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Summary of Business Ethics
Te gebruiken bij
Auteur(s): Crane, Matten
Druk/Jaar van uitgave: 4ed - 2015/2016
Zoek recente samenvattingen & studiehulp
Chapter 1. An introduction
About business ethics
Business ethics seems to be an oxymoron; it consists of two elements that do not seem to fit together, like ‘deafening silence’. According to Duska (2000), there can be no ethics in business; business is unethical or at best amoral. Many scandals and malpractices have been uncovered. However, even in everyday business activities one needs basic ethical elements like co-operation, honesty, and trustworthiness. The definition of business ethics is ‘the study of business situations, activities, and decisions where issues of right and wrong are addressed’. The right and wrong in the definition are meant morally, not commercially, financially, or whatsoever. The issue of right and wrong brings us to the law, which actually specifies ethics, but does not cover the whole area of ethics. Some behaviours or actions are not legally forbidden, but can be said to be wrong from a moral point of view. The other way around is true as well; some rules and regulations in the law have nothing to do with ethics (that you have to drive on the right side of the road). Business ethics starts where the law ends. Since business ethics is situated in the grey area of business, questions and dilemmas are often equivocal (not one right answer): see figure 1.1 (p. 6). The following definitions help you distinguish between ethics and morality. ‘Morality is concerned with the norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community’. ‘Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for a given situation. These rules and principles are called ethical theories’. So their relationship is:
Morality > Ethics > Ethical theory > Potential solutions to ethical problems (see fig. 1.2, p. 8)
Whereby ethics rationalizes morality to produce ethical theory that can be applied to any situation. All individuals and communities have morality, a basic sense of right and wrong in relation to particular activities. Ethics represents an attempt to systematize and rationalize morality, into generalized normative rules that supposedly offer a solution to situations of moral uncertainty. The outcomes are ethical theories.
The importance of business ethics
Consumers, pressure groups, and the media continuously pay attention to business ethics. Firms seem to recognize the importance of being ethical more and more, and they also realize that it may be even good for their business. The following are reasons why business ethics are important:
Businesses have great power and influence over society, and many members of the public are uneasy with that. Business ethics can help understanding why this happens and what the consequences might be, and what we can do about it.
Businesses have major potential to help society in economic and welfare context, how they use this potential raises ethical questions.
Malpractices can harm individuals, communities, and the environment enormously. Helping us to understand the causes and consequences improves the human condition.
Stakeholders place increasingly tough ethical demands on businesses; business ethics can help appreciating and understanding this challenge so that businesses are able to effectively meet their expectations.
Employees face significant pressure to compromise ethical standards.
Business faces a trust deficit. Only 19% of the general population believes managers make ethical decisions. Enhancing business ethics is needed to restore that trust in the future.
Many remain sceptical about business ethics, but that is more often based on the theories and their applicability than on the subject itself. As said, more and more attention is paid to the subject of business ethics, also by universities and moviemakers. Also, the ‘business ethics industry’ is rising, to help businesses with their ethical issues. Furthermore, consumer spending on ethical products is rising (fair trade, energy efficient products, etc.).
The organizational context and business ethics
The level and type of ethical misconduct that is observed across a range of organizational types is similar (see figure 1.3, p. 16). However, there are some noteworthy differences depending on the context.
First, the difference between small and large companies. Small companies have less time and resources to devote on ethics. Their approach to ethics is informal and trust-based, and they see their employees as the most important stakeholder. Large companies usually have standardized approaches and more resources to establish ethics management programmes.
What hinders them is the need to focus on shareholder value and profitability, and also the very fact that they are big and complex.
Second, the difference between private, public, and civil society organizations (CSOs). A civil society organization is a non-profit, charity or non-governmental organization. The major responsibility of private companies is their shareholders, that of civil society organizations their constituencies and donors. The public sector is mainly concerned with the general public and higher-level government. The latter is concerned with ethical issues in the area of law, corruption, public accountability, distribution of resources, etc. That often results in a formal and bureaucratic approach to ethics. CSOs are usually focused on mission and values, which results in a more informal approach. The book focuses on larger firms. Figure 1.4 on page 17 summarizes the differences in business ethics that can be observed across various organizational types.
Globalization and business ethics
While globalization presents huge opportunities, it also brings increased risks for businesses. These have to do with the speed with which information is transferred, maintaining confidentiality, interdependence of markets, and the virtual business place. Also from society a controversial answer on globalization is heard. Especially MNCs have to justify their operations more and more, as they are being accused of exploitation, environmental destruction, and using their power to involve developing countries in a race to the bottom: a process whereby multinationals pitch developing countries against each other by allocating foreign direct investment to countries that can offer them the most favourable conditions in terms of low tax rates, low levels of environmental regulation, and restricted workers’ rights.
People discuss whether globalization is even occurring at all. Internationalization is a part of globalization, but not the same as the process of globalization itself. Some say that Westernization is a better term to describe the process that is going on, since the western culture is diffused around the world. But that already happened in the colonization times as well. What then are the new developments? First, technological developments. We have increased communication opportunities and technologies that allow us to connect and interact with others at large distances. Also, transportation technologies have improved significantly. Second, political developments. Passing borders has become much easier and obstacles like the iron curtain have been removed. Globalization is the on-going integration of political, social, and economic interactions at the transnational level, regardless of physical proximity or distance. The new thing about these interactions is that they no longer need a geographical territory to take place, and territorial distances and borders no longer restrict them (Scholte, 2005).
Globalization as closer integration of economic activities is important for three areas – culture, law, and accountability -, which will now be discussed.
First, culture. Ethical values that we consider as logical in our home country might not be seen the same way in foreign countries. An obvious example here is the area of gender and racial diversity. Also firing employees may seen as a logical results of economic downturn in Europe, but is considered very unethical in Chinese companies. Cultural differences have existed forever, but globalization makes them visible and turns them in to potential ethical problems. Globalization makes regional differences less important, but reveals economic, political and cultural differences and confronts people with them.
Second, the legal area. When a company only does business in its home country, it can rely on the legal framework there to decide on what is right and wrong. However, as soon as the company crosses borders, there is no one legal framework telling them what is right and wrong anymore. The demand for business ethics will increase since the national government cannot control the actions of the organization anymore.
Third, the area of accountability. Obviously, corporations are the most important players in the global field. They are suppliers, they own mass media, they pay wages, and they pay taxes. Also, they account for a big percentage of GDP, while they have no formal responsibility or accountability for the people like the government has. So the more globalization occurs, the more demand for corporate accountability rises. The stakeholders of corporations and their ethical impact are summarized in figure 1.5 on page 23.
As you have learned many times, globalization involves a paradox: on the one hand the world is converging, but on the other hand business face new, unknown regions and countries that have different ethical practices and values, which presents a diverging view on globalization. The formal academic subject of business ethics has its roots in Northern America, and is a relatively young subject in the rest of the world. In Europe attention for it was increasing from the 1980s.
The questions, which are posed in the area of business ethics, differ across the world. Figure 1.6 on page 24 summarizes the regional differences between Europe, North America, and Asia from a business ethics perspective. There are five questions asked: (1) who is responsible for ethical conduct in business? (2) Who is the key actor in business ethics? (3) What are the key guidelines for ethical behaviour? (4) What are the key issues in business ethics? And (5) what is the dominant stakeholder management approach?
Who is responsible for ethical conduct in business?
We agree that there should be ethical conduct in businesses, but who should make sure that this really happens; who is responsible? In the US, the culture is individualistic, so the individual should make the choices that are ethically right. Asia, on the other hand, relies more on the hierarchy, so top management are the ones responsible for ethical behaviour. In Africa and India, they take a similar perspective as in Asia. In Europe, it is found that the state is responsible because they make the rules and regulations.
Who is the key actor in business ethics?
In most American states, there is not that much regulation on business ethics, so the key player is the corporation. In Europe, the regulations on business ethics are many. That results in governments, corporate associations, and trade unions being the main actors in business ethics. In Asia, there are also more regulations but it are the corporations rather than the trade unions that collaborate with the government. Another situation is that businesses are for a large part state-owned, as is the case in China. So we can say that in Asia the corporations and the governments are the main players. Developing countries like Southern America and Africa have yet another key player: the non-governmental organizations. Since the governments there are often corrupt or do not have enough money, they cannot establish the necessary legal frameworks.
What are the key ethical guidelines for ethical behaviour?
Because of the legal framework in Europe, there is not so much freedom and flexibility for managers in deciding on ethical issues. In Asia there is more flexibility, and emphasis is placed on collective responsibility and relationships. The US relies heavily on rules and regulations; but these come from the businesses themselves rather than from the government. But punishments can be severe. The African approach to business ethics can be explained by the philosophy of Ubuntu, which is ‘a value system in which the commitment to co-existence, consensus, and consultation is prized as the highest value in human interaction’. A similar approach is the Chinese Guanxi idea.
What are the key issues in business ethics?
The different regions find different things most important in business ethics. The European textbooks focus on capitalism and economic rationality, the US books focus on privacy, salary issues, whistle blowing, and privacy, the Asian on corporate governance and the accountability of management, and the countries in de developing world focus on ethical obligations to provide jobs that pay enough to live from, and to price goods fairly. They also expect MNEs to make a contribution to healthcare, local development, and education.
What is the most dominant stakeholder management approach?
US companies often have their shareholders as only stakeholders, whereas companies in other regions have to deal with boards, other companies, and banks as well. European, African and Asian models of capitalism are not so dominated by the drive for shareholder value maximization compared to American companies.
Why are there so many differences?
In Europe, the Catholic and Lutheran Protestant religions resulted in a collective organization of the economy. The Calvinist-Protestant religion in the US resulted in a capitalist economy. So religion is the main source of these differences, which is also visible in other regions of the world. Asia is influenced by Hinduism, Buddhism, and Confucianism, which resulted in a relational, flexible, and pragmatic approach. Muslims rely on justice, integrity, and trusteeship. There are also other sources. For example, Europe had to build its institutions again after World War II. In the US, scandals have been given a lot of attention which further drives the corporate need for ethical behaviour. The approach or situation can also be a result of a colonial history.
Until now we discussed differences, but there are also similarities. For instance within Europe, the national governments lose importance and the different business systems are becoming more similar. Deregulation takes place, due to which the European system becomes more similar to the US system. In the Eastern European countries there are weak states and no tight regulations, which results in the need for businesses to deal with ethical issues themselves as well.
Sustainability as business ethic goal
There are several impacts that businesses have on society:
Pollution of the environment
Waste disposal problems
Downsizing and plant closures
Erosion of local environments/cultures as a result of mass tourism
Sustainability is a term that addresses these issues and is increasingly heard nowadays, often in combination with development (sustainable development). The definition of sustainable development is ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. It has an economic, social, and an environmental element.
We can define sustainability as ‘the long-term maintenance of systems according to environmental, economic, and social considerations’. It partly explains the idea of the triple bottom line (TBL). This says that business does not have one goal (adding economic value), but that other goals include environmental and social goals (see figure 1.8, p. 33). We will now discuss each of these three components in more detail.
First, the environmental component. This is where the concept of sustainability emerged. The ethical issue here concerns managing physical resources effectively so that as few as possible are wasted. Bio systems have eternal life if they are treated well, so businesses must treat them in such a way that their health is not in danger. Also important are non-renewable resources and damaging environmental pollutants that are emitted while producing. The economy itself is also a concern here; business should try to maintain or increase the current living standard.
Next, the economic component. Economic growth is constrained by the possibilities that the earth gives us (e.g., population and economic activity cannot grow forever because there is no space for that). The first implication for business ethics is that it is responsible for economic performance on the long-term. Furthermore, it includes the attitude that a company has towards the economic framework. This concerns for instance bribes and cartels, which would not be ethical.
Third, the social component, which is relatively new. It emerged as a response on unethical activities in less developed regions. The main issue here is the social justice issue. The welfare in the world is still very unequally distributed, but that is not the only gap. Social justice also addresses the differences between men and women, between the urban rich and the rural poor, etc.
As Elkington (1999) suggests, the TBL is less about establishing accounting techniques and performance metrics for achievements in the three dimensions, and more about revolutionizing the way that companies think about and act in their business.
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