BUSINESS ETHICS



BUSINESS ETHICS

Lecture 1: An Introduction to Business Ethics

The reputation of American business over the past decade has suffered some pretty serious blows. Enron’s accounting fraud in 2001 led to the demise of what was once the seventh largest company in terms of revenue in the United States, along with the demise of their outside auditors, Arthur Andersen. The next year, WorldCom was found to be “cooking its books” as well, causing investors to lose billions of dollars and thousands of employees to lose their jobs. Also in 2002, the executives of Tyco International were caught illegally siphoning millions of dollars from the company through fraudulent stock sales and unapproved loans. Clearly, the beginning of the 21st century was not a good start for American businesses. The concept of “business ethics” in the new millennium appeared to be more of an oxymoron than a reality.

These business failures, though, highlighted the need for a greater focus and attention to business ethics in our country. The scandals of the past few decades led to the passage of legislation aimed at preventing these types of unethical activities, but businesspeople and educators are becoming steadily more aware of the need to develop integrity-based initiatives that move the practice of good ethics beyond mere obedience to legislative mandates and more to an ingrained cultural value. In fact, a growing belief is that good ethics and a good reputation are good business.[i]

Why Study Business Ethics?

The value of business ethics courses like this one and the reason for studying business ethics should be obvious. Business corruption is not cheap. Investors have lost trillions of dollars in the past decade alone from corporate scandals. Enron shareholders lost $50 billion, and over 20,000 Enron employees lost $1 billion from their retirement savings accounts—all because of the greed of a few top executives.[ii]

Yet, business corruption across the globe has not abated, and it is not unique. The news daily barrages us with reports of corruption in government, sports, religion, science, education, and medicine. Even normal, “honest” individuals have given in to unethical behavior—underreporting on their tax returns, overcharging their clients, lying to their insurance companies, stealing from their employers, cheating on school exams—all with the justification that “everybody is doing it.” There is no question: Our society needs a stronger morality and values system, in all aspects of life.

A culture that operates with rampant unethical behavior in its business transactions cannot long endure. Not only is there significant monetary costs to society from business corruption, but the resulting injustice that occurs to those who are unable to protect themselves will soon create an overpowering burden on society. The gap between the “haves” and the “have nots” will increase, typically at the expense of the “have nots.” David Callahan states the following in his book, The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead:

Polls confirm that many Americans see “the system” as rigged against them. When asked who runs the country, many say corporations and special interests. When asked who benefits from the tax system, most say the rich. When asked who is underpaid in our society, most agree that lots of people are underpaid: nurses, policemen, schoolteachers, factory workers, restaurant workers, secretaries. And when people are asked whether it is possible to get ahead just by working hard and playing by the rules, many say that it is not.[iii]

To God, these injustices are totally unacceptable. In the Old Testament, God frequently condemned the Israelites as well as other nations about injustice, including injustice deriving from their business practices. In Micah 6, He told the Israelites: “What shall I say about the homes of the wicked filled with treasures gained by cheating? What about the disgusting practice of measuring out grain with dishonest measures? How can I tolerate your merchants who use dishonest scales and weights? The rich among you have become wealthy through extortion and violence. Your citizens are so used to lying that their tongues can no longer tell the truth. Therefore, I will wound you! I will bring you to ruin for all your sins” (Mic. 6:10-13 NLT). His demands of His followers are very simple: “To act justly and to love mercy and to walk humbly with your God” (Mic. 6:8 NIV).

The study of business ethics is important, therefore, for training current and future businesspeople how to identify ethical issues when they arise and teaching them how to apply ethical decision-making models to the issues in order to respond with integrity. So, as we go through this course this semester, I hope that you, as a graduate business student, will see this as more than an educational requirement to obtain a grade and credit hours. What you will be presented in this study are truths and principles that can make a real difference in your life, your career, and your world.

What Is Business Ethics?

First, it would be helpful to determine the definition of “ethics.” The word “ethics” derives from the Greek word ethos (ethoj). The Greek word refers to character and custom, conveying the idea of “what ought we to do?”[iv] Simply stated it is the determination of right and wrong.

Yet, such a simple definition does not convey the many facets involved in the study of ethics. A person’s approach to ethics is often a reflection of his or her moral philosophy (a topic we will look at more closely in the next session). For instance, the deontologist emphasizes the standards of right and wrong in his study of ethics, while the teleologist focuses more on the end results of the actions taken. Aristotle viewed ethics as a virtue ethicist, defining it as “the science or study of the character, customs, or habits of human conduct, seeking the highest good.”[v] (Don’t let these “big” words discourage you. They will be more fully explained in our session next week.) These and many other aspects to the study of ethics should not distract you, however, from the simple truth and the simple definition: ethics is the distinguishing of right from wrong.

The definition of “business ethics” is just as simple. It is the distinguishing of right from wrong in the business setting. William Shaw defined it as “the study of what constitutes right from wrong, or good and bad, human conduct in a business context.”[vi] Again, though, this simple definition should not become simplistic. Business ethics involves various unique issues that sometimes complicate the search for what is right and wrong. For instance, businesses generally exist for the purpose of making a profit. In fact, when a business fails to make a profit over a lengthy period of time, it runs the risk of ceasing to exist at all. Its very survival requires it to make a profit. Yet, that need for profit sometimes comes into conflict with the need to act right. Finding the balance between profit and ethical conduct involves issues of personal character, legal requirements, social responsibility, and accountability to stakeholders (such as investors, customers, employees, and the community). The ability to find and maintain that balance is an essential skill for successful business managers and employees.

John Maxwell raises an interesting point about business ethics in a book that was formerly entitled There’s No Such Thing as “Business” Ethics. The title expresses his exact point. Maxwell says: “There’s no such thing as business ethics—there’s only ethics. People try to use one set of ethics for their professional life, another for their spiritual life, and still another at home with their family. That gets them into trouble. Ethics is ethics. If you desire to be ethical, you live it by one standard across the board.”[vii] That single standard, in Maxwell’s opinion, is simply the Golden Rule: “So in everything, do to others what you would have them do to you” (Matt. 7:12 NIV). He considers it the best standard for determining ethical behavior because it is a standard that is generally accepted by all people and all cultures, it is easy to understand, it allows everyone to be a winner, and it gives a clear direction.[viii]

Maxwell’s point is well-taken. According to Jesus, this rule for life and ethical behavior “sums up the Law and the Prophets” (Matt. 7:12 NIV). It encapsulates all that Jesus taught about Kingdom living in His Sermon on the Mount. As we look at the issues of business ethics throughout this semester, it will serve us well to keep Christ’s teaching in mind. It is a commandment for those of us who have committed our lives to Him and seek to follow Him as His disciples. But even for the non-Christian, the standard of the Golden Rule provides a sound and clear basis for making ethical decisions.

The Framework for Studying Business Ethics

Finally, you may find it helpful to understand the framework by which we will approach the study of business ethics this semester. The topics for discussion each week, listed in the course schedule and the syllabus, provide a good outline of some of the key issues that make up an in-depth study of business ethics.

Applying Moral Philosophies to Business Ethics. Philosophers and ethicists have developed and defined many different principles and rules by which people determine what constitutes ethical behavior. These principles provide some logical bases for helping people determine how to act in a particular situation.

Absolutes and Developing an Ethical Decision-Making Process. The problem with many of the moral philosophies is that they view the determination of ethical behavior from a purely relativistic point of view, ignoring the existence of moral absolutes. That is true in personal ethics as well as business ethics. We need to look at the issue of moral absolutes and then develop a process for analyzing an ethical situation and determining the right course of action.

Social Responsibility and Stakeholders, Profits, and Integrity. The concept of social responsibility addresses a business organization’s responsibility to society beyond its goal of simply making a profit. The question, though, is: To whom does a business organization have responsibility and what kind of responsibility does it have?

The Impact of Organizational Culture on Ethical Decision-Making. The internal structure of an organization plays an extremely important part in determining how an employee or manager will respond to ethical issues that arise. Business organizations, therefore, have a duty to develop a culture and value system that encourages ethical conduct at all employee levels.

Ethical Issues in International Business, Employment, Technology and Privacy, Marketing, and the Environment. We will then take a look at these specific areas of business operations in which ethical issues arise.

Developing an Effective Ethics Program. Finally, we will look at how organizations are developing ethics programs to encourage ethical behavior and to train employees in recognizing ethical situations and the proper responses.

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[i] O.C. Ferrell, John Fraedrich, & Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 2009 Update 7th ed. (Boston: Houghton Mifflin Company, 2010), 17-18.

[ii] Edward Iwata, “Enron Legacy: Scandal Marked Turning Point,” USA Today, industries/energy/2006-01-29-enron-legacy-usat_x.htm (accessed 8 Aug. 2010).

[iii] David Callahan, The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead (Orlando: Harcourt, Inc., 2004), 170.

[iv] William M. Tillman, Jr., “The New Technology and Christian Ethics,” Southwestern Journal of Theology 48, no. 2 (Spring 2000): 65.

[v] William Goff, seminary class notes on Christian Ethics CNETH 4313 (June 2001).

[vi] William H. Shaw, Business Ethics, 2d ed. (Belmont: Wadsworth Publishing Company, 1996), 4.

[vii] John C. Maxwell, Ethics 101: What Every Leader Needs to Know (New York: Center Street, 2003), xi.

[viii] Ibid., 18-23.

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