From Wikipedia, the free encyclopedia
Business ethics (also known as Corporate Ethics) is a form of applied ethics or professional ethics,
that examines ethical principles and moral or ethical problems that can
arise in a business environment. It applies to all aspects of business
conduct and is relevant to the conduct of individuals and entire
organizations.
These ethics originate from individuals, organizational statements or
the legal system. These norms, values, ethical, and unethical practices
are the principles that guide a business.
Business ethics refers to contemporary organizational standards,
principles, sets of values and norms that govern the actions and
behavior of an individual in the business organization. Business ethics
have two dimensions, normative business ethics or descriptive business
ethics. As a corporate practice and a career specialization, the field
is primarily normative. Academics attempting to understand business
behavior employ descriptive methods. The range and quantity of business
ethical issues reflects the interaction of profit-maximizing behavior
with non-economic concerns.
Interest in business ethics accelerated dramatically during the
1980s and 1990s, both within major corporations and within academia. For
example, most major corporations today promote their commitment to non-economic values under headings such as ethics codes and social responsibility charters.
Adam Smith
said in 1776, "People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a conspiracy
against the public, or in some contrivance to raise prices."
Governments use laws and regulations to point business behavior in what
they perceive to be beneficial directions. Ethics implicitly regulates
areas and details of behavior that lie beyond governmental control. The
emergence of large corporations with limited relationships and
sensitivity to the communities in which they operate accelerated the
development of formal ethics regimes.
Maintaining an ethical status is the responsibility of the manager of the business. According to a 1990 article in the Journal of Business Ethics, "Managing ethical behavior is one of the most pervasive and complex problems facing business organizations today."
History
Business
ethics reflect the norms of each historical period. As time passes,
norms evolve, causing accepted behaviors to become objectionable.
Business ethics and the resulting behavior evolved as well. Business was
involved in slavery, colonialism, and the Cold War.
The term 'business ethics' came into common use in the United
States in the early 1970s. By the mid-1980s at least 500 courses in
business ethics reached 40,000 students, using some twenty textbooks and
at least ten casebooks supported by professional societies, centers and
journals of business ethics. The Society for Business Ethics was
founded in 1980. European business schools adopted business ethics after
1987 commencing with the European Business Ethics Network. In 1982 the first single-authored books in the field appeared.
Firms began highlighting their ethical stature in the late 1980s
and early 1990s, possibly in an attempt to distance themselves from the
business scandals of the day, such as the savings and loan crisis. The concept of business ethics caught the attention of academics, media and business firms by the end of the Cold War. However, criticism of business practices was attacked for infringing the freedom of entrepreneurs and critics were accused of supporting communists. This scuttled the discourse of business ethics both in media and academia.
The Defense Industry Initiative on Business Ethics and Conduct (DII)
was created to support corporate ethical conduct. This era began the
belief and support of self-regulation and free trade, which lifted
tariffs and barriers and allowed businesses to merge and divest in an
increasing global atmosphere.
Religious and philosophical origins
One of the earliest written treatments of business ethics is found in the Tirukkuṛaḷ, a Tamil book dated variously from 300 BCE to the 7th century CE and attributed to Thiruvalluvar.
Many verses discuss business ethics, in particular, verse 113, adapting
to a changing environment in verses 474, 426, and 140, learning the
intricacies of different tasks in verses 462 and 677.
Overview
Business ethics reflects the philosophy of business,
of which one aim is to determine the fundamental purposes of a company.
Business purpose expresses the company's reason for existing. Modern
discussion on the purpose of business has been freshened by views from
thinkers such as Richard R. Ellesworth, Peter Drucker, and Nikos Mourkogiannis: Traditional views held that the purpose of a business organization is to make profit for shareholders.
Nevertheless, the purpose of maximizing shareholder's wealth often
"fails to energize employees". In practice, many non-shareholders also
benefit from a firm's economic activity, among them employees through
contractual compensation and its broader impact, consumers by the
tangible or non-tangible value derived from their purchase choices;
society as a whole through taxation and/or the company's involvement in
social action when it occurs.
On the other hand, if a company's purpose is to maximize shareholder
returns, then sacrificing profits for other concerns is a violation of
its fiduciary responsibility.
Corporate entities are legal persons but this does not mean they are
legally entitled to all of the rights and liabilities as natural
persons.
Ethics are the rules or standards that govern our decisions on a
daily basis. Many consider "ethics" with conscience or a simplistic
sense of "right" and "wrong". Others would say that ethics is an
internal code that governs an individual's conduct, ingrained into each
person by family, faith, tradition, community, laws, and personal mores.
Corporations and professional organizations, particularly licensing
boards, generally will have a written code of ethics
that governs standards of professional conduct expected of all in the
field.
It is important to note that "law" and "ethics" are not synonymous, nor
are the "legal" and "ethical" courses of action in a given situation
necessarily the same. Statutes and regulations passed by legislative
bodies and administrative boards set forth the "law". Slavery once was
legal in the US, but one certainly would not say enslaving another was
an "ethical" act.
Economist Milton Friedman
wrote that corporate executives' "responsibility ... generally will be
to make as much money as possible while conforming to their basic rules
of the society, both those embodied in law and those embodied in ethical
custom".
Friedman also said, "the only entities who can have responsibilities
are individuals ... A business cannot have responsibilities. So the
question is, do corporate executives, provided they stay within the law,
have responsibilities in their business activities other than to make
as much money for their stockholders as possible? And my answer to that
is, no, they do not." This view is known as the Friedman doctrine. A multi-country 2011 survey found support for this view among the "informed public" ranging from 30 to 80%. Ronald Duska and Jacques Cory have described Friedman's argument as consequentialist or utilitarian rather than pragmatic: Friedman's argument implies that unrestrained corporate freedom would benefit the most people in the long term. Duska argued that Friedman failed to differentiate two very different aspects of business: (1) the motive of individuals, who are generally motivated by profit to participate in business, and (2) the socially sanctioned purpose of business, or the reason why people allow businesses to exist, which is to provide goods and services to people. So Friedman was wrong that making a profit is the only concern of business, Duska argued.
Peter Drucker
once said, "There is neither a separate ethics of business nor is one
needed", implying that standards of personal ethics cover all business
situations. However, Drucker in another instance said that the ultimate responsibility of company directors is not to harm—primum non nocere.
Another view of business is that it must exhibit corporate social responsibility
(CSR): an umbrella term indicating that an ethical business must act as
a responsible citizen of the communities in which it operates even at
the cost of profits or other goals.
In the US and most other nations, corporate entities are legally
treated as persons in some respects. For example, they can hold title to
property, sue and be sued and are subject to taxation, although their free speech rights are limited. This can be interpreted to imply that they have independent ethical responsibilities.
Duska argued that stakeholders expect a business to be ethical and that
violating that expectation must be counterproductive for the business.
Ethical issues include the rights and duties between a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. Issues concerning relations between different companies include hostile take-overs and industrial espionage. Related issues include corporate governance; corporate social entrepreneurship; political contributions; legal issues such as the ethical debate over introducing a crime of corporate manslaughter; and the marketing of corporations' ethics policies.
According to research published by the Institute of Business Ethics and Ipsos MORI
in late 2012, the three major areas of public concern regarding
business ethics in Britain are executive pay, corporate tax avoidance
and bribery and corruption.
Ethical standards of an entire organization can be damaged if a corporate psychopath is in charge.
This will not only affect the company and its outcome but the employees
who work under a corporate psychopath. The way a corporate psychopath
can rise in a company is by their manipulation, scheming, and bullying.
They do this in a way that can hide their true character and intentions
within a company.
Functional business areas
Finance
Fundamentally, finance is a social science discipline. The discipline borders behavioral economics, sociology, economics, accounting and management. It concerns technical issues such as the mix of debt and equity, dividend policy, the evaluation of alternative investment projects, options, futures, swaps, and other derivatives, portfolio diversification and many others. Finance is often mistaken by the people to be a discipline free from ethical burdens. The 2008 financial crisis
caused critics to challenge the ethics of the executives in charge of
U.S. and European financial institutions and financial regulatory
bodies. Finance ethics is overlooked for another reason—issues in finance are often addressed as matters of law rather than ethics.
Finance paradigm
Aristotle said, "the end and purpose of the polis is the good life". Adam Smith characterized the good life in terms of material goods and intellectual and moral excellences of character. Smith in his The Wealth of Nations
commented, "All for ourselves, and nothing for other people, seems, in
every age of the world, to have been the vile maxim of the masters of
mankind."
However, a section of economists influenced by the ideology of neoliberalism, interpreted the objective of economics to be maximization of economic growth through accelerated consumption and production of goods and services. Neoliberal ideology promoted finance from its position as a component of economics to its core.
Proponents of the ideology hold that unrestricted financial flows, if
redeemed from the shackles of "financial repressions", best help
impoverished nations to grow.
The theory holds that open financial systems accelerate economic growth
by encouraging foreign capital inflows, thereby enabling higher levels
of savings, investment, employment, productivity and "welfare",
along with containing corruption. Neoliberals recommended that
governments open their financial systems to the global market with
minimal regulation over capital flows. The recommendations however, met with criticisms from various schools of ethical philosophy. Some pragmatic ethicists,
found these claims to be unfalsifiable and a priori, although neither
of these makes the recommendations false or unethical per se.
Raising economic growth to the highest value necessarily means that
welfare is subordinate, although advocates dispute this saying that
economic growth provides more welfare than known alternatives. Since history shows that neither regulated nor unregulated firms always behave ethically, neither regime offers an ethical panacea.
Neoliberal recommendations to developing countries to
unconditionally open up their economies to transnational finance
corporations was fiercely contested by some ethicists. The claim that deregulation and the opening up of economies would reduce corruption was also contested.
Dobson observes, "a rational agent is simply one who pursues
personal material advantage ad infinitum. In essence, to be rational in
finance is to be individualistic, materialistic, and competitive.
Business is a game played by individuals, as with all games the object
is to win, and winning is measured in terms solely of material wealth.
Within the discipline, this rationality concept is never questioned, and
has indeed become the theory-of-the-firm's sine qua non".
Financial ethics is in this view a mathematical function of shareholder
wealth. Such simplifying assumptions were once necessary for the
construction of mathematically robust models. However, signalling theory and agency theory extended the paradigm to greater realism.
Other issues
Fairness
in trading practices, trading conditions, financial contracting, sales
practices, consultancy services, tax payments, internal audit, external
audit and executive compensation also, fall under the umbrella of finance and accounting. Particular corporate ethical/legal abuses include: creative accounting, earnings management, misleading financial analysis, insider trading, securities fraud, bribery/kickbacks and facilitation payments. Outside of corporations, bucket shops and forex scams are criminal manipulations of financial markets. Cases include accounting scandals, Enron, WorldCom and Satyam.
Human resource management
Human resource management occupies the sphere of activity of recruitment selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues.
Business Ethicists differ in their orientation towards labor ethics.
Some assess human resource policies according to whether they support an
egalitarian workplace and the dignity of labor.
Issues including employment itself, privacy, compensation in accord with comparable worth, collective bargaining (and/or its opposite) can be seen either as inalienable rights or as negotiable.
Discrimination by age (preferring the young or the old), gender/sexual harassment, race, religion, disability, weight and attractiveness. A common approach to remedying discrimination is affirmative action.
Once hired, employees have the right to the occasional cost of
living increases, as well as raises based on merit. Promotions, however,
are not a right, and there are often fewer openings than qualified
applicants. It may seem unfair if an employee who has been with a
company longer is passed over for a promotion, but it is not unethical.
It is only unethical if the employer did not give the employee proper
consideration or used improper criteria for the promotion.
Each employer should know the distinction between what is unethical and
what is illegal. If an action is illegal it is breaking the law but if
an action seems morally incorrect that is unethical. In the workplace
what is unethical does not mean illegal and should follow the guidelines
put in place by OSHA, EEOC, and other law binding entities.
Potential employees have ethical obligations to employers, involving intellectual property protection and whistle-blowing.
Employers must consider workplace safety,
which may involve modifying the workplace, or providing appropriate
training or hazard disclosure. This differentiates on the location and
type of work that is taking place and can need to comply with the
standards to protect employees and non-employees under workplace safety.
Larger economic issues such as immigration, trade policy, globalization and trade unionism affect workplaces and have an ethical dimension, but are often beyond the purview of individual companies.
Trade unions
Trade unions, for example, may push employers to establish due process for workers, but may also cause job loss by demanding unsustainable compensation and work rules.
Unionized workplaces may confront union busting and strike breaking and face the ethical implications of work rules that advantage some workers over others.
Management strategy
Among
the many people management strategies that companies employ are a
"soft" approach that regards employees as a source of creative energy
and participants in workplace decision making, a "hard" version
explicitly focused on control and Theory Z that emphasizes philosophy, culture and consensus. None ensure ethical behavior. Some studies claim that sustainable success requires a humanely treated and satisfied workforce.
Sales and marketing
Marketing ethics came of age only as late as the 1990s. Marketing ethics was approached from ethical perspectives of virtue or virtue ethics, deontology, consequentialism, pragmatism and relativism.
Ethics in marketing deals with the principles, values and/or ideas by which marketers (and marketing institutions) ought to act.
Marketing ethics is also contested terrain, beyond the previously
described issue of potential conflicts between profitability and other
concerns. Ethical marketing issues include marketing redundant or
dangerous products/services, transparency about environmental risks, transparency about product ingredients such as genetically modified organisms possible health risks, financial risks, security risks, etc., respect for consumer privacy and autonomy, advertising truthfulness and fairness in pricing & distribution.
According to Borgerson, and Schroeder (2008), marketing can
influence individuals' perceptions of and interactions with other
people, implying an ethical responsibility to avoid distorting those
perceptions and interactions.
Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions including price discrimination and price skimming. Certain promotional activities have drawn fire, including greenwashing, bait and switch, shilling, viral marketing, spam (electronic), pyramid schemes and multi-level marketing. Advertising has raised objections about attack ads, subliminal messages, sex in advertising and marketing in schools.
Inter-organizational relationships
Scholars
in business and management have paid much attention to the ethical
issues in the different forms of relationships between organizations
such as buyer-supplier relationships, networks, alliances, or joint ventures. Drawing in particular on Transaction Cost Theory and Agency Theory, they note the risk of opportunistic and unethical practices between partners through, for instance, shirking, poaching, and other deceitful behaviors.
In turn, research on inter-organizational relationships has observed
the role of formal and informal mechanisms to both prevent unethical
practices and mitigate their consequences. It especially discusses the
importance of formal contracts and relational norms between partners to
manage ethical issues.
Emerging issues
Being
the most important element of a business, stakeholders' main concern is
to determine whether or not the business is behaving ethically or
unethically. The business's actions and decisions should be primarily
ethical before it happens to become an ethical or even legal issue. "In
the case of the government, community, and society what was merely an
ethical issue can become a legal debate and eventually law."
Some emerging ethical issues are:
- Corporate Environmental Responsibility: Businesses impacts on
eco-systemic environments can no longer be neglected and ecosystems'
impacts on business activities are becoming more imminent.
- Fairness: The three aspects that motivate people to be fair is;
equality, optimization, and reciprocity. Fairness is the quality of
being just, equitable, and impartial.
- Misuse of company's times and resources: This particular topic may
not seem to be a very common one, but it is very important, as it costs a
company billions of dollars on a yearly basis. This misuse is from late
arrivals, leaving early, long lunch breaks, inappropriate sick days
etc. This has been observed as a major form of misconduct in businesses
today. One of the greatest ways employees participate in the misuse of
company's time and resources is by using the company computer for
personal use.
- Consumer fraud: There are many different types of fraud, namely;
friendly fraud, return fraud, wardrobing, price arbitrage, returning
stolen goods. Fraud is a major unethical practice within businesses
which should be paid special attention. Consumer fraud is when consumers
attempt to deceive businesses for their very own benefit.
- Abusive behavior: A common ethical issue among employees. Abusive
behavior consists of inflicting intimidating acts on other employees.
Such acts include harassing, using profanity, threatening someone
physically and insulting them, and being annoying.
Production
This
area of business ethics usually deals with the duties of a company to
ensure that products and production processes do not needlessly cause
harm. Since few goods and services can be produced and consumed with
zero risks, determining the ethical course can be problematic. In some
case, consumers demand products that harm them, such as tobacco products. Production may have environmental impacts, including pollution, habitat destruction and urban sprawl. The downstream effects of technologies nuclear power, genetically modified food and mobile phones may not be well understood. While the precautionary principle
may prohibit introducing new technology whose consequences are not
fully understood, that principle would have prohibited the newest
technology introduced since the industrial revolution. Product testing protocols have been attacked for violating the rights of both humans and animals. There are sources that provide information on companies that are environmentally responsible or do not test on animals.
Property
The etymological root of property is the Latin proprius,
which refers to 'nature', 'quality', 'one's own', 'special
characteristic', 'proper', 'intrinsic', 'inherent', 'regular', 'normal',
'genuine', 'thorough, complete, perfect' etc. The word property is
value loaded and associated with the personal qualities of propriety and
respectability, also implies questions relating to ownership. A
'proper' person owns and is true to herself or himself, and is thus
genuine, perfect and pure.
Modern history of property rights
Modern discourse on property emerged by the turn of the 17th century within theological discussions of that time. For instance, John Locke justified property rights saying that God had made "the earth, and all inferior creatures, [in] common to all men".
In 1802 utilitarian Jeremy Bentham stated, "property and law are born together and die together".
One argument for property ownership is that it enhances
individual liberty by extending the line of non-interference by the
state or others around the person.
Seen from this perspective, property right is absolute and property has
a special and distinctive character that precedes its legal protection.
Blackstone conceptualized property as the "sole and despotic dominion
which one man claims and exercises over the external things of the
world, in total exclusion of the right of any other individual in the
universe".
Slaves as property
During
the seventeenth and eighteenth centuries, slavery spread to European
colonies including America, where colonial legislatures defined the
legal status of slaves as a form of property. During this time settlers
began the centuries-long process of dispossessing the natives of America
of millions of acres of land. The natives lost about 200,000 square miles (520,000 km2) of land in the Louisiana Territory under the leadership of Thomas Jefferson, who championed property rights.
Combined with theological justification, the property was taken
to be essentially natural ordained by God. Property, which later gained
meaning as ownership and appeared natural to Locke, Jefferson and to
many of the 18th and 19th century intellectuals as land, labor or idea,
and property right over slaves had the same theological and essentialized justification It was even held that the property in slaves was a sacred right. Wiecek noted, "slavery was more clearly and explicitly established under the Constitution as it had been under the Articles". Accordingly, US Supreme Court Chief Justice Roger B. Taney in his 1857 judgment stated, "The right of property in a slave is distinctly and expressly affirmed in the Constitution".
Natural right vs social construct
Neoliberals hold that private property rights are a non-negotiable natural right.
Davies counters with "property is no different from other legal
categories in that it is simply a consequence of the significance
attached by law to the relationships between legal persons." Singer claims, "Property is a form of power, and the distribution of power is a political problem of the highest order". Rose finds, "'Property'
is only an effect, a construction, of relationships between people,
meaning that its objective character is contestable. Persons and things,
are 'constituted' or 'fabricated' by legal and other normative
techniques."
Singer observes, "A private property regime is not, after all, a
Hobbesian state of nature; it requires a working legal system that can
define, allocate, and enforce property rights."
Davis claims that common law theory generally favors the view that
"property is not essentially a 'right to a thing', but rather a
separable bundle of rights subsisting between persons which may vary
according to the context and the object which is at stake".
In common parlance property rights involve a bundle of rights including occupancy, use and enjoyment, and the right to sell, devise, give, or lease all or part of these rights. Custodians of property have obligations as well as rights.
Michelman writes, "A property regime thus depends on a great deal of
cooperation, trustworthiness, and self-restraint among the people who
enjoy it."
Menon claims that the autonomous individual, responsible for his/her own existence is a cultural construct moulded by Western culture rather than the truth about the human condition. Penner views property as an "illusion"—a "normative phantasm" without substance.
In the neoliberal literature, the property is part of the private
side of a public/private dichotomy and acts a counterweight to state
power. Davies counters that "any space may be subject to plural meanings
or appropriations which do not necessarily come into conflict".
Private property has never been a universal doctrine, although
since the end of the Cold War is it has become nearly so. Some
societies, e.g., Native American bands, held land, if not all property,
in common. When groups came into conflict, the victor often appropriated the loser's property.
The rights paradigm tended to stabilize the distribution of property
holdings on the presumption that title had been lawfully acquired.
Property does not exist in isolation, and so property rights too. Bryan claimed that property rights describe relations among people and not just relations between people and things. Singer holds that the idea that owners have no legal obligations to
others wrongly supposes that property rights hardly ever conflict with
other legally protected interests. Singer continues implying that legal realists
"did not take the character and structure of social relations as an
important independent factor in choosing the rules that govern market
life". Ethics of property rights begins with recognizing the vacuous
nature of the notion of property.
Intellectual property
Intellectual property (IP) encompasses expressions of ideas, thoughts, codes, and information. "Intellectual property rights" (IPR) treat IP as a kind of real property,
subject to analogous protections, rather than as a reproducible good or
service. Boldrin and Levine argue that "government does not ordinarily
enforce monopolies for producers of other goods. This is because it is
widely recognized that monopoly creates many social costs. Intellectual
monopoly is no different in this respect. The question we address is
whether it also creates social benefits commensurate with these social
costs."
International standards relating to Intellectual Property Rights are enforced through Agreement on Trade-Related Aspects of Intellectual Property Rights. In the US, IP other than copyrights is regulated by the United States Patent and Trademark Office.
The US Constitution
included the power to protect intellectual property, empowering the
Federal government "to promote the progress of science and useful arts,
by securing for limited times to authors and inventors the exclusive
right to their respective writings and discoveries". Boldrin and Levine see no value in such state-enforced monopolies stating, "we ordinarily think of innovative monopoly as an oxymoron.
Further, they comment, 'intellectual property' "is not like ordinary
property at all, but constitutes a government grant of a costly and
dangerous private monopoly over ideas. We show through theory and
example that intellectual monopoly is not necessary for innovation and
as a practical matter is damaging to growth, prosperity, and liberty".
Steelman defends patent monopolies, writing, "Consider prescription
drugs, for instance. Such drugs have benefited millions of people,
improving or extending their lives. Patent protection enables drug
companies to recoup their development costs because for a specific
period of time they have the sole right to manufacture and distribute
the products they have invented." The court cases by 39 pharmaceutical companies against South Africa's
1997 Medicines and Related Substances Control Amendment Act, which
intended to provide affordable HIV medicines has been cited as a harmful
effect of patents.
One attack on IPR is moral rather than utilitarian, claiming that
inventions are mostly a collective, cumulative, path dependent, social
creation and therefore, no one person or firm should be able to
monopolize them even for a limited period.
The opposing argument is that the benefits of innovation arrive sooner
when patents encourage innovators and their investors to increase their
commitments.
Roderick T. Long, a libertarian philosopher, argued:
Ethically, property rights of any
kind have to be justified as extensions of the right of individuals to
control their own lives. Thus any alleged property rights that conflict
with this moral basis—like the "right" to own slaves—are invalidated. In
my judgment, intellectual property rights also fail to pass this test.
To enforce copyright laws and the like is to prevent people from making
peaceful use of the information they possess. If you have acquired the
information legitimately (say, by buying a book), then on what grounds
can you be prevented from using it, reproducing it, trading it? Is this
not a violation of the freedom of speech and press? It may be objected
that the person who originated the information deserves ownership rights
over it. But information is not a concrete thing an individual can
control; it is universal, existing in other people's minds and other
people's property, and over these, the originator has no legitimate
sovereignty. You cannot own information without owning other people.
Machlup concluded that patents do not have the intended effect of enhancing innovation. Self-declared anarchist Proudhon,
in his 1847 seminal work noted, "Monopoly is the natural opposite of
competition," and continued, "Competition is the vital force which
animates the collective being: to destroy it, if such a supposition were
possible, would be to kill society."
Mindeli and Pipiya argued that the knowledge economy is an economy of abundance
because it relies on the "infinite potential" of knowledge and ideas
rather than on the limited resources of natural resources, labor and
capital. Allison envisioned an egalitarian distribution of knowledge. Kinsella claimed that IPR create artificial scarcity and reduce equality.
Bouckaert wrote, "Natural scarcity is that which follows from the
relationship between man and nature. Scarcity is natural when it is
possible to conceive of it before any human, institutional, contractual
arrangement. Artificial scarcity, on the other hand, is the outcome of
such arrangements. Artificial scarcity can hardly serve as a
justification for the legal framework that causes that scarcity. Such an
argument would be completely circular. On the contrary, artificial
scarcity itself needs a justification" Corporations fund much IP creation and can acquire IP they do not create, to which Menon and others have objected. Andersen claims that IPR has increasingly become an instrument in eroding public domain.
Ethical and legal issues include patent infringement, copyright infringement, trademark infringement, patent and copyright misuse, submarine patents, biological patents, patent, copyright and trademark trolling, employee raiding and monopolizing talent, bioprospecting, biopiracy and industrial espionage, digital rights management.
Notable IP copyright cases include A&M Records, Inc. v. Napster, Inc., Eldred v. Ashcroft, and Disney's lawsuit against the Air Pirates.
International issues
While
business ethics emerged as a field in the 1970s, international business
ethics did not emerge until the late 1990s, looking back on the
international developments of that decade.
Many new practical issues arose out of the international context of
business. Theoretical issues such as cultural relativity of ethical
values receive more emphasis in this field. Other, older issues can be
grouped here as well. Issues and subfields include:
- The search for universal values as a basis for international commercial behavior
- Comparison of business ethical traditions in different countries and
on the basis of their respective GDP and corruption rankings
- Comparison of business ethical traditions from various religious perspectives
- Ethical issues arising out of international business transactions—e.g., bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.
- Issues such as globalization and cultural imperialism
- Varying global standards—e.g., the use of child labor
- The way in which multinationals take advantage of international
differences, such as outsourcing production (e.g. clothes) and services
(e.g. call centers) to low-wage countries
- The permissibility of international commerce with pariah states
Foreign countries often use dumping as a competitive threat, selling
products at prices lower than their normal value. This can lead to
problems in domestic markets. It becomes difficult for these markets to
compete with the pricing set by foreign markets. In 2009, the
International Trade Commission has been researching anti-dumping laws.
Dumping is often seen as an ethical issue, as larger companies are
taking advantage of other less economically advanced companies.
Issues
Ethical
issues often arise in business settings, whether through business
transactions or forming new business relationships. It also has a huge
focus in the auditing field whereby the type of verification can be
directly dictated by ethical theory. 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.
Influential factors on business ethics
Many
aspects of the work environment influence an individual's
decision-making regarding ethics in the business world. When an
individual is on the path of growing a company, many outside influences
can pressure them to perform a certain way. The core of the person's
performance in the workplace is rooted in their personal code of
behavior. A person's personal code of ethics encompasses many different
qualities such as integrity, honesty, communication, respect,
compassion, and common goals. In addition, the ethical standards set
forth by a person's superior(s) often translate into their own code of
ethics. The company's policy is the 'umbrella' of ethics that play a
major role in the personal development and decision-making processes
that people make with respect to ethical behavior.
The ethics of a company and its individuals are heavily
influenced by the state of their country. If a country is heavily
plagued with poverty, large corporations continuously grow, but smaller
companies begin to wither and are then forced to adapt and scavenge for
any method of survival. As a result, the leadership of the company is
often tempted to participate in unethical methods to obtain new business
opportunities. Additionally, Social Media is arguably the most
influential factor in ethics. The immediate access to so much
information and the opinions of millions highly influence people's
behaviors. The desire to conform with what is portrayed as the norm
often manipulates our idea of what is morally and ethically sound.
Popular trends on social media and the instant gratification that is
received from participating in such quickly distort people's ideas and
decisions.
Economic systems
Political economy and political philosophy have ethical implications, particularly regarding the distribution of economic benefits. John Rawls and Robert Nozick
are both notable contributors. For example, Rawls has been interpreted
as offering a critique of offshore outsourcing on social contract
grounds.
Law and regulation
Laws
are the written statutes, codes, and opinions of government
organizations by which citizens, businesses, and persons present within a
jurisdiction are expected to govern themselves or face legal sanction.
Sanctions for violating the law can include (a) civil penalties,
such as fines, pecuniary damages, and loss of licenses, property,
rights, or privileges; (b) criminal penalties, such as fines, probation,
imprisonment, or a combination thereof; or (c) both civil and criminal
penalties.
Very often it is held that business is not bound by any ethics other than abiding by the law. Milton Friedman
is the pioneer of the view. He held that corporations have the
obligation to make a profit within the framework of the legal system,
nothing more.
Friedman made it explicit that the duty of the business leaders is, "to
make as much money as possible while conforming to the basic rules of
the society, both those embodied in the law and those embodied in
ethical custom".
Ethics for Friedman is nothing more than abiding by customs and laws.
The reduction of ethics to abidance to laws and customs, however, have
drawn serious criticisms.
Counter to Friedman's logic it is observed that legal procedures
are technocratic, bureaucratic, rigid and obligatory whereas ethical act
is conscientious, voluntary choice beyond normativity.
Law is retroactive. Crime precedes law. Law against crime, to be
passed, the crime must have happened. Laws are blind to the crimes
undefined in it. Further, as per law, "conduct is not criminal unless forbidden by law which gives advance warning that such conduct is criminal".
Also, the law presumes the accused is innocent until proven guilty and
that the state must establish the guilt of the accused beyond reasonable
doubt. As per liberal laws followed in most of the democracies, until
the government prosecutor proves the firm guilty with the limited
resources available to her, the accused is considered to be innocent.
Though the liberal premises of law is necessary to protect individuals
from being persecuted by Government, it is not a sufficient mechanism to
make firms morally accountable.
Implementation
Corporate policies
As part of more comprehensive compliance and ethics programs, many companies
have formulated internal policies pertaining to the ethical conduct of
employees. These policies can be simple exhortations in broad, highly
generalized language (typically called a corporate ethics statement), or
they can be more detailed policies, containing specific behavioral
requirements (typically called corporate ethics codes). They are
generally meant
to identify the company's expectations of workers and to offer guidance
on handling some of the more common ethical problems that might arise
in the course of doing business. It is hoped
that having such a policy will lead to greater ethical awareness,
consistency in application, and the avoidance of ethical disasters.
An increasing number of companies
also require employees to attend seminars regarding business conduct,
which often include discussion of the company's policies, specific case
studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.
Many companies
are assessing the environmental factors that can lead employees to
engage in unethical conduct. A competitive business environment may call
for unethical behavior. Lying has become expected in fields such as
trading. An example of this are the issues surrounding the unethical
actions of the Salomon Brothers.
Not everyone
supports corporate policies that govern ethical conduct. Some claim
that ethical problems are better dealt with by depending upon employees
to use their own judgment.
Others
believe that corporate ethics policies are primarily rooted in
utilitarian concerns and that they are mainly to limit the company's
legal liability or to curry public favor by giving the appearance of
being a good corporate citizen. Ideally, the company will avoid a
lawsuit because its employees will follow the rules. Should a lawsuit
occur, the company can claim that the problem would not have arisen if
the employee had only followed the code properly.
Some corporations have tried to burnish their ethical image by creating whistle-blower protections, such as anonymity. In the case of Citi, they call this the Ethics Hotline.
Though it is unclear whether firms such as Citi take offences reported
to these hotlines seriously or not. Sometimes there is a disconnection
between the company's code of ethics and the company's actual practices.
Thus, whether or not such conduct is explicitly sanctioned by
management, at worst, this makes the policy duplicitous, and, at best,
it is merely a marketing tool.
Jones and Parker wrote, "Most of what we read under the name
business ethics is either sentimental common sense or a set of excuses
for being unpleasant."
Many manuals are procedural form filling exercises unconcerned about
the real ethical dilemmas. For instance, the US Department of Commerce
ethics program treats business ethics as a set of instructions and
procedures to be followed by 'ethics officers', some others claim being ethical is just for the sake of being ethical. Business ethicists may trivialize the subject, offering standard answers that do not reflect the situation's complexity.
Richard DeGeorge wrote in regard to the importance of maintaining a corporate code:
Corporate codes have certain
usefulness and there are several advantages to developing them. First,
the very exercise of doing so in itself is worthwhile, especially if it
forces a large number of people in the firm to think through, in a fresh
way, their mission and the important obligations they as a group and as
individuals have to the firm, to each other, to their clients and
customers, and to society as a whole. Second, once adopted a code can be
used to generate continuing discussion and possible modification to the
code. Third, it could help to inculcate in new employees at all levels
the perspective of responsibility, the need to think in moral terms
about their actions, and the importance of developing the virtues
appropriate to their position.
Ethics officers
Following
a series of fraud, corruption, and abuse scandals that affected the
United States defense industry in the mid-1980s, the Defense Industry
Initiative (DII) was created to promote ethical business practices and
ethics management in multiple industries. Subsequent to these scandals,
many organizations began appointing ethics officers (also referred to as
"compliance" officers). In 1991, the Ethics & Compliance Officer
Association —originally the Ethics Officer Association (EOA)—was founded
at the Center for Business Ethics at Bentley University as a professional association for ethics and compliance officers.
The 1991 passing of the Federal Sentencing Guidelines for
Organizations in 1991 was another factor in many companies appointing
ethics/compliance officers. These guidelines, intended to assist judges
with sentencing, set standards organizations must follow to obtain a
reduction in sentence if they should be convicted of a federal offense.
Following the high-profile corporate scandals of companies like Enron, WorldCom and Tyco between 2001 and 2004, and following the passage of the Sarbanes–Oxley Act, many small and mid-sized companies also began to appoint ethics officers.
Often reporting to the chief executive officer, ethics officers
focus on uncovering or preventing unethical and illegal actions. This is
accomplished by assessing the ethical implications of the company's
activities, making recommendations on ethical policies, and
disseminating information to employees.
The effectiveness of ethics officers is not clear. The
establishment of an ethics officer position is likely to be insufficient
in driving ethical business practices without a corporate culture
that values ethical behavior. These values and behaviors should be
consistently and systemically supported by those at the top of the
organization.
Employees with strong community involvement, loyalty to employers,
superiors or owners, smart work practices, trust among the team members
do inculcate a corporate culture.
Sustainability initiatives
Many corporate and business strategies now include sustainability.
In addition to the traditional environmental 'green' sustainability
concerns, business ethics practices have expanded to include social sustainability. Social sustainability focuses on issues related to human capital in the business supply chain, such as worker's rights, working conditions, child labor, and human trafficking.
Incorporation of these considerations is increasing, as consumers and
procurement officials demand documentation of a business's compliance
with national and international initiatives, guidelines, and standards. Many industries have organizations dedicated to verifying ethical delivery of products from start to finish, such as the Kimberly Process, which aims to stop the flow of conflict diamonds into international markets, or the Fair Wear Foundation, dedicated to sustainability and fairness in the garment industry.
As mentioned, initiatives in sustainability encompass "green"
topics, as well as social sustainability. There are however many
different ways in which sustainability initiatives can be implemented in
a company.
Improving operations
An
organization can implement sustainability initiatives by improving its
operations and manufacturing process so as to make it more aligned with
environment, social, and governance issues. Johnson & Johnson
incorporates policies from the Universal Declaration of Human Rights,
International Covenant on Civil and Political Rights and International
Covenant on Economic, Social and Cultural Rights, applying these
principles not only for members of its supply chain but also internal
operations. Walmart has made commitments to doubling its truck fleet
efficiency by 2015 by replacing 2/3rds of its fleet with more
fuel-efficient trucks, including hybrids. Dell has integrated
alternative, recycled, and recyclable materials in its products and
packaging design, improving energy efficiency and design for end-of-life
and recyclability. Dell plans to reduce the energy intensity of its
product portfolio by 80% by 2020.
Board leadership
The
board of a company can decide to lower executive compensation by a
given percentage, and give the percentage of compensation to a specific
cause. This is an effort which can only be implemented from the top, as
it will affect the compensation of all executives in the company. In
Alcoa, an aluminum company based in the US, "1/5th of executive cash
compensation is tied to safety, diversity, and environmental
stewardship, which includes greenhouse gas emission reductions and
energy efficiency" (Best Practices). This is not usually the case for
most companies, where we see the board take a uniform step towards the
environment, social, and governance issues. This is only the case for
companies that are directly linked to utilities, energy, or material
industries, something which Alcoa as an aluminum company, falls in line
with. Instead, formal committees focused on the environment, social, and
governance issues are more usually seen in governance committees and
audit committees, rather than the board of directors. "According to
research analysis done by Pearl Meyer in support of the NACD 2017
Director Compensation Report shows that among 1,400 public companies
reviewed, only slightly more than five percent of boards have a
designated committee to address ESG issues." (How compensation can).
Management accountability
Similar
to board leadership, creating steering committees and other types of
committees specialized for sustainability, senior executives are
identified who are held accountable for meeting and constantly improving
sustainability goals.
Executive compensation
Introducing bonus schemes that reward executives for meeting non-financial performance goals including safety targets, greenhouse gas emissions,
reduction targets, and goals engaging stakeholders to help shape the
companies public policy positions. Companies such as Exelon have
implemented policies like this.
Stakeholder engagement
Other
companies will keep sustainability within its strategy and goals,
presenting findings at shareholder meetings, and actively tracking
metrics on sustainability. Companies such as PepsiCo, Heineken, and
FIFCO
take steps in this direction to implement sustainability initiatives.
(Best Practices). Companies such as Coca-Cola have actively tried
improve their efficiency of water usage, hiring 3rd party auditors to
evaluate their water management approach. FIFCO has also led
successfully led water-management initiatives.
Employee engagement
Implementation
of sustainability projects through directly appealing to employees
(typically through the human resource department) is another option for
companies to implement sustainability. This involves integrating
sustainability into the company culture, with hiring practices and
employee training. General Electric is a company that is taking the lead
in implementing initiatives in this manner. Bank of America directly
engaged employees by implement LEED (leadership in Energy and
Environmental Design) certified buildings, with a fifth of its building
meeting these certifications.
Supply chain management
Establishing
requirements for not only internal operations but also first-tier
suppliers as well as second-tier suppliers to help drive environmental
and social expectations further down the supply chain. Companies such as
Starbucks, FIFCO and Ford Motor Company have implemented requirements
that suppliers must meet to win their business. Starbucks has led
efforts in engaging suppliers and local communities where they operate
to accelerate investment in sustainable farming. Starbucks set a goal of
ethically sourcing 100% of its coffee beans by 2015.
Transparency
By
revealing decision-making data about how sustainability was reached,
companies can give away insights that can help others across the
industry and beyond make more sustainable decisions. Nike launched its
"making app" in 2013 which released data about the sustainability in the
materials it was using. This ultimately allows other companies to make
more sustainable design decisions and create lower impact products.
Academic discipline
As
an academic discipline, business ethics emerged in the 1970s. Since no
academic business ethics journals or conferences existed, researchers
published in general management journals and attended general
conferences. Over time, specialized peer-reviewed journals appeared, and
more researchers entered the field. Corporate scandals in the earlier
2000s increased the field's popularity. As of 2009, sixteen academic
journals devoted to various business ethics issues existed, with Journal of Business Ethics and Business Ethics Quarterly considered the leaders. Journal of Business Ethics Education publishes articles specifically about education in business ethics.
The International Business Development Institute is a global
non-profit organization that represents 217 nations and all 50 United
States. It offers a Charter in Business Development that focuses on
ethical business practices and standards. The Charter is directed by Harvard, MIT, and Fulbright
Scholars, and it includes graduate-level coursework in economics,
politics, marketing, management, technology, and legal aspects of
business development as it pertains to business ethics. IBDI also
oversees the International Business Development Institute of Asia which
provides individuals living in 20 Asian nations the opportunity to earn
the Charter.
Religious views
In Sharia law, followed by many Muslims, banking specifically prohibits charging interest on loans. Traditional Confucian thought discourages profit-seeking. Christianity offers the Golden Rule
command, "Therefore all things whatsoever ye would that men should do
to you, do ye even so to them: for this is the law and the prophets."
According to the article "Theory of the real economy", there is a more
narrow point of view from the Christianity faith towards the
relationship between ethics and religious traditions. This article
stresses how Christianity is capable of establishing reliable boundaries
for financial institutions. One criticism comes from Pope Benedict by
describing the "damaging effects of the real economy of badly managed
and largely speculative financial dealing." It is mentioned that
Christianity has the potential to transform the nature of finance and
investment but only if theologians and ethicist provide more evidence of
what is real in the economic life. Business ethics receives an extensive treatment in Jewish thought and Rabbinic literature, both from an ethical (Mussar) and a legal (Halakha) perspective; see article Jewish business ethics
for further discussion.
According to the article "Indian Philosophy and Business Ethics: A
Review", by Chandrani Chattopadyay, Hindus follow "Dharma" as Business
Ethics and unethical business practices are termed "Adharma".
Businessmen are supposed to maintain steady-mindedness,
self-purification, non-violence, concentration, clarity and control over
senses. Books like Bhagavat Gita and Arthashastra contribute a lot towards conduct of ethical business.
Related disciplines
Business ethics is related to philosophy of economics, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics.
Business ethics operates on the premise, for example, that the ethical
operation of a private business is possible—those who dispute that
premise, such as libertarian socialists (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper.
The philosophy of economics also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise.
Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions.
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