory singles out these actions out as violations of human dignity (Smith & Dubbink 2011).
- Ethical theory, including virtue theory and Kantian deontology, is useful for thinking about how individuals should relate to each other in the context of business (cf. Rorty 2006). But business ethics also comprehends the laws and regulations that structure markets and organizations. And here political theory seems more relevant (see and cf. Moriarty 2005b; Phillips & Margolis 1999). A number of business ethicists have sought to identify the implications of Rawls’s (1971) justice as fairness—the dominant theory of justice in the English-speaking world—for business. This is not an easy task, since while Rawls makes some suggestive remarks about markets and organizations, he does not articulate specific conclusions or develop detailed arguments for them. But scholars have argued that justice as fairness:
- (1) is incompatible with significant inequalities of power and authority within businesses (S. Arnold 2012);
- (2) requires people to have an opportunity to perform meaningful work (Moriarty 2009; cf. Hasan 2015); and requires alternative forms of
- (3) corporate governance (Norman 2015; cf. Singer 2015) and
- (4) corporate ownership (M. O’Neill & Williamson 2012).
- (1) is incompatible with significant inequalities of power and authority within businesses (S. Arnold 2012);
- A fourth approach to business ethics is called the “market failures approach” (MFA). A version of this view can be found in McMahon (1981), but it has been developed in most detail and is now most closely associated with Heath (2014). According to Heath, the reason we have a market-based economy, as opposed to a command economy, is because markets are more efficient. But markets fail, due to imperfect information, externalities, transaction costs, and more. The state corrects for many market failures through regulation. We set limits on pollution and require truth in advertising, among other things. But we would not want, and we cannot write, regulations to address every market failure. This is where business ethics comes in, according to the MFA. Businesspeople have a moral obligation not to exploit the market failures that the law allows them to exploit. Put another way, the moral obligations of businesspeople are identified by the ideal regulatory regime—the one we would have if regulations were costless and written and administered by a godlike figure.
Selecting a normative framework and applying it to a range of issues is an important way of doing business ethics. But it is not the only way. Indeed, the more common approach is to identify a business activity and then analyze it using intuitions and principles common to many moral and political theories.
Ethical Issues in Business
Ethical issues often arise in business settings, whether through business transactions or forming new business relationships. An ethical issue in a business atmosphere may refer to any situation that requires business associates as individuals, or as a group (for example, a department or firm) to evaluate the morality of specific actions, and subsequently, make a decision amongst the choices. Some ethical issues of particular concern in today's evolving business market include such topics as: honesty, integrity, professional behaviors, environmental issues, harassment, and fraud to name a few. From a 2009 National Business Ethics survey, it was found that types of employee-observed ethical misconduct included abusive behavior (at a rate of 22 percent), discrimination (at a rate of 14 percent), improper hiring practices (at a rate of 10 percent), and company resource abuse (at a rate of percent).
The ethical issues associated with honesty are widespread and vary greatly in business, from the misuse of company time or resources to lying with malicious intent, engaging in bribery, or creating conflicts of interest within an organization. Honesty encompasses wholly the truthful speech and actions of an individual. Some cultures and belief systems even consider honesty to be an essential pillar of life, such as Confucianism and Buddhism (referred to as sacca, part of the Four Noble Truths). Many employees lie in order to reach goals, avoid assignments or negative issues; however, sacrificing honesty in order to gain status or reap rewards poses potential problems for the overall ethical culture organization, and jeopardizes organizational goals in the long run. Using company time or resources for personal use is also, commonly viewed as unethical because it boils down to stealing from the company. The misuse of resources costs companies billions of dollars each year, averaging about 4.25 hours per week of stolen time alone, and employees' abuse of Internet services is another main concern. Bribery, on the other hand, is not only considered unethical is business practices, but it is also illegal. In accordance with this, the Foreign Corrupt Practices Act was established in 1977 to deter international businesses from giving or receiving unwarranted payments and gifts that were intended to influence the decisions of executives and political officials. Although, small payments known as facilitation payments will not be considered unlawful under the Foreign Corrupt Practices Act if they are used towards regular public governance activities, such as permits or licenses.
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