Ethics and Business

When we talk of unethical business practice we reveal 

But is ethical behaviour in business affairs different from everyday behaviour in the family or community? Does the stress on profit, opportunism, self-interested competitiveness and free market manoeuvring mean that business people can ignore wider social responsibilities which may be conceived of as a "contract" with the community or with the natural environment? Does the competitiveness and very real scope for conflicts of interest mean that altruistic concern and regard for others goes up in smaoke?

Issues

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Actors and the audience

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Who is at the party?

owners/shareholders, managers, suppliers, debtors, creditors, the customers, taxpayers, the general citizens, foreigners (the people of the world), governments, world bodies, plants and animals, the planet itself.

The list includes producers and the non-producers - those with a stake in the operation of the business in its marketplace. Most do not own any part of the business - but if it folds many will suffer. If those who run the business succeed - many benefit. If they are naughty - many are hurt. They may be virtuous and succeed - everyone can smile. Paradoxically, they may be unethical in their dealings and succeed - if they do not get exposed - everyone will smile.

Normative Perspectives

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We can see a surge in debate about some business activities being unethical. But there is no "world" concensus or universal definition as to what such behaviour is. Not everyone would interpretat specific instances as problems. We must be careful about the sticky web of the normative, paradigm spider.

Notions of ethical values and proper conduct (how businesses and business people ought to behave) have a relation to the obligations and claim rights of businesses (corporate entities owned by many) and business people and the principles they apply (ethical means). Where ethical values can be articulated they secured in practice by value-referencing, everyday behaviour (normative behaviour). The child may ask

"what did you do at work today Mum/Dad? Why? Why that way? What effect will it have on me and my friends?"

(Pretty complex question for a 5 year old).

Our norm-referencing, everyday behaviour may be guided by the influences of family, education, religion and institutional codes of practice and regulations. Our behaviours are subject to public opinion - the scrutiny and approval/criticism of others. No examples are more vivid than the invective poured down on the heads of media mogules because of their encouragement of the so-called "Paparazzi" involved as they were in the hunting of Diana, Princess of Wales (d. August 1997).

The dynamics of ethical perspectives on business are worthy of analysis to see how claims are made vis a vis what is/is not illlegitimate or improper in given instances/cases. Our actions are informed by notions of what "ought to be" or should be done so we might improve how we resolve our ethical dilemmas, choices and interventions.

As everyday analysts our task is to

  1. consider what business people get up to that is supposedly ethical or unethical.

    Business and trade rage across the globe, within companies, between companies and between individuals and groups (internal and external to the actual business). Private, public and voluntary categories of business are bridged as are businesses operating within different cultural, political contexts and levels of economic development.

    

  2. re-visit ideas and values and draw conclusions on the what, why and how of ethics. The questions posed by classical and more modern thinkers - Plato, Kant, Bentham/Mills, Sidgwick, Mackie are still vibrant. Their propositions are still flavour-full ingredients in the soup of everyday moral predicaments and choices as seen in the context of the business world's ' cut and thrust. Even Machiavelli's recommendations to Princes may illuminate the situation.

    By reviewing long debated moral philosophy, we review where we are today - our own "models/frameworks of thought" about business behaviour from a moral standpoint. An informed, reflective method may better......

    safeguard what we value

    .....in an open, democratic society in which business practice is a very big, influence on the quality of everyone's life.

Ethics are Dynamic

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Ideas on what is ethically acceptable behaviour change over time. There are differences between countries and cultures. Religious doctrines and movements also guide various groups of people on how to "live their life". Business affairs represent a particular aspect to "the good life".

Davies (1) points to the Christian ethic where man, made in God's image rules the earth and its fauna and flora. A place in paradise or a step up in the next life awaits the "good and the virtuous". What relevance is the spiritual and metaphysical to business?

Davies commends the powerful legend of Genesis to us. The call is to "be fruitful, and multiply, and replenish the earth..." . The imperative for individuals, societies and businesses is not to deplete and exploit the planet's fabric and contents with scant regard for other creatures or future people but to bear responsibility for sustainable development.

Who could disagree? Perhaps those in under-developed parts of the world. They desperately wish to improve their lot by exploiting the natural resources of their country. They may resent being told what to do by past colonialists who squeezed their ancestors dry and who are now (conveniently) take a neo-colonisalist, high moral line.

In specific cases - the generalisation provokes disagreements about necessity and criticism of the falacious obsessions of self-proclaimed harbingers of doom or doctrinaire fanatics.

Returning to Genesis, ".... God took the man, and put him into the garden of Eden to dress it and to keep it." This imagery promotes the notion of a work ethic;

hard work, the daily grind, thrift, productivity and endeavour.

Adam and Eve were ejected from the Garden of Eden (offence: breaking the house rule about forbidden fruit from the tree of knowledge). They became aware, riddled with self-knowledge and guilt. No longer privileged, hard labour (getting dirty hands) and productive activity was necessary to make ends meet.

In terms of a work ethic, you/I may be honest, a good community worker, reliable and productive. But how do we reconcile fat-cat dealings in the money market, under-the-counter business dealings or work in an weapons establishment or an animal testing laboratory with personal convictions about effort and reward?

The Good Life and Golden Rule

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Humanism and most religions stress

respect for the humanity/dignity of others and careful treatment of other creatures.

This reflects a value encompassing claim-rights for or on behalf of sentient living creatures. Such aspiration for men and women balances self-interest with altruism - sensitivity to oneself balanced by affording the same rights and needs of others. Animal lovers extend the right to animals.

Such ideas are to an extent illustrated by a generalisation often called the golden rule "treat others as you would want them to treat you".

But it is a generalisation - and like all generalisations dangerous (including this one!). Made in "God's image"? Are such purposes - and the golden rule - satisfied if my employer presents me with boring, risky work. Is operating a noisey, "gloppat-er-gloppat-er" machine in a factory like anything a human being was created to do?

Such barbed questions discredit the millions who value and get great satisfaction and reward from their work - whatever type it is. People represent value in themselves not just horse-power - a factor of production and a business means to an end. Here we have the vitality of "good life" as a value-based concept to be applied by those who assume responsibility when they employ people. Such committments are integral to humanistic principles defined by Emmanuel Kant. They are enshrined in the UN Declaration of Human Rights (1948).

This discussion holds that meanings and purposes in "life" go beyond self-interest and sectional or individual or sectional emphasis on, say, profits. Broader issues of truth telling, equity and justice in employment and virtuous relationships between business and between business and the wider community and world eco-system are raised

Ethics and Employment

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We uphold democratic values, free market processes and capitalist systems of production. Individual choice and action is emphasised over collective state intervention and forced economic allocation. Adam Smith arged that external regulation inhibites the " the invisible hand" of benign and beneficial free market forces. We only have to reflect on the economic and social successes of the 80 years since the October Revolution and recall the cheers of people pulling down the Berlin Wall. Here is the triumphalism of capitalism (oh dear, we are in the paradigm spider's sticky web again).

We encounter many self-promoting statements about employee democracy or "power-sharing" between owners and their agents (managers) and ordinary employees. Within the European Union, the Social Chapter of the Maastricht agreement seeks to regulate extension of employee consultation (constraining the invisible hand?).

Capitalists would argue that democracy in national elections is of a different order to employee rights to share power in business decisions - not withstanding that these may affect their working lives. There are variations in capitalist and free market expression globally and so why impose further constraints and costs own European business. Such constraints are not faced by businesses in the USA, Japan, India. What is business's responsibility to society?

Power sharing is an extravagent term yet from a humanist, "our workforce is our biggest asset standpoint" there is scope for "employee involvement" at different levels of decision-making. This will be resisted by owners who argue that there is such claim-right for employees globally. The generalisation does not reflect the context of different businesses and national cultures.

Some contentious issues?

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  1. Do multi-national companies (unelected bodies which transcend national boundaries) threaten civil liberties and democractic standards at national, political level? Many MNCs have sales turnovers far greater than the gross national income of many nation states and can move capital around the MNC without being fully answerable to citizenry (local electorates, tax payers and employees).

  2. a popular, but superficial humanist view holds that employee democracy is valuable for its own sake within business organisations. The belief is that involvement enhances employee motivation and committment and improves the quality of working life.

So we see a particular "ethical and political" line being taken of businesses purposes and concommitant obligations. The industrial democracy debate requires understanding of business history, the growth of companies, the legalities of ownership and governance - relationships between owners and the firm.

Before industrialisation and the factory system (say - the late 17th century), town craft-guilds regulated "who could trade and their practices". Arthur Bryant (2) writing of young Samuel Pepys efforts to join the Mercer's Guild in London reveals how the Mercer's guild closed the door on "foreigners" but required fair, honest dealings, integrity and product quality from members. Guild masters ruled their households as patriarchs. Apprentices, journeyman paid their way into the master's family and the rewards offered.

Guild regulation was overtaken firstly by C.17-18th mercantilism with its trading monopolies and then by the rise of the limited and joint-stock company. Public interest (incomes, employment and social capital) was served as companies thrived - with their governance and shareholder rights regulated by law. Ownership is dispersed. Larger companies and growth are possible with improvement in fund raising capacity from buying and selling shares in an open market. The benefits include

Members of small, family owned businesses know each other - not so for large joint stock company with thousands of shareholders, some hold large blocks of shares but many hold just a few. Shareholders get the annual report and may vote at the Annual General Meeting. Block voting means that large shareholders appoint the executive officers of the company. The small shareholder with a few votes has little influence.

Property and company law determines ownership and Board composition - it is the management (directors) who make strategic and operational decisions for - survival, market development, capital growth and profits. Yet the business ethics lobby argues that new standards of governance are needed to regulate company accountability for broader social responsibilities. But how can this be achieved

Business and Ecosphere

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Businesses frequently lobby against community regulation constraining "its" freedom of action over

New productive technologies adopted in 19th/20th century industrialisation have increased waste products and impacted substantially on the fabric of the biosphere. Mining, fishing and drilling exploit. Advanced chemical residues are discarded. Weapons, new bacteria and pollutants affect the health of specific groups of people and fauna/flora and raise the level of risk. The profile of business's responsibility (general and for individuals) for environmental stewardship is raised. "Business" has responsibility of a scale different from theaverage citizen. An individual's business decisions may add to a trend particularly where he/she controls potentially damaging technology.

Robustness, fragility and sustainability

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The planet is robust but certain key aspects are fragile. Many of natural systems recover from unhappy human interference. Plant and animal systems exist in homeostasis with their environment (interdependent dynamic equilibrium) and they can fail if over depleted or polluted. Examples are legion - fish stocks, the the whale, tiger, buffalo, CFC and BSE problems, defoliants in the Vietnam war.

Examples of recovery are also legion. The colour of butterflies reappears when urban atmospheric pollution is controlled. Forests are replanted. Salmon return to the Thames. Many organisms do adapt to a hostile environment e.g. the urban fox. Others become extinct. Nature is big and its vagaries (in terms of the effects of any one person or business) are uncertain. Our advanced technologies enhance

But there are hard consequences if our technologies exploit in ways that are insensitive and seriously damaging to local and global planetary health and other living things. Unanticipated side-effects (CFCs and ozone layer, BSE incubation) are invisible for decades. Witness the concern for falls in the average male sperm count in Western industrialised nations. What are the causes - stressful lifestyles, the effects of some chemical agents? The normative rhetorical plea is that "business should assume some responsibility".

But are many claims that "powerful businesses and their technologies are detrimental organisms in the overall ecosystem, and more of a cancer than a parasite" (Davies 1.) distortions? A solution such as Hawken (1993) offers "to increase the biodiversity of business organisations by decreasing their size" is trite. We must be careful of hyperbolic, metaphors such as

"The call comes not just from ecologists, but also from writers on strategy who see large organisations as potential dinosaurs."

This is the stuff of tabloid journalism - not serious insight as to how we might extend business responsibility for damaging environmental action. The dilemma is that managers - local and global - have obligations and duties to shareholders - albeit that they may decide to balance business prosperity with altruistic sensitivity.

Moses - the critic of Ethical Farm

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The eco-fundamentalist reaches out for sticks to beat the beast. The typical fallacy (hard science applied to business) is "the butterfly beating its wings in Patagonia affects X happening in Brentford." argument. Chaos theory contributes to meterology, physics and cosmology but to suggest that we can determine the exact relationship between selling Tamagochis and global warming is drooling in our cups. Thus the individual business person or even corporation may reflect that their action alone will not save the planet. If they dissent from acting - others will not.

But concerns are genuine - hence arguments must be informed and measured. Our understanding unfolds - two steps forward, one step back. There is no paradigm shift in our understanding of how we appreciate the world but we are more aware. We have more information about business action/consequences enabling participants and regulators - globally and locally - to determine clearer priorities.

So we might define a normative, ethical proposition that ...

It is business's ethical duty (generally and in so far as business people and institutions in different cultures and different parts of the world may so accept it)

How can such ideals be realised? By whom? Via which institutional regulatory bodies and with what powers of sanction? What agency or institutional authority can regulate and enforce global, business, eco-sensitive activity?

Self-interest

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If self-interest and short-termism dominates business people are unlikely to take the lead. Rather they will be passive and await regulation by law. Eco-sensitive business requires global, altruistic vision. Note the illicit trade in smuggling recycled CFCs across the Mexican border (or out of China) into the USA - why? Because it is profitable! Big Cadillacs with old air-conditioning units require old CFCs for repairs. Yet our heightened sense of awareness presses many to suggest urgency.

That madam, is not our business

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Playing a straight bat Milton Friedman (1970) argued that given its purpose and ownership the sole social responsibility of business is to increase profits. To constrain corporate decisions in a competitive market place because of wider responsibilities felt towards employees or communities would lead decision-makers to fail in their fiduciary tasks. Such matters are government's role, not business. Managers are agents of owners and serve these interests.

Compare this with the populist stakeholder view that owners and their managers owe duties (mutual dependencies and reciprocity) to other parties. Promoters of this politico-economic view offer ancedotes where companies pursuing stakeholder policies supposedly out-perform those concerned only with return on capital employed. The evidence however is selective and both interpreted and spoken by those on the stakeholder soap-box.

If a Chief Executive proclaims the slogan

"We are not in business to make maximum profit for our shareholders. We are in business for only one reason: to serve society. Profit is our reward for doing it well. If business does not serve society, society will not long tolerate our profits or even our existence."

Everyone will either think he/she is mad or nod their heads and think "How profound". As soon as profits are threatened and business survival is threatened will the slogan be trotted out? Another company in the marketplace may see an opportunity for a take-over. The CEO may be removed by shareholders tired of eco-costs which loser their dividend and reduce the value of their equity. (see Cannon - on Corporate Governance 1994)

Sternberg (1994) recommends that in the long-term when producing and trading, distributive justice and common decency are important considerations for determining owner value. Who could disagree> In a liberal, democracy, a business which upsets public opinion will receive a back-lash. Gerald Ratner poured scorn on his own jewellery products as being "a load of crap". His imprudent remarks on customer decisions rebounded on shareholders, the firm's value, employees and so on. Were they unethical? Certainly he regretted having spoken. Perhaps he received a due dollop of distributive justice. The ethical dilemma is between broadcasting an unpalatable, self-effacing truth and being prudent but self-protecting.

The problems of implementing stakeholderism - other than through everyday, managerial attention to detail - points up the danger of loose talk - political orientations masquerading under the banner of "principled business ethics".

Ex Leonibus Virtus

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Business managers do face ethical dilemmas but they display their ethical colours in what they do/don't do. They, like others, live their ethics with moral values as such seldom a priority for thought. Moral philosophising (including this paper) is perhaps too theoretical, bookish and prescriptive for the pragmatism and stresses of managing. However is there value in thinking that the classical Aristotelian "the virtuous character" is as relevant to everyday behaviour as it was in Athens long ago?

Relationships underpin business life and Mackie points out that cooperation is essential for social existence. Stable, regular, predictable business transactions require honesty, fairness and trust. But competition and conflict are also the companions of cooperation. Competitiveness and rivalry are endemic to human behaviour. However without protocols of courtesy, loyalty and reliance on obligations and agreements being honoured - no one could trust anyone else. Business activity and organisation would be anarchic. The conditions for a stable market place disappear.

Business people cannot afford to be blind to the moral implications of their actions (see Solomons). The virtuous business person navigates their dilemmas with an ethical eye maintaining public integrity seeing and doing the right thing . However virtue as a public performance may be a facade not reflected in private, behind the scenes behaviour. If a substantial difference is exposed then the credibility gap for trading and representing the business to others - customers, supliers, governments - may be damaged beyond repair.

We might consider the advice that Machiavelli gives to Princes and its relevance to the aristocracy of contemporary business.

We now have guide books on ethics for managers (see Snell 1993) and the discussion of business ethics extends into systematic education and training of managers. Might the study of moral philosophy make more morally atuned men and women? In the postmodern world and given the importance of vocational life it is important to ask "what creatures of business do we want to be"? The spector of H G Wells' Morlocks and the executives of the Hudsucker Proxy beckon - (beware the sticky Web of the anecdote spider)

Round-up

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We can acknowledge the meaning, purposes, activities and results of business as being

The business is the business of business paradigm is underpinned by the claim rights of owners and assumptions about the dysfunctional effects of unnecessary, free market regulation. A more collectivist, socially oriented model is that of stakeholder, power-sharing. Debates about business ethics are frequently linked to perspectives on political-economy. These are not necessarily neutral when debating how business "should" be practiced. The owner-landless, rich-poor, powerful-powerless, profit-taker vs wage-earner dimensions tend to be sidestepped.

Business people stating their future committment a stakeholder model may be doing so as a marketing ploy. It is in the best interests of the business for them to hoist the flag (see Jackall 1988). The cynic would say that it wins customers and generates more profits. Stakeholder policies really do not address the question of ownership and who makes the really big business decisions. So too with business adoption of the slogans of ecology, democracy or managerial virtue as these too become the servants of business.

References

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  1. Davies P, 1997 Current Issues in Business Ethics, Routledge
  2. Bryant A, Samuel Pepys, A Man in the Making, Chatto
  3. Cannon T, 1994 Corporate Responsibility, Pitman.
  4. Hawken P,1993, The Ecology of Commerce, Weidenfeld & Nicolson
  5. Friedman M, 1970, "The Social Responsibility of Business is to Increase its Profits", New York Sunday Times Magazine, 13 September, pp. 32
  6. Sternberg E, 1994), Just Business: Business Ethics in Action, Little Brown & Co.
  7. Snell, R, 1993, Developing Skills for Ethical Management, Chapman Hall.
  8. Solomon, R, 1993, , Ethics and Excellence: Co-operation and Integrity in Business, OUP
  9. Machiavelli, The Prince, 1532
  10. Jackall, R, 1988, Moral Mazes. The World of Corporate Managers, OUP

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This resource was written by Chris Jarvis for the BOLA project.