Business Ethics

Introduction

This paper will discuss ethical behavior in the business world. In particular, the question of what ethical behavior actually involves will be analyzed in depth. Ethics is a topic that can be discussed at length without reaching universal consensus, and this text will not be an exception. However, it should shed some light on the issue of ethical corporate behavior. The objectives and responsibilities of business will be covered, as well as the ethical obligations of various parties.

Scholars have declared that business and ethics are required partners; a business cannot succeed without sticking to good ethics. But what actually is ethical behavior? It may even be debatable what can be considered a successful business.

Ethics: The Foundation

The focus of this paper will be the application of ethics for business situations. In order to concentrate solely on the application, it is very useful to establish the theory in the beginning. Therefore, I will define the understanding of ethics that will be used for the remainder of the paper.

Ethics are relative. There are many factors that contribute to this relativity. First, ethics can be considered to be relative to a period in time. This will not be an issue for the discussion because we will only be looking at business in relatively recent history. Second, ethics can be considered relative to the role of a particular entity. Assuming a role is ethical, the acceptance of an entity to perform in that role carries responsibilities with it. The entity has an ethical obligation to carry out that role. Admittedly, this is a very abstract idea. An example is that, after accepting an individual as a client, a defense attorney has an ethical obligation to defend the client.

Problem Description

What is the role of business?

What is the purpose for the existence of business? What role do businesses play in society? These are important questions to answer because, as mentioned earlier, business ethics are dependent on business working in a particular role. In the next paragraphs, various ideas explaining the role of business will be described.

Increase shareholder value

The most direct answer is that the role of business is to make a profit. Sensibly, the owner of the business is entitled to the profits. In a sole proprietorship, the owner is an individual. In a publicly traded business, the owners are the shareholders. The role of a corporation can be said to serve the shareholders by increasing "shareholder value." The stock price is an indication of the value, but the value is deeper than that. Shareholder value is also the ability of the corporation to perform in the future.

Common Good

While most agree that businesses need to make a profit, the concept that businesses exist to increase shareholder value is not unanimous. It has been claimed that businesses exist to serve the common good. This is a foundation of socialism, where profit is seen as exploitation of the workers.

In America, there has been a push by people such as Ralph Nader, to establish a charter for corporations that would allow government oversight to confirm that corporations are indeed serving the common good. Under this system, if a corporation is determined to be detrimental to the common good, its charter could revoked and the corporation would be forced to stop operating.

So what is the problem?

The problem thus far is that we have two seemingly opposite theories for the role of a business. Using our operating definition of ethics, the ethics for an organization whose role is to make profit are different from the ethics of an organization whose role is to serve the common goal. For a solution, we need a method that combines these conflicting goals into a single (although possibly complex) role.

Solutions

Stakeholders

One of the modern ideas governing business ethics is the concept of stakeholders. Stakeholders are parties that have an interest, or stake, in the operation of a business. The main stakeholders are customers, employees, and shareholders. While there are many other groups that may be considered stakeholders, we will first focus on these three parties. The basic idea is to satisfy all stakeholders: give customers a product or service of expected quality as promised, compensate and give growth opportunities to employees, and provide expected returns to shareholders.

The list of other stakeholders can actually be quite long and includes employee's families, communities in which the business has a presence, the environment, etc. Essentially, stakeholders can be considered anyone who may be influenced by actions of the business. Lately, shareholders have been publicized not as enterprising individuals seeking profit but rather as ordinary Americans saving money for retirement using IRAs and 410(k) plans.

Enlightened Self-Interest

A theory that is similar to stakeholders, although older, is the principal of enlightened self-interest. Sheridan (1996) provides an explanation:

To safeguard against this self-defeating tendency of individualism, Tocqueville (1840) suggests the principal of "self-interest rightly understood." This principal can be seen as the realization that it is in each individual's best interest to attend to the interests of the community at large. And that the needs of the community serve the needs of the individual. By protecting the interests of the whole, we in turn protect our own interests.

Sheridan goes on to say that enlightened self-interest constitutes the core of American society. Rather than requiring a large sacrifice from someone, this idea has members of society giving up a little to benefit the whole. Accordingly, benefiting the whole is a benefit to the individual. Looking to popular culture, enlightened self-interest was the unnamed basis for the 2000 movie "Pay it Forward," in which people performed unsolicited favors for others on the basis that in return it would benefit the world and eventually themselves.

Sheridan (1996) gives this example of the application of enlightened self-interest to a famous American corporation:

An example is found in the Ford Motor Company in the early 20th century. When Henry Ford couldn't sell enough of his cars, he decided to pay