Business Code of Ethics

The concept of business ethics arises from the tensions that exist between the different stakeholders of business. One of the central ethical questions of business is "In whose interests should firms be managed?" (Moriarty, 2016). There are different perspectives to this issue, usually perspectives of different stakeholders. For example, Milton Friedman's famous view that business exists to increase its profits is, more or less, adopting a view that only shareholders matter as stakeholders, and that managers have a sole responsibility to the interests of the shareholders, and further that the interests of shareholders are narrowly defined as increasing wealth. But there are other perspectives as well, and the stakeholder approach reasonably looks at these other interests – of employees, of customers, of communities and of the environment. Where these interests are unaligned, there is often tension and from this tension arises ethical dilemma.
Thus, many businesses create guidelines for ethical conduct within their company. They do so for a variety of reasons. In some cases, it is merely covering of backsides, but in other cases, codes of ethics and ethical guidelines exist to legitimately outline what behaviors are and are not accepted when someone acts as a representative of the business. These codes must be centrally defined because different people have different ethical standards, and different countries do as well. This gives rise to multinational corporations seeking to strike a balance between what can be very different ethical norms in different countries (i.e. with respect to bribery, for example).
A code of ethics is usually written as a defensive document. When the company provides this guidance to its employees, it does so in order to prevent particular behaviors. In that way, it does not really provide competitive advantage. More specifically, it negates what would otherwise be a disadvantage – the risks posed by specific unethical behaviors.
A code of ethics can have some benefits, such as in recruiting. Whether this is a competitive advantage or not depends on who is being recruited – I am not sure there is an established correlation between one's attraction to firms with strong ethical codes and one's performance on the job. The reality is that high and low performers alike wield different ethical compasses. But it is reasonable that a company could recruit, at the very least, the type of person less likely to commit an unethical act that damages the company. In other words, it is a defensive document that minimizes risk, vis-à-vis any competitor that lacks a similar policy. Ethical standards and guidelines negate what would otherwise be a competitive disadvantage; whether that connotes the existence of advantage depends on whether one views competitiveness as having a neutral ground or if the concepts of advantage and disadvantage are binary, only existing relative to one another.
Competitive advantage is not especially measurable in and of itself. Without question, certain inputs are measurable, such as the number of patents a manufacturing firm has, or the value of a company's brand. But competitive advantage itself is a global concept, and output measures are typically taken as proxy, for example "this company is more profitable therefore it must have competitive advantage." Such arguments, however, are based on assumptions about the relationship between different phenomena, none of which can actually be tested in isolation. The intellectually honest answer is that generic competitive advantage cannot be measured because it is compromised of many individual variables, none of which can be isolated. Each variable can be measured, of course, and the company's outputs can also be measured, but in real world situations, pretending that one can measure a complex concept like competitive advantage – as though instituting a set of ethical standards is the only variable contributing to that quarter or year's results – is foolish. The best case scenario for a researcher would be to examine a very large sample size of companies, and ideally confirm a null hypothesis of a relationship between having ethical standards and enjoying financial success, but even an established relationship does not imply causality, and causality would be impossible to demonstrate to a scientifically acceptable degree.


References

Moriarty, J. (2016). Business ethics. Stanford Encyclopedia of Philosophy. Retrieved March13, 2018 from https://plato.stanford.edu/entries/ethics-business/