Corporate Ethics as One Analyst

Corporate Ethics

As one analyst notes, the debacles of Enron, WorldCom, and Arthur Andersen have created significant challenges for management for the foreseeable future (Isaza, 2005). It is clear that business leaders need a stronger ethical orientation and must set the tone for subordinates and for the business world as a whole. One of the unfortunate aspects of the recent scandals, including Enron, Worldcom, and Adelphia, is that the ethical lapses occurred from the top, setting a tone that might cause others in the companies to act similarly and that also brings the business world into disrepute, contributing to a loss of public confidence and so having far-reaching ramifications. A more ethical orientation is good for business, for as a report from Australia notes, "Poor business ethics can ultimately lead to greater industry regulation" (Lawrence, 2005, para. 1).

Ethical Issues

The issue needs to be considered from the smallest infraction to the major ones. The latter, of course, are what get a company into trouble, while the former often lead to the latter. However, business people seem to have a number of rationales for why certain behaviors that might be unethical in everyday life are not in business. Carr (1993) argues that there is an agreement among people in business that bluffing is accepted and that, in the words of British statesman Henry Taylor, "falsehood ceases to be falsehood when it is understood on all sides that the truth is not expected to be spoken" (Carr, 1993, p. 143). Carr argues that bluffing is not unethical in this context. It is not lying because while both bluffing and lying would be meant to deceive bluffing in business is accepted as part of the price of doing business and so cannot be considered lying.

In a way, Carr is arguing for a form of situational ethics, where ethics has different meaning according to the situation involved. Ethics thus means one thing in a game of poker, one thing in a business deal, and one thing when making a promise to a friend. However, it is not clear that this view of ethics would be accepted as widely as Carr intimates. Carr (1993) indeed compares the ethics of business specifically to the ethics of a poker game. In poker, he notes, it is acceptable to use deceit and cunning in planning and executing a strategy. The reason this is acceptable is because it is accepted, meaning there is an agreement among players that they will all use this sort of strategy in trying to gain an advantage. Carr thus sees business in a similar light as having a tacit understanding among business people that bluffing is a form of deception that is acceptable.

Lying begins when a company is formed, according to a recent analysis in FSB, which describes how this takes place:

Amar Bhide, visiting professor at the University of Chicago's graduate school of business, says company founders often do it because they find themselves in an "expectations trap": No one will do business with them until they appear successful, yet they can't be successful until people do business with them. "Startups," he says, "can fail just because others expect them to fail" (Should You Lie?, 1999, para. 7).

Resorting to lying can become too ingrained in the business if the leader keeps doing it and so communicates to subordinates that this is acceptable. Other ethical lapses can be justified along the way and lead to disastrous consequences.

Companies can find assistance in developing a more ethical standard, beginning with the educational system and what it can teach future business people about the subject,. Crane (2004) sees the teaching of ethics in business schools as a vital service, and he cites "a recent Aspen Institute study of graduates of the top business schools in the United States [that] found that business school (B-school) education not only fails to improve the moral character of students but actually weakens it. For example, the Aspen researchers found that students enter B-schools with idealistic ambitions, such as to create quality products and deliver customer satisfaction, but that only 2 years later these goals take a backseat to the boosting of share prices" (Crane, 2004, para. 2).

Miller (2004) writes that "the business of business everywhere is to pursue profits," and he believes that business leaders forget this when they show a concern for social responsibility. He also accepts certain ethical requirements, though, and cites "corporate values such as honesty, innovation, voluntary exchange, and the wisdom of the marketplace" (Miller, 2004). Thus, even those who argue against wider social responsibility call for business to adhere to certain ethical requirements.

Others take a different view and see a need for business to consider social responsibility as an operating principle. In the United Kingdom, a law was proposed that would require adherence to such an idea:

While the prevailing orthodoxy tends to agree with Milton Friedman and Friedrich von Hayek that "the business of Business is business" and a company should do no other than pursue shareholder value, the RSA [UK Royal Society for Arts, Manufactures and Commerce] asserted that Business has an obligation to maintain its "license to operate," a privilege accorded by society through invention of the law of limited liability, and should respond to constituencies beyond its market-based partners, fulfilling a "corporate social responsibility" (Doig, 1999).

This point-of-view of necessity requires adherence to ethical principles, though the principles that would be emphasized would be broader and geared to serving society as well as the shareholders. Views of what constitutes a socially responsible act range from "profit making only," to "going beyond profit making," to "a social obligation, beyond that required by law and economics" (Carroll, 1979, p. 499).

Business ethics have been challenged by several forces over the last 50 years. Ethics in business are defined primarily by social forces, and these are sometimes expressed in laws devised by the society. There have long been laws governing how business operates, and such laws are usually reactive. The monopolistic practices of business in the Progressive Age, for instance, led to a response in the form of anti-trust legislation. Business itself decides what is ethical based on a view of what the market will bear, and in the post-World War II era public opinion has been an important force shaping ethical considerations in the business world.

In the 1960s, concerns about ethics were raised with events such as the publication by Ralph Nader of his book on the dangers of the Corvair automobile, with his charge that General Motors was knowingly developing and selling a poorly designed vehicle. In the 1970s, the media and government gave more attention to business activities and to such specific issues as employment discrimination, false advertising, foreign bribery, and pollution. Environmental issues rose to public consciousness with the incident at Love Canal when Hooker Chemical Company was shown to have dumped tons of toxic waste into the canal, creating major health hazards. In the 1980s, one issue given much attention was product liability, and again it was the automobile industry in the spotlight with arguments about the Ford Motor Company and the Ford Pinto, considered dangerous because of a gas tank that could explode in even the most minor impact. In the 1990s, business was faced with issues concerning the environment, privacy, and financial governance (Vernon-Wortzel, 1994, pp. 129-130).

Ethical concerns exist at all levels of the business community, but the growth of Big Business in particular has raised ethical concerns from the view that such corporate entities are too big to be governed or to have a moral center. Ethical concerns were addressed at the developing multinational corporation, an entity seen as operating outside the controls of the legal system and often as operating in too free a fashion in foreign countries. Such corporations became an ethical concern not only for business regulators but for foreign policy analysts and regulators as well. One concern was the possibility of the bribery of public officials in foreign countries, a practice defended by some as the price of doing business in some countries. This argument has not had much appeal for the public, which is concerned as well that a company which conducts business in this manner in a foreign country may do the same thing in this one (Karrass, 1993, pp. 29-31). One response has been to pass legislation to stem the practice, such as the U.S. passage of the Foreign Corrupt Practices Act (FCPA) of 1977. This act is considered the most significant intrusion of government into corporate affairs since the passage of laws regarding securities in the 1930s (Cascini & Vanasco, 1992, pp. 24-29).

Rolston (1988) points out that the corporate structure tends to deaden and fragment all moral awareness, though this is not something that should be tolerated where it can be controlled. The reason for this is not specifically a belief in the responsibility owed to shareholders but a form of blindness that seems to go with the business environment:

The corporate climate may foster more interest in loyalty than in truth. Capitalism does force us sometimes to make decisions in a context narrower than we need in order to make them morally, socially, environmentally (Rolston, 1988, p. 324).

Rolston points to several cases of corporate myopia that was changed as customers and potential customers made their views known and demonstrated that hurting customers would harm shareholders as well. He points to the DDT scare in the early 1960s which led to the banning of the chemical, which harmed shareholders of the company producing it; the improvement of the Alaska pipeline so consumer complaints served the needs of shareholders and added to the value of the pipeline; and automobile companies that responded to consumer complaints and produced cars with better emissions standards, thus serving shareholders by maintaining sales (Rolston, 1988, p. 325).

However, it is also evident that companies that pretend to be responsible toward their customers and the demands of those customers and that are found not to be have abrogated their responsibility to their shareholders just as they have to consumers. They might have tried to justify such actions by claiming they were being responsible to shareholders by increasing profits, but this is a short-term strategy belied by the long-term reality. Once found out, these companies lose business and leave their shareholders in financial trouble.

Ethical Grounding

Several different approaches have been suggested for businesses today to cope with the issue of ethics. It is generally agreed today that ethics should be taught, and this is being implemented. More than this, corporations need to develop ethical guidelines and to consider and reconsider these guidelines in the light of actual cases and perceived business practices. A set of guidelines should thus be flexible enough to adapt to a changing environment while having a core of principles that do not change and that help determine the ethical behavior to be allowed in a changing business environment.

In developing guidelines, a number of questions should be asked and answered as part of the development process, and these questions should be returned to from time to ascertain whether or not the guidelines remain fresh and viable or whether some adjustment needs to be made. Consider the following questions:

1) How will we define ethical behavior? Such a definition should be simple and should relate to the prevailing business, social, political, and legal climate. There are certain behaviors which are considered ethical or unethical on their face, but there are others that may be considered unethical in ne environment or period of time and not in another. To a degree, these views do change.

2) What does the manager need to know in order to assess the merits of a given decision? The intent of the guidelines is to give the individual manager the tools he or she needs in order to make ethical decisions in keeping with the corporate ethos of the company. To accomplish this task, the manager needs to understand what an ethical decision is and to know how to analyze a given problem to see that the answer arrived at is ethical.

3) Should the manager be able to make these decisions solely on his or her own or should there be a mechanism to refer to higher authority? It is likely that there should be such a mechanism only for the most extreme cases, while the manager needs tools to make direct decisions the rest of the time.

4) Should the ethical structure be made to apply in the same way to foreign operations as to domestic operations? This is a difficult question for any company wishing to compete in foreign markets, and the issue may require a higher sense of ethics from the company than would be required for companies indigenous to that country.

5) How "solid" are the guidelines meant to be? That is to, what degree are the guidelines to "guide" and to what extent are they to "prescribe"? This relates to how the manager and employee is to view the guidelines, and how this question is answered will also determine whether those who are to follow the guidelines will give them sufficient attention.

Business ethics must be considered in terms of the social responsibility of business and not simply by seeing business as different from other sorts of social transactions. Too often, of course, the latter is precisely the way business is viewed, as if the rules for business were inherently different. What is being suggested here is what is called the commonweal approach to business decision-making, which elevates the idea of social responsibility. The corporation serves as a major resource for our society, emphasizing the benefits that accrue to society rather than on the rights and needs of the corporation or its owners. Corporate responsibility should identify corporations that control the use of socially important assets and show that they have the responsibility to use those assets in a way which makes social sense. This is quite different from the need merely to maximize profits. In this conception, decisions are to be made in a way that fulfills the social responsibility of the corporation, utilizing the assets it controls for the benefit of society at large and not merely for itself. What we do as corporate managers has more social significance than what we do in our private lives.

Such an approach is in keeping with the Theory of Justice of John Rawls. Rawls discusses the idea of justice and offers a theory that begins with the familiar theory of the social contract as found in Locke, Rousseau, and Kant. Rawls calls the original principles of justice to regulate all future agreements "justice as fairness" and states that these principles are acceptable to "free and rational persons concerned to further their own interests" as such persons are found in the "original position of equality."

This view also extends the idea of the categorical imperative of Kant to business decisions, holding that in business it is necessary not just to ask what one must do but what one ought to do. To determine this, some sense of morality must be held out as paramount. The moral imperative Kant celebrates must command actions as good in themselves and at all times and places. There must be universality in the command and in the volition that recognizes the command. Kant sees man as a rational being, capable of obeying the categorical imperative. There is thus no moral difference between actions in one's personal life and actions in business.

Aristotelian phronesis fits with principle-based ethics in that phronesis involves method more than outcome, applying practical reasoning to an issue so as to decide what is good or bad for the human being. This means what is good or bad for the human being, not what is good or bad for the business alone. This offers a framework within which to ask what specific actions should be taken in any specific situation. Aristotle saw phronesis itself as an intellectual virtue allowing the individual to be able to determine what is good. Such a skill should be nurtured in a business context as in others so that the choices that are made are good ones benefiting the human being, and by extension benefiting the society of human beings, and not merely a narrow area defined by the business alone.

Leadership

MacIntyre stated that modern morality has been changing and has been creating chaos. In business, MacIntyre has suggested that the conception of character should serve as a cultural and moral ideal, and he also sees the manager in business as one of the characters most representative of modern times (Mangham, 1995, p. 183). Jackall agrees with MacIntyre on many points and also cites the fact that there is a shift taking place in the ethical concerns in business, finding that this is an ethical conception of the self emphasizing moral values as determined by individual choice and a conception rooted in a social structure differing substantially from that which is supported by modernism:

Specifically, MacIntyre holds that the structure of modern societies, in calling upon us to play too many distinct roles, deprives us of the opportunity to create a substantial identity for ourselves and prevents us from rendering our lives meaningful (Mangham, 1995, p. 192).

Clearly, Mangham sees MacIntyre as deploring the shift taking place in the definition of ethics in business. This shift has given more power to the manager as the determiner of what is and is not ethical instead of toward some more consistent, broad-based set of rules.

The size of the modern corporation is, as noted, one of the reasons for the development of the role of manager as elucidated by MacIntyre. Randels (1995) argues with the premise of Mangham and MacIntyre. He sees the MacIntyre manager as a Weberian bureaucrat who practices a form of rationality divorced form a moral evaluation of ends. Randels points out that real-life managers do not always divorce morality from rationality. MacIntyre's manager indeed only carries out polices handed down from above, and thus any ethical concerns are to be developed at the top or not at all. Many theorists find MacIntyre's approach too singular and find many examples that counter the norm suggested by MacIntyre (Randels, 1995, pp. 205-206).

MacIntyre deals in a postmodern world, a term that began in art and has been extended to other areas of human endeavor. Modernism was an attempt to create a new environment and to alter the way we think of ourselves in relation to our external, public environment in keeping with the other changes taking place in human thought and attitude. Postmodernity was a reaction to modernity. It is often internationalist in scope, taking elements from different cultures in a loose way based on the vast mixture of inputs we all receive from mass communications. This suggests a contradiction in the way postmodernism builds on a mass, public mental image created by the mass media. MacIntyre seems to find the media-driven postmodern world one in which the manager just does what he or she is told and implements policies handed down, but Randels does not find this to be the case:

Being postmodern may mean giving up rationalism, but it does not require giving up practical reason and purposes for action. Ethics is about purpose, even when our emotions do their own form of calculating. Postmodernism also does not require abandoning any notion of common morality or community standards when giving up universal morality (Randels 209-210).