introduction to business ethics

What is business ethics?

Business Ethics is a relatively new, but increasingly important, part of Business Studies.
The question, or problem, is this:

A business is expected to achieve its objectives, usually to make a decent profit for the
owners/shareholders. In doing so, it may need to overlook the wishes of others.

For example, it could lie about the benefits of its products in order to get more revenue. It
could skip important safety checks to save costs. What should the business do?

To some extent, this is an area already covered by Business Law. When society largely
agrees, a law can be passed to stop behaviour the society disapproves of. For example,
discrimination against women is illegal (it wasn’t always so).

What Business Ethics Covers

Business Ethics looks at areas that are too new, or too controversial, for society to agree
on. For example, the medical business is increasingly controversial. The pharmaceutical
businesses concentrate their (very expensive) research on illnesses that afflict rich people,
because rich people (or the government of a rich country) can afford to buy these new
treatments when they are launched on the market. This means too little research is done
into illnesses (like malaria) that primarily affect poor people and poor governments. Is this
right?

So, we can have profit-maximising businesses that don’t worry too much about who gets in
their way; or we can have ethical businesses that are very careful with people get in their
way, but which don’t make very much profit. This is the contrast, the trade-off that we are
faced with.

Or is it? Increasingly, there is thought about a middle way. Consumers in developed

countries are increasingly aware of ethical issues, and some are prepared to pay for it.

For example, BodyShop was one of the first businesses to build on this trend, and made
their market niche largely out of the fact that their products are kinder to the world than
are competing products. Why buy from BodyShop? Because their products aren’t tested on
animals. So, the ethical nature of the product becomes part of the unique selling point
("USP") of the product and central to the Marketing of that product. In other words, there is
no conflict between ethics and profit, because an ethical stance is part of the profit-
making process.

Since then, many businesses in all sorts of markets have followed this line. Washing
powders, for example. BP is trying to portray the oil business as environmentally friendly.
Other businesses have been pushed in this direction by adverse publicity. Triumph, a Swiss
makers of bras, was forced to abandon an investment in Myanmar (Burma ) because of
widespread opposition to a dictatorial and unpleasant government. And Nike (and others)
have been widely criticised for using cheap labour in developing countries, which is what
you would expect from a profit-maximising business.

One difficult question is ‘what sort of things count as ethical question?’ There is no
agreement on this, hence the difficulty. Take the example above. Some people might say
well-done to Nike for creating jobs in a very poor part of the world where jobs are
desperately needed. But other people have said that it is unethical to exploit very poor
people, and to make them work in poor conditions for low wages, especially when the
business could afford to pay them more.
What is meant by ethics?
- Consists of moral principles governing the right and wrongs of human conduct
- Is about the principles of right and wrong accepted by individuals or social groups
- A code of behaviour considered morally correct
- Code of moral principles that guide the action of people and groups
- Ethical behaviour is doing what is morally right

Business ethics
Business ethics are the principles and standards that:
- Define acceptable conduct in business
- Should underpin decision making

An alternative definition is: ”the moral values which govern business behaviour and
restrains companies from pursuing the interest of the shareholder at the expense of all
other considerations”

- Some activities might be profitable and legal but nevertheless are considered to be
unethical
- An ethical decision is one that is both legal and meets the shared ethical standards of the
community

Is ethics the same as the law?

- No - although the law should reflect the ethical views of society there are certain
activities permitted by law which some individual or groups in society or individual might
regard as unethical.
- Ethical considerations are about what is right and what is wrong
- The law is about what is lawful and what is unlawful

The following business activities are legal but might pose ethical dilemmas for individuals:

• Profiting from gambling

• Selling goods manufactured by low wage in developing countries
• Engaging in the fur trade
• Experimenting on animals

Is it the same as corporate social responsibility?

- There is clearly an overlap between CSR and business ethics
- A socially responsible firm should be an ethical firm
- An ethical firm should be socially responsible

However there is a distinction:

- CSR is about responsibility to all stakeholders and not just shareholders

- Ethics is about morally correct behaviour

Ethics - decision models

- When faced with an ethical question, what guides our decision making? There are
different ways of looking at the issue:

Moral principles
- Evaluate decisions on whether it is consistent with accepted moral principles

Utilitarianism
- Looks at decisions from the perspective of who gains
- What is good for the greatest number is right
- The test is whether or not it is consistent with the greatest happiness of the greatest
number?

Justice model
- The test is does it distribute benefits and penalties in a fair and equitable way?

Human rights
- People have fundamental human rights and liberties - consent, privacy, conscience, free
speech, fair treatment, life, safety
- The test is: does it violate human rights?
- An ethically correct decision is one that best maintains the human rights of those affected
- Decisions that violate human rights are unethical

Individualism
- Is it in the individual’s best interest?
- This is the ethics of self interest

Spectrum of firms
- It would be naïve to believe that all business organisations behave in an ethical, moral
way
- We can classify firms in terms of their ethical stance in the following ways:

The amoral firm

- Seeks to win at all costs
- Anything is acceptable

The legalistic firm

- Will obey the law but no more than that

The responsive firm

- Accepts that being ethical can pay off
- Ethical behaviour is enlightened self interest

The ethically engaged firm

- Wants to do the right thing
- Has a code of ethics
- But ethical behaviour is not fully integrated into the culture

The ethical firm

- Ethics are a core value and permeate the whole organisation

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