Ethical Role of Corporations

Corporations do not act in a socially responsible manner nor should this be an expectation, it will never happen. Only the persons within organizations can choose to accept social responsibilities. A corporation is not made of flesh, blood, or brains. It has no emotional ties to its employees, society, or the environment. Rather, it is a synthetic entity possessing only an abstract sense of responsibility if the human owners of the business have integrated socially responsible behavior into its operation. It has been argued that business owners, or stockholders, have an obligation to in some sense repay the society that allowed it to be.

Others suggest that providing jobs and contributing to the tax base is repayment enough. Whichever of these perceptions one subscribes to the fact that employees of a company have but a single responsibility, to make money for the owners, is not in question. A chief executive officer may act as the ‘brains’ of the corporation but they are an employee and are bound both by ethical consideration and by federal law to make decisions intended to increase company profits. Of course, company employees are expected to obey the law and act following customary public ethical guidelines but mainly because this is in the best interest of the company and not because the company itself has a moral obligation.

Employees cannot simply give away company funds to their favorite charity. That would be irresponsible, unethical, and illegal.

Certainly, company officials are also individuals whose conscience extends past workplace concerns. The person outside the corporation may feel a duty to voluntarily give their time and money to charities, the church, the community, and the family. In these instances, the individual is not acting as the agent of the giving but the principal. They are spending their own time and money or time and not the resources of a company. “If these are ‘social responsibilities,’ they are the social responsibilities of individuals, not business” (Friedman, 1970). Though the view that business does not have a social responsibility is logical and fits the capitalist ideology on which the country was built, others argue that the self-serving goals of corporate America have created a value system not only separate but in opposition to that of society. The result justifies any means by which to achieve it including the destruction of the environment as well as the financial gouging of customers and employees.

Corporations do have social responsibilities and society should demand corporate adherence to those responsibilities.

Corporations must not be allowed to avoid their social responsibility since their endeavors affect social, economic, and environmental concerns. Their historic and vast manipulation of the political system has caused the government to desert its most basic responsibility, to the public, it is supposed to serve which has resulted in negative societal effects. “The now common practice of financing political campaigns has replaced, de facto, the social contract with a corporate one, where those who provimoney money dictate the topics and direction of the governments’ agenda” (“Corporate Social Responsibility” 2008).

This reality is apparent not only in the U.S. but in many other countries as well, both in the developed world and Third World nations. The banking debacle in Mexico escalated its national debt by $80 billion due to the government financially bailing out unscrupulous shareholders who were in league with government officials at the taxpayer’s expense. When Argentina privatized most of the publics’ works departments, corporations stole money from millions of Argentinean citizens. In Europe, the pharmaceutical industries essentially regulated themselves due to their influence within the government. The drug companies did not sufficiently test their products interested only in profits and not the benefits of the drugs for patients.

Steps have since been taken to reduce the harm committed by this type of corporate corruption. Many suggest that the current situation in the U.S. today involving pharmaceutical company influence and the consequential effects is hauntingly similar. Of course, corporate corruption in the U.S. is sadly legendary in scope. Worldcom, Tyco, and Enron are but a few examples of fraudulent practices by company heads that cost thousands of people millions of dollars including retirement benefits. The long-standing partnership between governments and corporations is well documented but this relationship has served to exploit the public rather than work for the common good. “The common thread is the lack of corporate accountability due to the extreme corruption of governments, which has moved them to abandon their social responsibility for the sake of very private interests, including own self-interest” (“Corporate Social Responsibility” 2008).

One cannot simply view the surface efforts of a corporation as evidence of ethical conduct permeating throughout the entire organization, especially at the highest levels where the decisions are made and the beans counted. Enron was on the ‘100 Best Companies to Work for in America’ for three years, accepted six awards for environmental efforts, and boasted of its strict company policies concerning the protection of human rights, safeguarding the environment, and its no-tolerance stance on corporate corruption. Corporate policies are not the answer to curbing corruption unless the question becomes how corruption can be publicly acknowledged and the company put on the mask of righteousness while those at the top steal billions of dollars.

According to Managing Director & CEO of BP, John Manzoni, “to prosper into the future, global companies must contribute to solving the issues that the world faces today. Business must rebuild trust by demonstrating that its interests are aligned with those of society as a whole” (Manzoni, 2006).

New laws for government employees could be a model for corporations to follow. A reward system based on both bottom-line performances coupled with the attainment of ethical behavior standards could be instituted for example. If a person did their job well while striving to ensure fairness and honesty within the department they are assigned while displaying sensitivity to the community’s needs, they would receive bonuses. This method would eventually affect change in the thinking process of management personnel exponentially.

The bonus could be simply retaining the position once this mindset had become more commonplace. The implementation of this bonus system would take more oversight hours from upper management and necessitate the development of specific ethical standards to fit individual job assignments. The objectives must be made explicit, the incentives substantial, and continuing evaluations conducted for this method to be effective. The effort, however, would at least be a step in the right direction and no less effective than what has been tried up until now such as laws based on punishing those caught after the damage has been done.

The ethical bonus system is instead directed at the root of the problem. It all goes back to the question, who knows what lurks in the hearts of men? It is minds that must change, additional policies or the strengthening of current corporate laws will do little to solve the problem. What must be understood are the reasons why corporations are locked into the single-minded philosophy of increasing profits at any cost.

Those in management positions can be well educated in the importance of ethical behavior, companies can develop codes of ethics and environmental concerns can be the priority of every action.

One should not assume, though, that these measures alone will influence managers, however well-intentioned, to choose the common good of the community approach in every situation while at the same time under enormous pressures to attain their corporation’s financial objectives.

The priority for any corporate executive is to focus on the company’s most important asset, the employees. Employees should feel free to choose their life path, not assume they are being lied to by management, and feel safe on the job, that their privacy rights are not infringed upon. Showing genuine concern for employees’ fundamental need to be treated with dignity, not simply as an obvious tactic to motivate the employee to produce more pays dividends in a realistic sense. “An organization that cannot treat employees fairly and ethically weakens its own ability to respond and innovate when it faces competitive challenges”.

An ethical company not only manages its employees with responsible forethought and fairness, but it also manages its finances in an honest, transparent manner. Avoiding a corporate financial scandal not only averts bad publicity which harms fiscal health but lowers the chances that the company will experience a total collapse, such as Enron, Worldcom, etc. An ethical corporate leader is a responsible leader.

Operating within the bounds of morality ultimately safeguards the company’s assets which are the executive’s main concern according to those who believe that a company has no social responsibility. The fraudulent actions of one executive could bring down the company which puts the jobs of many at risk. “Many business persons struggle to build the reputation of their business community and the promise of the free market system, only to have their efforts diminished by the actions of one corrupt business person”.

Companies who actively take a part in improving the economic situation of their surrounding community reap the rewards in the long run. An investment in the local economy helps to ensure the financial viability of the community, an important aspect of the long-term viability of the company. To accomplish this, a company could invest in the training and education of the neighboring labor pool.

In addition, it could work with local suppliers and the area’s governing body to improve infrastructure, enforcement, and regulations to enhance economic expansion therefore the commercial environment and the business itself. “Corporate leaders recognize the need to strengthen their community base. A vibrant local economy can become as important a factor in business growth as export development” (Kanaga, 1999).

Corporate piracy became a news item in the 1980s when the term ‘hostile takeover’ became a part of everyday language. During this time and extending into the 1990s, other corporate excesses including the revelations of excessive salaries for top management and substantial employee layoffs became so commonplace it was hardly worthy of news reports. These patterns of somewhat acceptable extremes culminated in contemptibly deceptive excesses which inevitably toppled corporate giants such as WorldCom, Enron, Tyco, and Arthur Anderson among others in the 2000s.

Bernard Ebbers, a former CEO of WorldCom, is currently serving a 25-year term in prison for the part he played the $11-billion accounting fraud which caused the downfall of his company which is MCI today. Ebbers testified that he had nothing to do with the fraud but had retired two months before its collapse at about the same time the company was posting a nearly $4 billion profit. Soon after his departure, this hefty profit was shown to be a paperwork deception (“Bernard Ebbers”, 2005).

Former Enron executives Kenneth Lay, Jeffrey Skilling, and Andrew Fastow were found culpable of conspiracy in the most high profile of the cases involving corporate fraud. In 2001, the energy company filed for bankruptcy with debts totaling $31 billion which, among other ramifications, left thousands without a job, benefits, or a pension fund which was squandered by the company executives. Ex-CEO Skilling was sentenced to 24 years following his conviction on several felony counts including insider trading, conspiracy, and fraud. Fastow, Enron’s chief financial officer, received a six-year sentence in Federal prison for engineering the conspiracy. (Hays, 2006).

During the past couple of decades, corporate scandals of the highest magnitude have shocked us all and been the focal point of many debates on many levels of the corporate, governmental, academic, and public spectrum. History has repeated itself enough times recently and society interested in healing a capitalist system that has served it so well should enact measures that would stop the seemingly endless cycle of corruption within corporations.

When the people decide they want a moral, decent and ethical society, then maybe they will refocus their efforts.

Instead of imposing their morality on individuals in the form of disallowing gay marriages, for example, society should consider uniting to demand that government and corporation officials act morally and ethically. The prognosis looks dim, however. If history has taught us anything, it is that we don’t learn from history. The ideal would be to establish and maintain a culture that is motivated by profits yet does not accept less than ethical conduct.

Holding personnel accountable for ethical as well as financial successes would make great inroads in curbing unethical corporate behaviors but along with this must come greater transparency at all levels of management and a better system of checks and balances throughout the organization. Leadership is the key to ethical behavioral successes in corporations and though no tactic can assure this outcome based on any defined timeline, a proactive solution such as this will create ever-narrowing parameters for corporate ethical practices.

To do what is right and good can be embedded deeper into society as it is the inclination of people to do just that. It’s the justifications for deviance that must be modified. If unethical acts by executives of corporations are generally expected and widely tolerated by society, then this type of behavior can be easier justified by someone that has the opportunity to benefit from their unethical actions. Taking away the tolerance of a society, the mindset, the ability to justify poor ethical choices diminishes even when the opportunity presents itself.

Works Cited

“Bernard Ebbers Given 25-year Prison Sentence.” (2005). Canadian Broadcasting Corporation. Web.

“Corporate Social Responsibility.” (2008). The Jus Semper Global Alliance. Web.

Friedman, Milton. (1970). “The Social Responsibility of Business is to Increase its Profits”. The New York Times Magazine. Web.

Hays, Kristen. (2006). “A Dramatic Shift for Skilling.” Houston Chronicle. Web.

Kanaga, William S. (1999). “Corporations Must Act Ethically.” Economic Reform Today. Web.

Manzoni, John (2006). “BP and Infosys co-chair inquiry into the role of the global company of tomorrow” Ethical Corporation. Web.