Business Ethics Law and Legal Definition
Caveat emptor. This ancient Latin proverb, let the buyer beware, tells us that business ethics has been a societal concern going back a long ways indeed. Richard T. De George, a distinguished student of the subject, dates the modern interest in business ethics to the 1960s when changing attitudes toward business began to manifest in environmental concerns, the rise in consumerism, and criticism of multinationals—and large corporations began to embrace the idea of social responsibility as a business value. Since that time business ethics has also been associated with civil rights, women's rights, the international fight against Apartheid, and many other issues on which Moral Man and Immoral Society (title of a book by Reinhold Niebuhr, the theologian) collide.
Webster's defines ethics as "the discipline dealing with what is good and bad or right and wrong or with moral duty and obligation." (Unabridged, 1961.) The word derives from the Greek word meaning "moral," a Latin word with roots in "mores" or "customs"—in other words the values held by society. Ethicists point out that law represents an ethical minimum and that ethical behavior is something more than being within the law. Individuals—and by extension institutions—obtain their values from religion, philosophy, culture, law, and the special requirements of particular professions. An individual may hold that morality is absolute (what is wrong is always wrong) or may hold that morality is relative (the good is defined in part by other factors). In either case, all but the tiniest minorities assert that good and bad exist and can be determined. Very sophisticated theories exist which assert a hierarchy of good even when morality is held to be absolute; thus, for instance, lying is always wrong, but to lie to save the life of a fugitive Jew during the Nazi era was good: it prevented a worse evil. Given these definitions, business ethics is at minimum something more than operating a business under existing laws; the values to be applied arise from values currently held by society; but the ethics a company may define as its own may hold to an even higher standard.
ETHICS IN A COMPETITIVE ENVIRONMENT
The key difficulty surrounding business ethics is that ethics, by definition, goes beyond the merely legal—but how far beyond? No institutionalized rules exist defining an upper limit. Public opinion is not a very good guide. It is subject to change. Opinions even on environmental issues are subject to change depending on such pocket-book issues as the cost of gas. By its very nature, therefore, business ethics is embroiled in philosophical and operational difficulties.
The traditional concept of business based on Adam Smith's imagery of the market's "hidden hand" assumes that business entities bring about social goods by maximizing profits while operating within the law. Social goods are thus a by-product of market forces—not an objective assigned to corporate management to meet. This viewpoint has been long asserted by free market economists like Milton Friedman. Friedman, in The New York Times Magazine, criticized those who insisted that executives and business owners had a social responsibility beyond serving the interests or their stockholders, saying that such views showed "a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud."
Thus the movement to embrace social responsibility has an ambiguous character. It is not formally mandated but may be rewarded by customer and/or employee loyalty; it may also, indirectly, fend off intrusive legislation. But while it may be easy to be moral when all is going well, it gets tougher when markets shrink. An article in Nilewide Marketing ("Fat profits and slim pickings") puts the matter succinctly: "While the majority of companies claim that employees are their most important asset, they seem to act as though they can do without them, or pay the ones they have a minute proportion of the top salary."
On the face of it, the business that avoids extra costs associated with ethical behavior, and bears only costs necessary to meet the law, will be more profitable, all things equal. A more complex approach to this subject, used by many corporations, is based on the insight that high ethical values have positive consequences (in consumer acceptance, brand valuation, employee loyalty, and so on) which may be difficult to measure but are real. In line with this insight, corporations have invented the notion of a Return on Values (ROV) but find it difficult to give it a numerical expression. At the same time, there is an awareness abroad these days that corporations that set their sights no higher than bare legality may foster an environment where managers may slip across the border of legality and create disasters like the Enron bankruptcy in 2002.
BUSINESS AND EMPLOYEE VALUES
Aside from the structural problems presented by the societal roles of business, corporate policies based on well-formulated ethical principles appear to produce real benefits. A. Millage recently reported in Internal Auditor, about the findings of the "2005 National Business Ethics Survey" (NBES), conducted by the Ethics Resource Center. "Seventy percent of employees from organizations with a weak ethical culture," wrote Millage, "reported observing at least one type of ethical wrongdoing, whereas only 34 percent of employees from organizations with a strong ethical culture said they have witnessed misconduct." Problems listed included abusive or intimidating behavior toward employees; lying to employees, customers, vendors, or the public; violations of safety regulations; misreporting of time worked; theft; sexual harassment; and other problems. Undoubtedly such unethical activities ultimately translate into lost sales, higher turnover, and lower profits. Internally, therefore, ethical behavior is efficient, all else being equal. Whether measurable or not business ethics has a positive "ROV."
BUSINESS ETHICS IN SMALL BUSINESS
Business experts and ethicists alike point to a number of actions that owners and managers can take to help steer their company down the path of ethical business behavior. Establishing a statement of organizational values, for example, can provide employees—and the company as a whole—with a specific framework of expected behavior. Such statements offer employees, business associates, and the larger community alike a consistent portrait of the company's operating principles—why it exists, what it believes, and how it intends to act to make sure that its activities dovetail with its professed beliefs. Active reviews of strategic plans and objectives can also be undertaken to make certain that they are not in conflict with the company's basic ethical standards. In addition, business owners and managers should review standard operating procedures and performance measurements within the company to ensure that they are not structured in a way that encourages unethical behavior. As Ben & Jerry's Ice Cream founders Ben Cohen and Jerry Greenfield stated, "a values-led business seeks to maximize its impact by integrating socially beneficial actions into as many of its day-to-day activities as possible. In order to do that, values must lead and be right up there in a company's mission statement, strategy and operating plan."
Most importantly, business owners and managers lead by example. If a business owner treats employees, customers, and competitors in a fair and honest man-ner—and suitably penalizes those who do not perform in a similar fashion—he or she is far more likely to have an ethical work force of which he or she can be proud.
Di Norcia, Vincent, and Joyce Tigner. "Mixed Motives and Ethical Decisions in Business." Journal of Business Ethics. 1 May 2000.
Fandray, Dayton. "The Ethical Company." Workforce. December 2000.
"Fat Profits and Slim Pickings." Nilewide Marketing Review. 12 December 2005.
Felsher, Louise M. "Improving Workplace Ethics: How to become a better manager, employee or co-worker." Meetings & Conventions. December 2005.
Friedman, Milton. "The Social Responsibility of Business is to Increase its Profits." The New York Times Magazine. 13 September 1970.
Kaler, John. "Reasons To Be Ethical: Self-Interest and Ethical Business." Journal of Business Ethics. September 2000.
Millage, A. "Ethical misconduct prevalent in workplace." Internal Auditor. December 2005.
Torres, Nicole L. "Ethically Speaking: What are today's students learning about business ethics." Entrepreneur. December 2005.
Verschoor, Curtis C. "Benchmarking Ethics and Compliance Programs." Strategic Finance. August 2005.
Williams, David and Todd Dewett. "Yes, You Can Teach Business Ethics: A review and research agenda." Journal of Leadership & Organizational Studies. Winter 2005.
Hillstrom, Northern Lights
updated by Magee, ECDI
Legal Definition list
Related Legal Terms
- Affected Item of Business
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