Ethical challenges in modern business corporations and history

¶ … corporate form of "the business corporation," its structure, prerogatives, and procedures, leads to ethical problems arising, or being difficult to resolve. Ethics in business has always seemed to be a struggle, because the main purpose of a business is to turn a profit, and for some businesspeople, that may be at any cost. However, after scandals such as Enron, WorldCom, and Bernie Madoff, among others, business ethics has emerged as an important part of a healthy business environment. The smart business corporation knows ethics and corporate social responsibility (CSR) are an important aspect of their daily operations, and yet, businesses still seem to overlook that ideal at the most inopportune times.

The Business Corporation

What is a business corporation? To begin a discussion on ethics, it is important to first define a business corporation. A business corporation is a company doing business that enjoys certain legal protections as a corporation. Usually, it is assumed to be a for-profit corporation, founded by three or more members, who sell shares of stock in the corporation to gain capital to operate. Of course, there are also non-profit, charitable, and even religious corporations, but for the most part, corporations are in the business of making a profit as their main business endeavor. There are some expectations for corporations besides making a profit, however. One business ethics writer notes, "The good corporation is expected to avoid perpetrating irretrievable social injury while focusing on its purpose as a profit-making organization" (Duska, 2006). The key to the successful business corporation is the ability to blend ethical and socially conscious operations with profit making, and as history indicates, that has been difficult to maintain for some corporations.

Historically, the first large-scale multinational corporations began in the late nineteenth century, which corporations such as John D. Rockefeller's Standard Oil. These corporations were not regulated by the federal government, and so, they turned to unethical practices such as monopolizing their businesses and driving smaller companies out of business, buying up their competitors, and buying other industries (such as the railroads) to keep prices high and their competitive advantage. The Securities and Exchange Commission formed to regulate and forbid these business practices, and laws were enacted to control corporate responsibility and business practices.

Two other author notes ethics and morality have wavered throughout modern history, and the attention paid to them by corporations has wavered, as well. They write, "By the late 1970s/1980s the emphasis focused again on morality, but with the social commitments of business corporations being a lesser part" (Mullerat & Brennan 2005). Today, ethics is an important aspect of many businesses, and consumers are becoming increasingly aware of how ethical companies are before they choose to do business with them. However, businesses still have many loopholes, as the many recent scandals with Wall Street, finance, and investors have shown. Throughout corporate history, there have always been scams, Ponzi schemes, and corporate ethical violations that indicate all businesses corporations do not feel the need to act ethically and morally as long as they are making a profit.

Ethical Foundations for Leadership

Ethical leadership lays the foundation for an ethical business corporation, because the leaders set the moral and ethical tone of the corporation. Leadership is all about being responsible and making tough corporate decisions, as well as managing the affairs of the corporation in its day-to-day operations. Ethical leadership is based on understanding the morals and ethics of the corporation and its stakeholders, but it also is based on decision-making, especially in situations of stress or corporate wrongdoing. Leaders must be willing to make difficult decisions and the process must be clear-cut and transparent, so there is no question on who made the decision and why it was made. Two authors note, "It must be possible, both during the decision-making process and after the fact, to see clearly who made what decision, whether decisions were made at the right level, and whether questions should (or indeed could) have been handled differently" (Bomann-Larsen and Wiggen 2004). Good leaders are never afraid to make a decision, or attempt to hand off the decision to someone else to shield themselves from blame.

Their stakeholders, stockholders, and staff also trust ethical leaders. The two authors continue, "Competent authority is also closely linked to the issue of trust. The more serious and difficult the situation, the more one needs to have trust in the persons and institutions making the key decisions on how that situation is to be handled" (Bomann-Larsen and Wiggen 2004). Trust is one of the keys to ethnic leadership, and it is a key part of forming a value-based culture in a corporation, as discussed below.

Ethical leaders must be trustworthy, not afraid to make tough decisions, and they must insist on these values in others throughout the corporation. They must have a strong sense of social responsibility, in that they recognize the environmental, political, and human aspects of doing business, and they make all attempts not to violate the rights and morals of anyone or anything they do business with or influence. For example, many corporate leaders demand exacting standards from their sub-contractors, especially if they are doing business in other countries. As an example, Levi-Strauss, the clothing company, has a code of ethics for all its foreign contractors that they must follow, including wages, workweeks, use of child labor, and other elements of business. If the contractors do not adhere to these standards, Levi-Strauss will not do business with them (Bomann-Larsen and Wiggen 2004). This is an example of a socially relevant corporate policy, but it also reveals the ethical leadership within the company who demand high standards for their own company and those who do business with them.

Ethical Communication

Ethical communication is a vital aspect of the ethical corporation, because it is through communication that outsiders perceive the corporation, and how leadership communicates the values and morals of a corporation to stakeholders and staff. Ethical communication, like ethical leadership, depends on a core set of values and best practices. For example, ethical communication depends on good listening techniques, which are a vital aspect of communication. You cannot address an issue if you do not understand it, so good listening is key. A written communication policy is also necessary for transparent communication, and it must be standardized between all the operations of the corporation, no matter where they are located. Most experts also recommend that the written policy must cover both external and internal communications for the most ethical and transparent communications possible.

Even more important, the corporation leadership must understand and support the policy, and make it clear they support the policy. Another author notes, "It goes to the top. It must come from the culture of the corporation, which is set by its executives" (Dilenschneider, & Salak, 2003). Communication is the root of any organization, so any ethical organization must develop a sound, ethical communication policy if they want to be taken seriously as an ethical and moral organization.

When Businesses go Bad

The list of corporations who flout business ethics seem to grow every day. From the accounting scandals of Enron and Arthur Anderson, to the collapse of WorldCom, the collapse of the mortgage and financial industries, to the outrages of AIG and Bernie Madoff, the headlines are littered with such scandals and failures, and yet, they keep occurring. All of these situations call into question the real purpose of business ethics. Three authors note, "We are not particularly fond of 'business ethics'. Most of what we read under the name business ethics is either sentimental common sense, or a set of excuses for being unpleasant.... business ethics in its present form is at best window dressing and at worst a calculated lie" (Jones, Parker, & ten Bos 2005). These seem like harsh words, but many current business practices seem to bear out their sentiments. In a world of corporate bonuses, lavish spending, and irresponsibility, it is hard to think of business ethics without wondering if it is still really just an oxymoron.

Personally, while the public may be clamoring for more business ethics and accountability, it seems that most corporations could care less about business ethics. Morgan Stanley paying out outrageous bonuses with taxpayer bailout money that they were "compelled" to pay because of contracts is just one indication of how far morals and ethics have fallen in the business community. Many people, myself included, believe that is because business has become so cutthroat and competitive that "winning" is the only corporate culture accepted and required at most corporations today. The culture is based on always being on top at any cost, and ethics have no place in that equation. The entire organization is in competition with each other, as well, and if practices are accepted, it puts pressure on others to adopt those practices, whether they are ethical or note. Another writer notes, "If, for example, people in an organization believe that sharp practice is accepted and that those around them are rewarded for it, then they will feel not only licensed but impelled to do likewise" (Grace 2006). Ethics in an organization are extremely important, but when organizations are not compelled to operate ethically, they do not have to, and they probably will not operate ethically if they can get around it.

There are few political restraints on corporations and their ethics, even though there are certainly government regulations and legalities that must be followed. Politically, most organizations, especially large ones, can afford to hire lobbyists to plead their case in Washington, and this gives them a distinct advantage in the ethics department. As long as they "own" a Congressman, they almost have permission to act unethically. The use of taxpayer money to hire lobbyists by financial firms and GM certainly backs up this cynical view.

In conclusion, it is quite clear that corporations have a duty to their stakeholders to operate in an ethical and moral way. However, they also have an obligation to make a profit, and sometimes, that becomes more important than any morals or ethics, as many of the cases of businesses gone bad clearly indicate. In a perfect world, corporations would act ethically because they know this is the moral and "right" thing to do. However, this is not always the case. Corporate greed, arrogance, and lack of moral character often make the news today, and more corporations seem to ignore the need for ethical behavior in their quest for more market share and a better bottom line. The cynical would say that today, more than ever, business and industry leaders do not care about ethics or moral choices, they only care about making a bigger profit, getting that bigger bonus, and living a lavish and opulent lifestyle. For many corporations, that is their image, and they do nothing to shrug it off, and that may be the most unethical aspect of many modern corporations. They do not believe the have to have ethics, and it shows.