Business Ethics Chapter 1 Notes

 Business ethics, it is sometimes claimed, is an oxymoron.

 By an oxymoron, we mean the bringing together of two apparently contradictory concepts.
 To say that business ethics is an oxymoron suggests that there are not, or cannot be, ethics in
business: that business is in some way unethical (i.e., that business is inherently bad), or that it
is, at best, amoral (i.e., outside of our normal moral considerations)
 Business activity would be impossible if corporate directors always lied; if buyers and sellers
never trusted each other; or if employees refused ever to help each other.
 Similarly, basic principles of fairness help ensure that people in business feel adequately
rewarded for working hard rather than being evaluated on irrelevant criteria such as how good
they are at golf or the type of shoes they wear.
 It can be argued that the subject of business ethics primarily exists in order to provide us with
some answers as to why certain decisions should be evaluated as ethical or unethical, or right or
wrong.
 We regard the subject of business ethics as the study of business situations, activities, and
decisions where issues of right and wrong are addressed.
 It is worth stressing that by ‘right’ and ‘wrong’ we mean morally right and wrong, as opposed to,
for example, commercially, strategically, or financially right or wrong.
 Moreover, by ‘business’ ethics, we do not mean only commercial businesses, but also
government organizations, pressure groups, not-for-profit businesses, charities, and other orgs.
 There is considerable overlap between ethics and the law.
 In fact, the law is essentially an institutionalization or codification of ethics into specific social
rules, regulations, and proscriptions.
 Perhaps the best way of thinking about ethics and the law is in terms of two intersecting
domains.
 The law might be said to be a definition of the minimum acceptable standards of behaviour.
 However, the law does not explicitly cover every possible ethical issue in business – or for that
matter outside of business.
 Similarly, it is possible to think of issues that are covered by the law, but which are not really
about ethics.
 For example, the law prescribes whether we should drive on the right or the left side of the
road.
 Although this prevents chaos on the roads, the decisions about which side we should drive on is
not an ethical decision as such.
 Business ethics is primarily concerned with those issues not covered by the law, or where there
is no definite consensus on whether something is right or wrong.
 Discussion about the ethics of particular business practices may eventually lead to legislation
once some kind of consensus is reached, but for most of the issues of interest to business ethics,
the law typically does not currently provide us with guidance.
 For this reason, it is often said that business ethics is about the ‘grey areas’ of business, of where
there is no clear legal guidance and, as Trevino and Nelson put it, ‘values are in conflict’
 The law is not as static as it implies, since it evolves in most countries over time, and is of course
different in different states
 There is also the tricky question of cases where the law itself is unethical – we could think of
instances where the law denies the rights of all people to vote (called universal suffrage), or
disadvantages one ethnic groups over another, or denies individual the right to choose a
marriage partner.
 Morality is concerned with the norms, values, and beliefs embedded in social processes which
define right and wrong for an individual or a community.
 Ethics is concerned with the study of morality and the application of reason to elucidate specific
rules and principles that determine morally acceptable courses of action. Ethical theories are the
codifications of these rules and principles.
 According to this way of thinking, morality precedes ethics, which in turn precedes ethical
theory.
 Ethics represents an attempt to systematize and rationalize morality, typically into generalized
normative rules that supposedly offer a solution to situations of moral uncertainty.
 The outcomes of the codification of these rules are ethical theories, such as rights theory, or
justice theory.
 Ethics rationalizes morality to produce ethical theory that can be applied to a situation.
 There are many reasons why business ethics might be regarded as an increasingly important
area of study, whether as students interested in evaluating business or as managers seeking to
improve their decision-making skills.
 Business has huge power within society:
o Business affects almost every aspect of our lives and can even have a major impact on
the democratic process of government.
o Evidence suggests that many members of the public are uneasy with such
developments.
o For instance, one poll revealed that a large majority of the US population believe that
powerful groups such as senior politicians (60%), lobbyists (58%), and advertisers (34%)
have very low levels of honesty and ethical standards.
o This raises a host of ethical questions and suggests we need to find new answers to the
question of how we can either restrain this power or ensure that it is used for social
good rather than the exploitation of the less powerful.
 Business has the potential to provide a major contribution to our societies:
o Whether in terms of producing the products and services that we want, providing
employment, paying taxes, acting as an engine for economic development, or solving
complex social problems, business can be a tremendous force for good.
o European research suggests 49% of people think the contribution of business to society
is overall negative.
o So, while there is potential for a positive contribution, business has some reputational
challenges to overcome, or perhaps needs seriously to reflect on the quality of the
contribution made.
 Business malpractice has the potential to inflict enormous harm on individuals, communities,
and the environment:
o Most ethical issues are not as extreme as the risk of death, but business does impinge
on the health and welfare of individuals, the security of communities, and the natural
environment.
 The demands being placed on business to be ethical by its various stakeholders are becoming
more complex and challenging:
o It is critical to understand these challenges and to develop responses to them that
address the demands of stakeholders but also enable firms to perform their economic
role effectively.
 Employees face significant pressure to compromise ethical standards:
o For example, a survey of 600 accountants in 23 European countries found that the
majority (64%) had been put under pressure to act unethically during their professional
career, with about a third admitting to succumbing to the pressure.
 Business faces a trust deficit:
o Globally, only 52% of the general public trust business, reserving particular ire for the
media, which only 43% trust.
 The limits of the business ethics discipline have been a subject of discussion for decades, even
prompting one team of business ethics textbook authors to admit that ‘we are not particularly
fond of “business ethics”’
 The ethical market ranges from organic and fair-trade foods to responsible holidays, energy-
efficient products, ethical banking, and ethical clothes.
 What is clear then is that business ethics has been recognized as increasingly important and has
also undergone rapid changes and developments during the past decade or so.
 This has been the case not only in large corporations, but also in small and medium-sized
enterprises (SMEs), in public sector bodies and non-profit organizations too.
 Table 1.1
 Small businesses typically differ in their attention and approach to business ethics compared to
large firms.
 As we show in table 1.2, in comparison to large firms, civil society (by this we mean non-profit,
charity, or non-governmental organizations) and public sector orgs, SMEs experience different
issues in business ethics, including the lack of time and resources that small business managers
have available to focus on ethics, their autonomy and independence with respect to
responsibilities to other stakeholders, and their informal, trust-based approach to managing
ethics.
 Large corporations, on the other hand, tend to have much more formalized approaches to
managing business ethics.
 They have considerably more resources available to develop sophisticated ethics and
compliance management programs.
 That said, they are constrained by the need to focus on profitability and shareholder value, as
well as the very size, bureaucracy, and complexity of their own operations and the often global
supply chain.
 In one sense, private, public, and civil sector organizations face some similar ethical issues.
 Indeed, despite some historical difference, the level of ethical violations observed by employees
in different sectors appears to be converging in some ways.
 While private sector businesses will tend to be responsible primarily to their shareholders or
owners, the main responsibilities of civil society organizations (CSOs) are to the constituencies
they serve (and to a lesser extent their donors)
 In the public sector, more attention is paid to higher-level government and the general public.
 Typical ethical issues prioritized by government agencies will be those of the rule of law,
corruption, conflicts of interest, public accountability, and various procedural issues involved in
ensuring that resources are deployed fairly and impartially.
 This is usually reflected in a formalized and bureaucratic approach to ethics management, often
dictated by regulation.
 CSOs, on the other hand, will often be more informal in their approach, emphasizing their
mission and values and focusing resources on their cause rather than organizational issues.
 CSOs may be limited in terms of the resources and training they may typically be able to deploy
in relation to managing ethics, whereas government organizations are often restricted by a
heavy bureaucracy, which breeds inertia and lack of transparency to external constituencies.
 One effect of globalization has been that risk of all kinds – not just fiscal, bit also physical – have
increased for businesses, no matter where they operate. Information travels far and fast,
confidentiality is difficult to maintain, markets are interdependent and events in far-flung places
can have immense impact virtually anywhere in the world.
 A race to the bottom is a process whereby multinationals pit developing countries against each
other, by allocating foreign direct investment to countries that can offer them the most
favorable conditions in terms of low tax rates, low levels of environmental regulation, and
restricted workers’ rights.
 Globalization entails that events, which have local roots, have knock-on effects for beyond in
seemingly disconnected places.
 The Kyoto Protocol and the Paris Agreement on Climate Change make it very clear that global
problems need global solutions – and finding these solutions and maintaining global
commitment has become one of the big unresolved challenges in managing global issues.
 Globalization has led to a situation where events, people, or ideas from faraway places can have
a very palpable effect on people in otherwise unconnected locations and situations.
 Globalization is the ongoing integration of political, social, and economic interactions at the
transnational level, regardless of physical proximity or distance.
 The first development is technological in nature.
 Modern communications technology, from the telephone through to the internet and
digitalization, opens up the possibility of connection and interaction between people, despite
the fact that there are large geographical distances between them.
 Furthermore, the rapid development of global transportation technologies allows people to
easily meet with other people all over the globe.
 The second development is political in nature.
 Territorial borders have traditionally been the main obstacles to worldwide connections
between people.
 Nevertheless, political and technological developments mainly account for the massive
proliferation and spread of supra-territorial connections.
 These connections may not always necessarily have a global spread in the literal sense of
worldwide coverage, but they no longer need a geographical territory to take place, and
territorial distance and borders do not restrict them.
 As business becomes less fixed territorially, so corporations increasingly engage in overseas
markets, suddenly finding themselves confronted with diverse, sometimes even contradictory,
ethical demands.
 Moral values that were taken for granted in the home market may get questioned as soon as
corporations enter foreign markets.
 The reason why there is potential for such problems is that, while globalization results in the
“deterritorialization” of some processes and activities, in many cases there is still a close
connection between the local culture, including moral values, and a certain geographical region.
 This is one of the contradictions of globalization.
 On the one hand, globalization makes regional difference less important, since it brings regions
together and encourages a more uniform ‘global culture’
 On the other hand, in eroding the divisions of geographical distances, globalization reveals
economic, political and cultural differences and confronts people with them.
 A second aspect is closely linked to what we said previously about the relationship between
ethics and law.
 The more economic transactions lose their connection a certain territorial entity, the more they
escape the control of the respective national government.
 As soon as a company leaves its home territory and moves part of its production chain to, for
example, an emerging economy, the legal framework becomes very different.
 If business ethics largely begin where the law ends, then globalization increases the demand for
business ethics because globalized economic activities are beyond ethics because globalized
economic activities are beyond the control of national (territorial) governments.
 Taking a closer look at global activities, it is easy to identify corporations as a dominant actor on
the global stage: multinationals own the mass media that influence much of the information and
entertainment we are exposed to, they supply global products, they pay our salaries, and they
pay (directly or indirectly) much of the taxes that keep governments running.
 What this means is that the more economic activities become global, the less governments can
control them, and the less they are open to democratic control by the people affected by them.
 Globalization leads to a growing demand for corporate accountability.
 Paradoxically, though, globalization also has an opposite effect on business: the more business
becomes global, the more it gets exposed to regions and countries where ethical values and
practices are still vastly different.
 Table 1.4
 North America is typically said to exhibit a strong culture of individualism, suggesting that
individuals are responsible for their own success.
 Hence, if there are demands for solving ethical questions, it would be the individual who is
usually expected to be responsible for making the right choices.
 In Asia, however, hierarchy is generally much more important, and so top management is
typically seen as responsible for ethical conduct.
 Somewhat similarly, in Europe it has traditionally been thought that it is not the individual
business person, nor even the single company, that is primarily expected to be responsible for
solving ethical dilemmas in business.
 Rather, it is a collective and overarching institution, usually the state.
 Comparative analysis of business ethics is understanding the differences in cultural norms and
moral values between different countries and regions is an important skill in business ethics.
Comparative analysis helps you to understand that key issues, actors, and guidelines for ethical
 conduct always need to be understood in the specific geographic context where a business
operates.
 In North America, in most (but not all) areas, the institutional framework of business ethics has
traditionally been fairly loose, so that the key actor has tended to be the corporation.
 Conversely, in most European countries there is quite a dense network of regulation on most of
the ethically important issues for business.
 In Europe, governments, trade unions, and corporate associates have therefore been key actors
in business ethics.
 Moving to developing countries in Africa or Latin America, however, the so-called ‘third sector’,
i.e., non-governmental organizations (NGOs), is often a key player within the arena of business
ethics.
 One of the reasons for this lies in the fact that governments in these regions are often
underfunded or even corrupt, and, therefore, provide limited guidance or legal frameworks for
ethical decision-making.
 In North America, there is a strong reliance on rules and guidelines for business conduct, both
rather than coming from government (as in Europe) these tend to come from businesses
themselves in the form of corporate codes of ethics and internal compliance programs.
 This becomes evident when looking at contemporary US business ethics textbooks, since they
tend to accord a considerable amount of space to issues such as privacy, workers’ rights, salary
issues, and whistleblowing, to name just a few.
 These are deemed to be the responsibility of the individual company, since the state, in
principle, does not take full responsibility for regulating these issues.
 The European approach, in contrast, has tended to focus more on social issues in organizing the
framework of business.
 Hence, European business ethics textbooks have tended to include greater consideration of
subjects such as the ethics of capitalism and economic rationality.
 In Asia, concerns about the responsible organization of business have given rise to a focus on
ethical issues in relation to corporate governance and the accountability of management for
practices such as mismanagement and corruption.
 European corporations, in general, are smaller than their North American counterparts, and may
be more likely to see multiple stakeholders (as opposed to simply shareholders) as the focus of
corporate activity.
 Many of these difference in business ethics are rooted in the differing cultural, economic, and
religions histories of Europe and the US.
 One argument here is that the influence of the Catholic and Lutheran Protestant religions in
Europe led to a collective approach to organizing economic life, whereas the individuals focus of
the Calvinist-Protestant religion in the US led to the rise of a distinctly different capitalist
economic system.
 Georges Enderle suggests that the interest in broader macro issues of business ethics in Europe
can also be partly traced to the need to rebuild institutions after the Second World War and in
the aftermath of economic and political restructuring in Eastern Europe.
 Moreover, Vogel argues that the focus on individual action and codes of conduct in the US has
been substantially driven by the impact of widely publicized corporate scandals, which have
focused attention on the need to avoid ethical violation at the firm level.
 Sustainability is the long-term maintenance of systems according to environmental, economic,
and social considerations.
 Probably the most common usage of sustainability, however, is in relations to sustainable
development, which is typically defined as a ‘strategy of social development that meets the
needs of the present without compromising the ability of future generations to meet their own
needs.”
 By focusing sustainable development on the potential for future generations to satisfy their
needs, sustainability also raises considerations of intergenerational equity, i.e., equality
between one generation and another.
 More recently, the sustainability agenda has been dominated by the United Nations Sustainable
Development Goals (SDGs), which covers 17 arears, as shown in figure 1.4
 The SDGs were envisioned to be a solution to the world’s problems, particularly poverty,
hunger, and climate change by 2030.
 Five important objections to the goals noted by Jason Hickel include:
o The contradiction of growth. In the end, the only really environmentally helpful way to
tackle the excessive burden on the world’s resources is for the world’s wealthy people
to reduce consumption, not to seek more creative ways of growing.
o Growth doesn’t reduce poverty. The assumption that growth will benefit the poor
avoids the necessary redistribution of resources and overlooks the fact that growth
normally benefits those who already are prosperous, not the poorest.
o Inequality is ignored. An earlier version of the SDGs included a commitment to tackle
the inequitable distribution of wealth (the richest 1% own half the world’s private
wealth) but was eliminated from the final document.
o Big drivers of poverty are not discussed, such as unfair trade, financial speculation
especially on food, tax evasion, and debt cancellation.
o Mis-measurement of poverty. The SDGs focus on poverty eradication as being as being
at an income level of $1.25 a day, though a figure of $5 per day is more commonly
accepted as a suitable level according to Hickel.
o McInerney-Lankford suggests that the SDGs fail to link explicitly to human rights and
human rights legislative requirements, except for one mention in a sub-goal
o Finally, Smith goes so far as to ay that ‘the basic freedoms that underpin and advance
human development are missing from the SDG equation’, including democracy.
 Despite these limitations, the SDGs have provided something of a unifying umbrella for
sustainability approaches within business and have undeniably promoted the idea of
sustainability globally.
 We regard the idea of sustainability as the long-term maintenance of systems according to
social, economic, and environmental consideration as sufficient for determining the essential
content of the concept.
 The triple bottom line (TBL) was a term coined by the sustainability thought leader John
Elkington many years ago.
 His view of the TBL is that it represents the idea that business does not have just one single goal
– namely adding economic value – but that it has an extended goal which necessitates adding
environmental and social value too.
 The basic principles of sustainability from an environmental perspective concern the effective
management of physical resources so that they are conserved for the future.
 All bio-systems are regarded as having finite resources and finite capacity, and hence
sustainable human activity must operate at a level that does not threaten the health of those
systems.
 The economic perspective on sustainability initially emerged from economic growth models that
assessed the limits imposed by the carrying capacity of Earth.
 The recognition that continued growth in population, industrial activity, resource use, and
pollution could mean that standards of living would eventually decline led to the emergence of
sustainability as a way of thinking about ensuring that future generations would not be
adversely disadvantaged by the activities and choices of the present generation.
 A narrow concept of economic sustainability focuses on the economic performance of the
corporations itself: the responsibility of management is to develop, produce, and market those
products that secure the long-term economic performance of the corporation.
 This includes a focus on those strategies that, for example, lead to a long-term rise in share
price, revenues, and market share, rather than short-term ‘explosions’ of profits at the expense
of long-term viability.
 A broader concept of economic sustainability would include the company’s attitude towards,
and impacts upon, the economic framework in which it is embedded.
 Paying bribes or building cartels, for instance, could be regarded as economically unsustainable
because these activities undermine the long-term functioning of markets.
 Corporations that attempt to avoid paying corporate taxes through subtle accounting tricks
might be said to behave in an unsustainable way: if they are not willing to fund the institutional
environment (such as schools, hospitals, the police, and the justice system), they erode one of
the key bases of their corporate success.
 The development of the social perspective on sustainability has tended to trail behind that of
the environmental and economic perspectives and remains a challenging area of development.
 The explicit integration of social concerns into the business discourse around sustainability can
be seen to have emerged primarily in response to concerns regarding the impacts of business
activities on indigenous communities in less-developed countries and regions.
 They key issue in the social perspective on sustainability is that of social justice.
 Issues of an ethical nature, be they plant closures, product safety issues, or industrial pollution,
demand that we think about a diverse and complex range of considerations and concerns.
 However, with the notion of sustainability widely promoted by governments, businesses, NGOs,
and academia, it is clearly vital that we understand its full implications and evaluate business
ethics practices according to their performance along, and trade-offs between, the different
dimensions or sustainability.
 As Elkington suggested, the TBL is less about establishing accounting techniques and
performance metrics for achievements in the three dimensions and more about revolutionizing
the way that companies think about and act in their business.
