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).

Historical Development of Business Ethics

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 society. There have long been laws governing how business operates, and such laws are usually reactive. The monopolistic practices of business in the Progressive Era, 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 by events such as the publication by Ralph Nader of his book on the dangers of the Corvair automobile, charging 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 specific issues such 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, much attention was given to product liability — again the automobile industry was in the spotlight, this time regarding the Ford Pinto, considered dangerous because of a gas tank that could explode even in minor impacts. 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 concerns from those who believe such corporate entities are too large to be governed effectively or to maintain a moral center. Ethical concerns were directed at the developing multinational corporation, an entity seen as operating outside the controls of the legal system and often acting with excessive freedom 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 bribing public officials in foreign countries, a practice defended by some as the price of doing business in certain markets. This argument has not had much public appeal, as people are also concerned that a company conducting business in this manner abroad may do the same at home (Karrass, 1993, pp. 29–31). One response was the passage of the Foreign Corrupt Practices Act (FCPA) of 1977, considered the most significant intrusion of government into corporate affairs since the passage of securities laws in the 1930s (Cascini & Vanasco, 1992, pp. 24–29).

Rolston (1988) points out that the corporate structure tends to deaden and fragment moral awareness, though this is something that should not 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 accompany 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 changed once customers and potential customers made their views known and demonstrated that hurting customers would harm shareholders as well. He cites the DDT scare in the early 1960s, which led to the banning of the chemical and harmed shareholders of the company producing it; improvements to the Alaska pipeline prompted by consumer complaints, which ultimately served shareholder interests and added value; 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).

It is also evident that companies that claim to be responsible toward their customers but are found not to be have abrogated their responsibility to shareholders just as they have to consumers. They might have tried to justify such actions by claiming they were serving shareholders through increased profits, but this is a short-term strategy belied by long-term reality. Once exposed, these companies lose business and leave their shareholders in financial difficulty.

Conclusion

Ethical conduct in business can be shown to be a benefit in itself — one that is more likely to contribute to the maximization of profits over the long term than any risky and unethical action taken in the short term. Companies acting unethically must always be concerned that their behavior will be revealed. Companies acting ethically can make this fact known at any time and benefit from the transparency.