Business Ethics: Principles, Scandals, and Real-World Impact

Introduction to Business Ethics

In today's world of economic upheaval, few questions are more pressing or pertinent than the issue of business ethics. What constitutes ethical behavior in business situations, what the changing rules of ethics are in the world of globalization and environmental concerns, and how these ethical considerations apply in the real world have all become major topics of debate, especially over the past decade. Scandals like the mortgage-backed securities crisis and the Enron ordeal are indicative of the growing problem of business ethics, though the issue is actually as old as business and commerce itself.

Why Ethics Matter in Business

The above reasons illustrate why the study and practice of business ethics is necessary even for purely pragmatic reasons. The financial crisis stemming from the mortgage collapse could have been largely reduced in magnitude — or even avoided altogether — had mortgage lenders acted ethically in the first place. Instead, driven by dreams of ever-higher profits, lenders granted loans that could not reasonably be repaid, which snowballed into the massive failure of several banks and entire economies. Making sound loans, and not letting greed overcome common sense, would have been the ethical course of action — and the financial crisis would not have occurred. Ethical behavior makes sense even from a purely financial perspective: in the long term, acting with integrity serves the bottom line better than unchecked greed.

Ethics are also important in business for less directly pragmatic reasons. They enable business partners, customers, and other associates to trust an organization that has a strong record of ethical conduct — a benefit that, while perhaps less direct, is nonetheless tangible. Ethics can also be examined in a more philosophical manner. Many philosophers and thinkers have argued that human beings have a duty to themselves, to those around them, and to the world they inhabit. Without this duty to care for one another, government and society would have no reason to exist. Because humans are social creatures, society is meant to function cooperatively — but it will only remain stable as long as everyone in it is treated fairly, that is, ethically. Therefore, business ethics are important not only for the longevity and profitability of individual business entities, but also for the advancement and stability of society as a whole.

The Enron Scandal and Honest Reporting

One common business problem is reporting a loss to investors. The Enron scandal involved "creative accounting" used to hide losses and sustain outside investment. Had the people at Enron behaved ethically and explained their financial situation honestly, they almost certainly would have suffered losses — but the company might well have survived. Financial accounts should always be presented honestly, precisely for this reason.