When discussing the subject of business ethics, points of view range from those who believe that ethics in business is one of the most pressing issues if companies are to ensure creditability and trust to the cynic who is of the view that the term business ethics is an oxymoron, a contradiction in terms, and that the concepts of ethics and business are inherently incompatible. In the early twenty-first century, the general public, fueled by the general media, is quick to seize upon ethical wrongdoing by both small and large companies and is anxious to spotlight ethical violations. In doing so, demands are also increasing for greater levels of accountability in business. The reality, therefore, is that the term ethics—the expectation of appropriate behavior—and business—the current mercantile environment—cannot be separated as one experiences increasing expectation of higher standards of ethical behavior in organizations.
FACTORS PROMOTING ETHICAL AWARENESS
The factors promoting ethical awareness in both business organizations and business education programs are varied. Societal expectations and tolerance of what constitutes appropriate business conduct have also broadened. For example, companies such as Nike and Reebok have had to fend off criticisms of sweatshop practices in their off-shore contract manufacturing facilities by posting their factory labor audits on the Fair Labor Association (FLA) Web site. Both consumer and shareholder attitudes toward an organization and its ethical profile are increasingly impacting on purchasing decisions and investment strategy. Examples are the consumer boycotts, as historically experienced by Nestle, and also the growing popularity of ethical investment funds. Undoubtedly, media attention has been instrumental in highlighting ethical misdemeanors. The popular press has been littered with high-profile cases such as Enron, WorldCom, Parmalat, and Adelphi Communications, as well as the audit companies who appear to have been complicit in their oversight of the financial practices of those organizations. The potential cost of ethical violations is also a motivating factor for organizations to reassess their stance. Companies such as Ford, for example, have been subject to significant compensation claims in relation to endangering consumer welfare as a result of faulty tires used on the Ford Explorer.
Ethical violations, when made public, can have a damning effect on publicly listed companies, as supported by the efficient market hypothesis, which maintains that markets are very efficient in interpreting data and arriving at equilibrium prices. Share prices reflect publicly available information, and it appears that any unethical conduct that is discovered and publicized impacts the corporation and shareholders by ultimately lowering the value of a company’s shares for an appreciable period of time. Similarly, for unlisted companies it is assumed that when an ethical violation is made known it will erode the trust of consumers and will ultimately be reflected in diminished sales.
The relationship between ethical behavior and company performance is intriguing. More than ninety-five empirical studies have examined the effect of the relationship between ethics and corporate social responsibility on financial performance, with the outcomes being both positive and negative. Positive relationships prevailed but it is not entirely clear whether increased ethical activity leads to increased performance or, alternatively, whether higher performance provided firms with additional resources that they could devote to social and ethical activities. Furthermore, there are varying levels of ethical engagement by organizations. The first level is one of self-protection; that is, ethical behavior is promoted in order to avoid criminal liability or additional costs. The next level is rep-utational awareness and the associated benefits that accrue to the organization. The final level is when an organization has an interest in being ethical because it believes it is, in fact, the right thing to do; it is the way the company does business.
MORALITY AND ETHICS
While it is tempting to think of business entities as the primary moral agent, business organizations are, in fact, commonly comprised of a number of individuals making decisions that may have an ethical dimension. These ethical dimensions could relate to environmental and social considerations, such as pollution; stakeholder interactions, for example, product liability; competitive dealings, for example, price collusion; employer obligations, for example, employee safety; or personal behavior, for example, conflict of interest, so it is important to realize that the ethical performance of an organization is a reflection of the individual behavior of its employees. What guides this behavior? Essentially, morality relates to principles of right and wrong and is comprised of numerous moral norms or standards. These moral expectations have a number of sources such as family, society, church, education, training, and even one’s organization or employment. This is the intellectual base one frequently refers to when faced with an ethical dilemma (the head part). Ethics is the discipline of dealing with moral duty and obligation and might be described as the practice of morality (the actual behavior part). Business ethics is, therefore, the practice of morality as it applies to business behavior.
There is extensive scholarly debate on whether moral principles apply universally, or whether ethical judgments are relative to their context. The ethical relativists assert that there is no consistency of beliefs because moral principles are relative to individual persons and cultures, so moral standards will differ between individuals, groups, circumstances, and across time. The absolutists, however, contend that there are common moral standards upon which ethical reasoning rests and that, despite variations in ethical behavior, individuals are rooted in common moral standards. In support of the absolutists, it has been suggested that because the purpose of morality is to help make social cooperation possible, moral principles are universally necessary for that to occur.
As one witnesses the differing ethical behavior being exhibited in companies it has been suggested that there are varying levels of moral development. According to Lawrence Kohlberg’s well-established stages of moral development, there are six stages of moral development that can be summarized into three levels: the preconventional level is one at which individuals are motivated by a childlike avoidance of punishment, obedience to authority, fear, and self-interest. At the conventional level, individuals are motivated by loyalty to a group or professional norms. At the highest level, postconventional, individuals have a wide view of what is right and wrong and of those who might be affected by their decisions. An individual operating at this level has broad ethical principles in place and his or her decisions are based not on the current norms of the group or standards of society, but on personal conscience grounded in these principles.
THE RESEARCH LITERATURE
Historically the literature on business ethics has been anchored in normative philosophy and can be seen to be broadly delineated into three areas: prescriptive/hortatory literature, which attempts to sermonize and instruct the business community and education in raising ethical standards; descriptive/positive literature, which is characterized by extensive empirical research into, for example, ethical attitudes of students and business personnel; and meta ethical/analytical literature, which investigates meaning and justification relating to the corporate and individual decision-making process. Naturally, the field of business ethics is readily evolving. The colloquy on business ethics is being extended with the lexicon broadening and being claimed by related terminologies such as corporate social responsibility, stakeholder management, corporate governance, sustainability, and corporate citizenship.
