Study of Business Ethics
In the modern world, ethics in business is becoming increasingly important, as scandals that are widely publicized have unpleasant consequences – from people’s anger to distrust of the organization. Therefore, there is a necessity to combine responsibility and ethics in all decisions made in the business. At the same time, ethics affect employees at all company levels and is as crucial as accounting or management. Fraedrich et al. (2015) note that ethical behavior, contrary to popular belief of its simplicity, is a complex process requiring identifying and understanding problems, risks, and quick decision-making. In business ethics, not only the philosophical approach and assessment of social influence are essential, but also the practical side – the impact on the organization, stakeholders, and their interests.
There are no uniform definitions for concepts related to ethics, which leads to disorder in the topic. Fraedrich et al. (2015) give some explanations to represent the business ethics:
- Morals are a personal belief and philosophy about what is right and wrong.
- Principles are particular boundaries of conduct that should not be violated, for instance, human rights.
- Values are ideals and beliefs imposed by society, like teamwork.
Business ethics combine norms, values, and principles derived from personal and organizational beliefs and law. At the same time, various stakeholders may have contrasting opinions about what is considered ethical. Moreover, representatives of the business organization are usually a unique group with their own culture, values, principles, and, accordingly, rules. An ethical decision involves a situation where existing regulations are not applicable, and it is necessary to weigh the values to make a decision.
To understand business ethics, it is crucial to take into account several features of the sphere. First, profit is an essential condition for the survival and prosperity of business companies. Secondly, there is a need to meet the needs of stakeholders. There can be no compromise between these conditions and ethics. Their successful combination is proved by companies such as Google, Starbucks, and other business giants.
Today, ethics has a significant impact on the activities of companies. Stakeholders, such as employees, investors, communities, and other involved people, are watching closely for compliance by companies. At the same time, about 40% of workers report that they showed at least one violation (Fraedrich et al., 2015). Ethical misconduct leads to a negative image of organizations and reduces trust, which leads to financial losses.
Business ethics covers many different issues of concern for business representatives. Potential risk areas are fraud, bribes, abuse of company resources, defective products, and similar problems. For example, one of the ethical dilemmas is the opening of a supermarket in a specific area. Its residents can be against a large store, as small stores may suffer. Ethical violations may affect any area and organization – politics, sports, and other fields. For example, politicians can cause a scandal by taking a bribe, or well-known athletes and media personalities suffer due to accusations of harassment, which are sometimes only rumors.
All decisions made to resolve problems are ultimately considered from an ethical point of view. Various aspects are interconnected – even if a person believes in the correctness of a decision and society condemns it, it will probably be considered unethical. At the same time, any decision, ethical and unethical, has an impact on the company. The higher the organization’s prestige and profit, the more responsibility lies in making moral decisions.
Several reasons justify the importance of studying business ethics. While it resembles a person’s personal beliefs, and choosing employees with strong ethical values is essential, much more is included in the concept. This statement, however, does not mean that personal beliefs can be ignored. They are important because they affect working performance, although personal views are not enough to solve complex ethical issues which influence an organization. Moreover, taking into account personal beliefs and values is vital in the context of cultural diversity in modern organizations.
Such qualities as honesty, the desire for justice, and similar characteristics are considered socially acceptable and necessary. However, they are not always applicable to business decisions that require detailed discussion. For example, antitrust, deceptive advertising, or the Foreign Corrupt Practices Act are controversial issues (Fraedrich et al., 2015). Some areas and problems are confusing even for lawyers, and it is challenging to prevent ethics violations in the organization in such controversial situations.
Experience significantly determines the ability to make ethical decisions, and the knowledge gained during work helps facilitate the process. Moreover, knowledge of ethics is necessary to be a responsible manager and leader.
For example, business representatives often need to decide about hiring people, sales techniques, and other business aspects. Morals and experience gained in different circumstances – at home or school, are not applicable in such situations and require expertise in the field. Experience in such cases will also help to understand what is acceptable and what is not. Thus, studying business ethics is necessary to identify ethical problems and consider various approaches to solving them. Moreover, the study of the concept will help overcome the potential conflict between individual values and the organization’s interests.
Development of Business Ethics
Business ethics has its unique history and development features that have influenced its current form. Fraedrich et al. (2015) identify several main stages: “(1) before 1960, (2) the 1960s, (3) the 1970s, (4) the 1980s, and (5) the 1990s – and continues to evolve in the twenty-first century” (p. 9). Until the 1960s, the capitalist system’s effectiveness was in question, which affected the country’s economy. Firstly, politicians demanded that businesses take part in ensuring the well-being of citizens. In the 1950s, the Harry Truman program ruled that ethical issues under business responsibility are environmental responsibility and civil rights (Fraedrich et al., 2015).
Besides politics, ethical issues related to business, such as a fair attitude towards employees and assistance to the low-income population, were discussed mainly within religion and philosophy. Their traditions formed the basis of business ethics and contributed to its development.
Although the vast development was ahead, already during this period, literature on business ethics began to appear. The first book, written by Frank Chapman Sharp and Philip G. Fox, was published in 1937 and covered fair competition, fair prices, service, and the development of morals in a business society (Fraedrich et al., 2015). The discussion of ethics in this book was based on philosophical ideas and economic theories. However, the authors’ achievement is that they considered the importance of stakeholders’ interests.
The next period of significant changes was the 60s of the 20th century. According to Fraedrich et al. (2015), there was an anti-business trend and attention to environmental problems during these years. However, consumerism has become the main driver of business ethics. Its pace increased, and consumer rights had to be protected. President Kennedy delivered a special message and outlined several consumer rights areas that later became the Consumers’ Bill of Rights: the right to safety, choice, awareness, and be heard (Fraedrich et al., 2015). When Johnson became president, he focused on ensuring economic stability and equality for citizens, and businesses that could destabilize this were considered unethical.
The 1970s became a crucial stage for business ethics, as it began to form as a field of study. The foundations were laid by philosophy and theology, calling for applying moral principles in business and controlling the organizations’ influence on stakeholders. The popularity of the sphere increased, business ethics centers appeared, and an increasing number of companies began to take care of their image. The Watergate scandal drew attention to the importance of ethics in politics (Fraedrich et al., 2015). By the end of the decade, particular attention was paid to bribes, ecology, product safety, and similar issues. However, the topic of ethical decision-making was little discussed during this period.
In the 1980s, business ethics continued to gain popularity, and many articles, seminars, and courses on the problem appeared. Influential was the achievement of R. Edward Freeman, who worked on the topic of stakeholder interests as a basis for ethical decision-making in business. Another achievement of the decade was the Defense Industry Initiative on Business Ethics and Conduct (DII), which became a guide for ethical behavior in organizations (Fraedrich et al., 2015). Moreover, significant changes have occurred thanks to Presidents Reagan and Bush. They reduced the impact of government on business and emphasized that self-regulation would be more effective. Companies, as a result, developed rapidly and reached the international level, where the existing business ethics was not applied.
In the 1990s, President Clinton continued to support the policies of his predecessors by supporting free trade and self-regulation. However, many reforms were devoted to solving social and health problems, which affected business. For example, there were restrictions on advertising cigarettes to reduce teenagers smoking (Fraedrich et al., 2015). The new Federal Sentencing Guidelines for Organizations (FSGO) legislation also regulated the imposition of penalties for ethical misconduct (Fraedrich et al., 2015). The laws also contributed to companies monitoring their business processes, identifying violations, and eradicating them.
In the 21st first century, business ethics underwent even more changes and development. Although it was institutionalized in the 1990s, in the early 2000s, it became clear that not all organizations support ethics applications. Scandals related to accounting fraud and other abuses received significant publicity. As a consequence, the public demanded to increase in the requirements for business ethics in companies. One of the decisions was the Sarbanes-Oxley Act of 2002 – the main change in the control of organizations and their accounting over 70 years. According to the new law, corporate fraud was punishable by a fine, and cheating with securities became a criminal offense.
New requirements appeared, such as establishing moral codes for financial reporting and other conditions for companies. Nevertheless, in 2008 “financial system almost collapsed because of the pervasive, systemic use of instruments such as credit default swaps, risky debt such as subprime lending, and corruption in major corporations” (Fraedrich et al., 2015, p. 13). The situation showed that despite various laws, the risk remained significant.
Barack Obama became president during a difficult financial period and took measures to restore. The Dodd-Frank Wall Street Reform and Consumer Protection Act was adopted to make the financial services sector more ethical. However, the crisis raised doubts among the public about the effectiveness of state supervision. The future of business ethics is information protection, acquisition and sale, big data regulation, and cloud computing. Thus, technology will largely determine problems for business ethics.
Reference
Fraedrich, J., Ferrell, O.C., & Ferrell, L. (2015). Business ethics: Ethical decision making & cases (11th Ed.). Cengage Learning.