The Idea of Business Ethics

Believe it or not, it’s in the best interest of a company to operate ethically. Trustworthy companies are better at attracting and keeping customers, talented employees, and capital. Those tainted by questionable ethics suffer from dwindling customer bases, employee turnover, and investor mistrust.

Let’s begin this section by addressing one of the questions that we posed previously: What can individuals, organizations, and government agencies do to foster an environment of ethical and socially responsible behavior in business? First, of course, we need to define two terms: business ethics and social responsibility. They’re often used interchangeably, but they don’t mean the same thing.

What Is Social Responsibility?

Corporate social responsibilityApproach that an organization takes in balancing its responsibilities toward different stakeholders when making legal, economic, ethical, and social decisions. deals with actions that affect a variety of parties in a company’s environment. A socially responsible company shows concern for its stakeholdersParties who are interested in the activities of a business because they’re affected by them.—anyone who, like owners, employees, customers, and the communities in which it does business, has a “stake” or interest in it. We’ll discuss corporate responsibility later in the chapter. At this point, we’ll focus on ethics.

How Can You Recognize an Ethical Organization?

One goal of anyone engaged in business should be to foster ethical behavior in the organizational environment. How do we know when an organization is behaving ethically? Most lists of ethical organizational activities include the following criteria:

• Treating employees, customers, investors, and the public fairly
• Making fairness a top priority
• Holding every member personally accountable for his or her action
• Communicating core values and principles to all members
• Demanding and rewarding integrity from all members in all situationsAlan Axelrod, My First Book of Business Ethics (Philadelphia: Quirk Books, 2004), 7.

Whether you work for a business or for a nonprofit organization, you probably have a sense of whether your employer is ethical or unethical. Employees at companies that consistently make Business Ethics magazine’s list of the “100 Best Corporate Citizens” regard the items on the above list as business as usual in the workplace. Companies that routinely win good-citizenship awards include Procter & Gamble, Intel, Avon Products, Herman Miller, Timberland, Cisco Systems, Southwest Airlines, AT&T, Starbucks Coffee, Merck, and Medtronic.“100 Best Corporate Citizens for 2004,” Business Ethics: Corporate Social Responsibility Report 18, no. 1 (Spring 2004): 812. (Interestingly, their employees not only see their own firms as ethical, but also tend to enjoy working for them.)

By contrast, employees with the following attitudes tend to suspect that their employers aren’t as ethical as they should be:

• They consistently feel uneasy about the work they do.
• They object to the way they’re treated.
• They’re uncomfortable about the way coworkers are treated.
• They question the appropriateness of management directives and policies.Alan Axelrod, My First Book of Business Ethics (Philadelphia: Quirk Books, 2004), 7.

Figure 2.2

In the early 1990s, many Sears automotive customers were surprised by hefty repair bills. Their complaints raised red flags with law-enforcement officials and forced Sears to refund $60 million.

© 2010 Jupiterimages Corporation

In the early 1990s, many workers in Sears automotive service centers shared suspicions about certain policies, including the ways in which they were supposed to deal with customers. In particular, they felt uncomfortable with a new compensation plan that rewarded them for selling alignments, brake jobs, shock absorbers, and other parts and services. Those who met quotas got bonuses; those who didn’t were often fired. The results shouldn’t be surprising: In their zeal to meet quotas and keep their jobs, some employees misled customers into believing they needed parts and services when, in fact, they were not needed. Before long, Sears was flooded with complaints from customers—as were law-enforcement officials—in more than forty states. Sears denied any intent to deceive customers but was forced not only to eliminate sales commissions but also to pay out $60 million in refunds.

Why Study Ethics?

Ideally, prison terms, heavy fines, and civil suits should put a damper on corporate misconduct, but, unfortunately, many experts suspect that this assumption may be a bit optimistic. Whatever the condition of the ethical environment in the near future, one thing seems clear: The next generation entering business—which includes most of you—will find a world much different than the one that waited for the previous generation. Recent history tells us in no uncertain terms that today’s business students, many of whom are tomorrow’s business leaders, need a much sharper understanding of the difference between what is and isn’t ethically acceptable. As a business student, one of your key tasks is learning how to recognize and deal with the ethical challenges that will confront you.

Moreover, knowing right from wrong will make you more marketable as a job candidate. Asked what he looked for in a new hire, Warren Buffet, the world’s most successful investor, replied: “I look for three things. The first is personal integrity, the second is intelligence, and the third is a high energy level.” He paused and then added: “But if you don’t have the first, the second two don’t matter.”Quoted by Adrian Gostick and Dana Telford, The Integrity Advantage (Salt Lake City: Gibbs Smith, 2003), 3–4.