Tuesday February 21 , 2017

Business Ethics

Business ethics (also known as Corporate ethics) is a form of functional ethics that examines ethical principles and moral or ethical harms that arise in a business atmosphere.

It applies to all aspects of business conduct and is related to the conduct of persons and business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics.


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). Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviors be inclined to undermine the economy over time.


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 variety and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated severely 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 should be seen as unethical for a company to think 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.

Ethics of accounting and financial information

* Original accounting, earnings management, misleading financial analysis.
* Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal) manipulation of the financial markets.
* Executive compensation: concerns excessive payments made to corporate CEO's and top management.
* 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.

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 contain unfairness on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment.

* Issues arising from the traditional view of relationships between employers and employees, also known as At-will employment.
* 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.
* 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.

All of the above are also related to the hiring and firing of employees. An employee or future employee can not be hired or fired based on race, age, gender, religion, or any other disciminatory act.

Ethics of sales and marketing

Marketing, which goes beyond the mere stipulation of information about (and access to) a product, may seek to influence our values and behavior. 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.

Ethics of production

This area of business ethics usually 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 hard 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.

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law, Peanut Corporation of America.

Ethics of intellectual property, knowledge and skills

Knowledge and skills are valuable but not easily "ownable" as 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 employing them.
* Bioprospecting and biopiracy.
* Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

Ethics and Technology The computer and the World Wide Web are two of the most significant inventions of the twentieth century. There are many ethical issues that arise from this technology. It is easy to gain access to information. This leads to data mining, workplace monitoring, and privacy invasion.

Medical technology has improved as well. Pharmaceutical companies have the technology to produce life saving drugs. These drugs are protected by patents and there are no generic drugs available. This raises many ethical questions.

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. 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. Also on the basis of their respective GDP and [Corruption rankings].
* 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 globalization and cultural imperialism.
* Varying global standards - e.g. the use of child labor.
* 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.

Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.

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, focusing on the rights and wrongs of various systems for the distribution of economic benefits. John Rawls and Robert Nozick are both notable contributors.

Theoretical issues in business ethics

Conflicting interests

Business ethics can be examined from various new 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, because any others function as a tax on profits. 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 noted economist Milton Friedman was a leading proponent of this view.

Some take the position that organizations are not capable of moral agency. Under this, ethical behavior is required of individual human beings, but not of the business or corporation.

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. Stakeholders can also be broken down into primary and secondary stakeholders. Primary stakeholders are people that are affected directly such as stockholders, where secondary stakeholders are people who are not affected directly such as the government. 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 labor, 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.

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 behavioral 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 require employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal necessities. 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. A competitive business environment may call for unethical behavior. Lying has become expected in fields such as trading. An example of this are the issues surrounding the unethical actions of the Saloman Brothers.

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 favor 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 difficulty 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. defense 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 offense. 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 behavior, 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 behavior 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.

Business ethics as an academic discipline

As an academic discipline, business ethics emerged in the 1970s. Since no academic business ethics journals or conferences existed, researchers published their papers in general management outlets, and attended general conferences, such as the Academy of Management. Over time, several peer-reviewed journals appeared, and more researchers entered the field. Especially, higher interest in business topics among academics was observed after several corporate scandals in the earlier 2000s. As of 2009, sixteen academic journals devoted to various business ethics issues existed, with Journal of Business Ethics and Business Ethics Quarterly being considered the leading A+ outlets.

The International Business Development Institute, a global non-proft organization, is a self-regulated organization that represents 217 nations and all 50 United States offering a Charter in Business Development (CBD) that focuses on ethical business practices and standards. The Charter is administered and directed by top Harvard, MIT, and Fulbright Scholars, and it includes graduate-level coursework in economics, politics, marketing, management, technology, and legal aspects of business development as it pertains to business ethics. IBDI also oversees the International Business Development Institute of Asia which provides individuals living in 20 Asian nations the opportunity to earn his or her CBD or CIBD Charter.

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 according to Dr. Todd Albertson author of The Gods of Business book. 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 process 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, particularly 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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reference - wikipedia.org

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