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Business Ethics Best Practice

Business Ethics

by Sue Newell

Executive Summary

  • Business ethics focuses on identifying the moral standards of right and wrong as they apply to behavior within and across business institutions and other related organizations.

  • Corporations sometimes behave unethically, having a harmful effect on people or the environment.

  • Unethical behavior is typically not caused by a single “bad apple,” but is a result of complex interactions between individuals, groups, and organizational cultures.

  • Ethical behavior can be defined either as behavior that maximizes happiness and minimizes harm or as behavior that is motivated by principles of duty.

  • While behaving unethically may have some short-term benefit for a company, in the long term it will harm stakeholder support.

  • Long-term sustainability comes from concentrating on the triple bottom line: that is, social, environmental, and financial performance (Elkington, 1998).

Introduction

Look in the newspaper on virtually any day of the week and you will find at least one business scandal in which a corporation appears to have violated the rules or standards of behavior generally accepted by society. Company finances have been manipulated in order to show a better balance sheet than actually exists, toxic waste has been allowed to flow into a river, bribes have been paid to secure a business deal, child labor has been used to assemble a product, discriminatory practices have prevented the employment or promotion of members of a particular group. When businesses behave unethically, they act in ways that have a harmful effect on others and in ways that are morally unacceptable to the larger community. This is very serious because corporate power and impact are increasing as corporations become larger (indeed, global) and as profit-making concerns take over functions that were once publicly controlled, such as the railroads, water utilities, and healthcare. Increasingly, it is the private sector that determines the quality of the air we breathe, the water we drink, our standard of living, and even where we live and how easily we can move around.

Common Ethical Problems Within Corporations

Given the increasing social impact of business, business ethics has emerged as a discrete subject over the last 20 years. Business ethics is concerned with exploring the moral principles by which we can evaluate business organizations in relation to their impact on people and the environment. Trevino and Nelson (2004) categorize four types of ethical problems that are commonly found in business organizations.

First are the human resource problems: These relate to the equitable and just treatment of current and potential employees. Unethical behavior here involves treating people unfairly because of their gender, sexuality, skin color, religion, ethnic background, and so on.

Second are ethical problems arising from conflicts of interest, when particular individuals or organizations are given special treatment because of some personal relationship with the individual or group making a decision. A company might get a lucrative contract, for example, because a bribe was paid to the management team of the contracting organization, not because of the quality of its proposal.

Third are ethical problems that involve customer confidence. Corporations sometimes behave in ways that show a lack of respect for customers or a lack of concern with public safety. Examples here include advertisements that lie (or at least conceal the truth) about particular goods or services, and the sale of products, such as drugs, where a company conceals or obfuscates negative data about safety and/or efficacy.

Finally, there are ethical problems surrounding the use of corporate resources by employees who make private phone calls at work, submit false expense claims, take company stationery home, etc.

The financial scandals that have rocked the corporate world in recent years (Enron, WorldCom, Parmalat, Lehman Brothers, for example) have involved a number of these different ethical issues. In these cases, senior managers have engaged in improper bookkeeping, making companies look more financially profitable than they actually are. As a consequence the stockholder value of the company increases, and anyone with stock profits directly. Among those profiting will be those making the decisions to manipulate the accounts—and so there is a conflict of interest. However, the fallout from the downfall of these companies affects stockholders, employees, and society at large negatively, with innocent people losing their retirement reserves and/or savings, and employees losing their jobs.

Another category can be added to this list—ethical problems surrounding the use of the world’s environmental resources. Many organizations have externalized the costs associated with their negative impact on the environment, whether in relation to their own operations to produce goods and services, or in terms of the use and later the disposal of the goods that they have sold. Externalizing means that organizations do not themselves pay for the environmental costs that they create. For example, carbon dioxide emissions, a by-product of energy use for all kinds of organizations, are now recognized as contributing to global warming; computer equipment contains toxic waste that pollutes the land where it is dumped; and packaging of all kinds, including plastic bags that are handed out by supermarkets, are creating mounting problems as local authorities run out of landfill sites. Increasingly, ethical business is seen to require that a business takes into account and offsets its “environmental footprint” so that it engages in sustainable activity. Sustainability broadly means that a business meets the needs of the present without compromising the ability of future generations to meet their needs.

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Further reading

Books:

  • Elkington, John. Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Gabriola Island, BC: New Society Publishers, 1998.
  • Janis, Irving L. Groupthink: Psychological Studies of Policy Decisions and Fiascoes. 2nd ed. Boston, MA: Houghton Mifflin College, 1982.
  • Smith, Ken G., and Phil Johnson. Business Ethics and Business Behaviour. Boston, MA: International Thomson Business Press, 1996.
  • Trevino, Linda K., and Katherine A. Nelson. Managing Business Ethics: Straight Talk About How to Do It Right. New York: Wiley, 2004.
  • Velasquez, M. Business Ethics: Concepts and Cases. 6th ed. Upper Saddle River, NJ: Prentice Hall, 2006.

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