Business Ethics

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Definition: Business Ethics



Full Definition of Business Ethics


Business ethics is a form of the art of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia, descriptive approaches are also taken. The range and quantity of business ethical issues reflect the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP’s “beyond petroleum” environmental tilt).

Overview Of Issues In Business Ethics

General Business Ethics

  • This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company’s main purpose is to maximize the returns to its shareholders, then it could be seen as unethical for a company to consider the interests and rights of anyone else.
  • Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated.
  • Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.
  • Ethical issues concerning relations between different companies: e.g. hostile take-overs, industrial espionage.
  • Leadership issues: corporate governance.
  • Political contributions made by corporations.
  • Law reform, such as the ethical debate over introducing a crime of corporate manslaughter.
  • The misuse of corporate ethics policies as marketing instruments.

Professional Ethics

Professional ethics covers the myriad practical ethical problems and phenomena which arise out of specific functional areas of companies or in relation to recognized business professions.

Ethics Of Accounting Information

  • Creative accounting, earnings management, misleading financial analysis.
  • Insider trading, securities fraud, bucket shop, forex scams: concerns (criminal) manipulation of the financial markets.
  • Executive compensation: concerns excessive payments made to corporate CEO’s.
  • Bribery, kickbacks, facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society.

Cases: accounting scandals, Enron, WorldCom

Ethics Of Human Resource Management

The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.

  • Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment.
  • Issues surrounding the representation of employees and the democratization of the workplace: union-busting, strike breaking.
  • Issues affecting the privacy of the employee: workplace surveillance, drug testing. See also: privacy.
  • Issues affecting the privacy of the employer: whistle-blowing.
  • Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law.
  • Occupational safety and health.

Ethics Of Sales And Marketing

Marketing which goes beyond the mere provision of information about (and access to) a product may seek to manipulate our values and behaviour. To some extent society regards this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics.

  • Pricing: price-fixing, price discrimination, price skimming.
  • Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. See: anti-competitive practices, antitrust law.
  • Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence.
  • Content of advertisements: attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful
  • Children and marketing: marketing in schools.
  • Black markets, grey markets.

See also: memespace, disinformation, advertising techniques, false advertising, advertising regulation

Cases: Benetton.

Ethics Of Production

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

  • Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
  • Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading
  • Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health.
  • Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

See also: product liability

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law.

Ethics Of Intellectual Property, Knowledge And Skills

Knowledge and skills are valuable but not easily “ownable” objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee or the employee themselves? The country in which the plant grew, or the company which discovered and developed the plant’s medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.

  • Patent infringement, copyright infringement, trademark infringement.
  • Misuse of the intellectual property systems to stifle competition: patent misuse, copyright misuse, patent troll, submarine patent.
  • Even the notion of intellectual property itself has been criticised on ethical grounds: see intellectual property.
  • Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess.
  • The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors from employing them.
  • Bioprospecting (ethical) and biopiracy (unethical).
  • Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

International Business Ethics And Ethics Of Economic Systems

The issues here are grouped together because they involve a much wider, global view on business ethical matters.

International Business Ethics

While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade.[6] Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:

  • The search for universal values as a basis for international commercial behaviour.
  • Comparison of business ethical traditions in different countries.
  • Comparison of business ethical traditions from various religious perspectives.
  • Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.
  • Issues such as globalisation and cultural imperialism.
  • Varying global standards – e.g. the use of child labour.
  • The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries.
  • The permissibility of international commerce with pariah states.

Ethics Of Economic Systems

This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, focussing on the rights and wrongs of various systems for the distribution of economic benefits. The work of John Rawls (1921-2002) is a notable contribution.

Theoretical Issues In Business Ethics

Conflicting Interests

Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

Ethical Issues And Approaches

Philosophers and others disagree about the purpose of a business ethic in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The economist Milton Friedman was a leading proponent of this view.

Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance.

Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company’s operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls’ A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the “quality movement” that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a “fair agreement” between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone’s property and not a mini-state or a means of distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labour, employee safety, work hours, wages, discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham’s law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits. On this view, the competitive system fosters a downward ethical spiral.

Business Ethics In The Field

Corporate Ethics Policies

As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioural requirements (typically called corporate ethics codes). They are generally meant to identify the company’s expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding business conduct, which often include discussion of the company’s policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company’s rules of conduct.

Many companies are assessing the environmental factors that can lead employees to engage in unethical conduct.

Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company’s legal liability, or to curry public favour by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly.

Sometimes there is disconnection between the company’s code of ethics and the company’s actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.

To be successful, most ethicists would suggest that an ethics policy should be:

  • Given the unequivocal support of top management, by both word and example.
  • Explained in writing and orally, with periodic reinforcement.
  • Doable….something employees can both understand and perform.
  • Monitored by top management, with routine inspections for compliance and improvement.
  • Backed up by clearly stated consequences in the case of disobedience.
  • Remain neutral and nonsexist.

Ethics Officers

Ethics officers (sometimes called “compliance” or “business conduct officers”) have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defence industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) — originally the Ethics Officer Association (EOA)– was founded at the Center for Business Ethics (at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations’ efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization.

Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offence. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.

In the wake of numerous corporate scandals between 2001-04 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium-sized companies have begun to appoint ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company’s activities, making recommendations regarding the company’s ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction to the above scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders’ investments might be affected by the company’s decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behaviour, a culture and climate that usually emanates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behaviour: a more systemic programme with consistent support from general management will be necessary.

The foundation for ethical behaviour goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual’s early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.

Religious Views On Business Ethics

The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values.

Examples include:

  • Islamic banking, associated with the avoidance of charging interest on loans.
  • Traditional Confucian disapproval of the profit-seeking motive.
  • Quaker testimony on fair dealing

Related Disciplines

Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible — those who dispute that premise, such as libertarian socialists, (who contend that “business ethics” is an oxymoron) do so by definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self-interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.


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Definition Sources


Definitions for Business Ethics are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 21st April, 2020 | 33 Views.