Corporate Ethics: Business Responsibility and Ethical Standards

Introduction: The Case for 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 at the top, setting a tone that caused others within these companies to act similarly and brought the business world into disrepute, contributing to a loss of public confidence with far-reaching ramifications. A more ethical orientation is good for business; as a report from Australia notes, "Poor business ethics can ultimately lead to greater industry regulation" (Lawrence, 2005, para. 1).

Ethical Issues in Business

The issue needs to be considered from the smallest infraction to the most serious 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 considered unethical in everyday life are acceptable in business. Business ethics occupies a contested space between professional norms and personal morality. 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 are meant to deceive, bluffing in business is accepted as part of the cost of doing business and therefore cannot be considered lying.

In a way, Carr is arguing for a form of situational ethics, where ethics carries 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 as widely accepted as Carr intimates. Carr (1993) 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 — there is an agreement among players that they will all use this sort of strategy in trying to gain an advantage. Carr sees business in a similar light, positing 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 a graduate school of business, says company founders often engage in this behavior because they find themselves in an "expectations trap": no one will do business with them until they appear successful, yet they cannot 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 a business if the leader continues to do it, communicating to subordinates that this is acceptable behavior. Other ethical lapses can be justified along the way, leading 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 ethics. 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 two 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 lose sight of this when they show concern for social responsibility. He does, however, accept certain ethical requirements, citing "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 embrace social responsibility as an operating principle. In the United Kingdom, a law was proposed that would require adherence to such a standard:

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 the 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 necessarily requires adherence to ethical principles, though the principles emphasized would be broader and geared toward serving society as well as 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).