Business ethics: principles, frameworks, and organizational practice

Business Ethics

In 2000, immediately following the 2000 Presidential election fiasco, the biggest news story was the Enron ethical scandal in which top executives lied outright to shareholders about the value of the company's stock. The company went bankrupt and thousands of Enron employees lost their life's savings. The Enron scandal became one of the most high-profile examples of poor business ethics in the history of the United States. The financial breakdown of Enron and the eventual legal prosecution of several key players illustrated that in many instances companies that lie don't come out ahead. Nevertheless, lying in some form or another is integral to business dealing. No company, large or small, ethical or unethical, is completely untainted by lying because companies are comprised of human beings and human beings eventually tell lies, even white ones. Business ethics serve as guidelines to what employees and executives should or should not do: however, the goals of a business ethic vary from individual to individual, company to company. Business ethics are fuzzy because no one ethical code can apply equally to all companies, in all cultures, or to all people.

The Enron scandal is a relatively cut-and-dry case of how lying doesn't work to the best interests of anyone. Not only were Enron employees and shareholders hurt, but so too were the guilty executives who were humiliated publicly and convicted in a court of law. Enron's business partners, vendors, and clients likewise suffered losses. Except for Enron attorneys, the media, and a few other exceptions, few people prospered from the downfall of Enron. Therefore in this case, the ends as well as the means were unjustifiable. The lies were wrong from a deontological moral standpoint as well as from a utilitarian one.

In deontological terms, telling any lie to secure profits is inherently wrong. The deontologist would say that any lie big or small is an ethical no-no; and that any company that condones lying to preserve its profits cannot be an ethical one, by definition. Cutting corners when filing income tax reports, even though no one gets hurt, would be considered unethical business practice to the strict deontologist.

However, a strict deontologist would not survive long in the world of business. A company that always tells the truth is an outright fantasy; any company that starts out without a single white lie to sully its reputation will eventually come into hard times. Lying is sometimes essential for the smooth functioning of a business and to ensure the greatest good for the greatest number of people. Utilitarianism is therefore a more practical and more common business ethic than is any deontological perspective. The goal of any ethical business is not to eliminate lying altogether but to minimize lying to only those incidents in which it is absolutely necessary, as harmless as possible, and when the lie is not told simply in order to avert personal responsibility. In the case of Enron, upper-level executives went too far. By blatantly lying on numerous occasions about the value of their stock, participants like CEO Kenneth Lay overstepped the boundaries of utilitarian lying.

Many studies have been conducted on the relationship between ethics and profitability in the business world. Studies indicate a "positive but not definitive" relationship between ethical behavior and financial success (Webley and More). Especially in the wake of the Enron disaster, investors and employees are looking toward companies with stronger ethical codes. Research has also indicated that companies that overtly refer to their codes of ethics in their annual reports and other public communications fare better than those that don't, in terms of economic added value (EVA), market added value (MVA), and reduced volatility (Webley and More).

Such research does not indicate a causal relationship between ethical behavior and profitability. What such research indicates is not necessarily that ethical companies are more successful because they did not lie. Rather the studies show that investors are more attracted to ethical companies: more investors means more profits. Similarly, consumers who are concerned about ethics will choose to patronize businesses they feel good about, businesses that are at least in word committed to ethical practices. Profitability follows spending and investment habits; profitability does not necessarily or directly follow ethics.

Many ethicists insist that the question is not one of utility but of duty: members of the business community should tell the truth because it is their duty to, because it is the right thing to do. Others note that telling the truth is good practice insofar as it benefits the company in the long run, usually via increased profits or an avoidance of a lawsuit. A utilitarian ethicist would admit that lying is occasionally justifiable, if the ends clearly justify the means. The problem with utilitarian lying is that few people are capable of foreseeing all the consequences of their lies.