Introduction – A history of business Ethics
“Business Ethics” can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affect others. (Mc Donald Chris 2010)
Raymond Baumharts suggests it was the groundbreaking studies in the 1960’s that are understood to be the early contributors to business ethics. Management researchers began studying business ethics in the sixties s by conducting surveys of manager’s attitudes towards ethical business practices. According to the Stanford Encyclopedia of Philosophy, Richard de George dates academic business ethics to the 1970’s, identifying Baumhart as a forerunner to a self-conscious academic business ethics and also dates the field’s first academic conference to 1974. This was over forty years ago.
The definition of a fad according to the Oxford English Dictionary is “an intense and widely shared enthusiasm for something, esp. one that is short lived and without basis in the objects qualities; a craze.” Something short lived is what normally symbolizes a fad. Is forty years short lived?
Throughout this essay my aim is to counteract the statement that business ethics is just a fad. I will show the development of business ethics from the beginning of the widely used term to the explosion of it into the world of academia and also the business world. I will look at a case study during the explosion times dealing with the green movement.
You cannot have one side of an argument without the alternative perspective. In my second chapter I will invert my argument by examining situation when business ethics could have been perceived as a fad. During a recession businesses can loose sight of their values, as profit maximization becomes the key factor of their business strategy. However, due to the fact that even in these harsh times there is still evidence of business ethics the concept of these ethics being a fad are further dispelled.
My third chapter will look at the expression ‘social responsibility’. I will examine why corporate social responsibility needs ethics. Corporate social responsibility attracts customers and is good business practice but it must go hand in hand with ethics in order for it to be at a highly sustainable business level.
“Ethics and values should be visible in leaders as well as in businesses because they live them in their actions every single day” (Hoffman, Frederick, Schwards, 2001, P. 97).
From the early years to the explosion of Business Ethics
The term business ethic is said to be as old as the term business itself. The oldest known written legal ethics code, the Code of Hammurabi (1700s B. C.), dealt considerably with issues concerning commerce, tariffs, and pricing (De George Richard, 2010). In the midst of the changes in social attitudes that emerged in the 1960s, questions about the social and moral responsibilities of businesses and corporations began to emerge in academic and professional circles. As the term entered more general usage in the media and public discourse, it often became compared with either business scandals or more broadly with what can be called “ethics in business.” According to Pearson (1995) “it refers to a movement within business or the movement to explicitly build ethics into the structures of corporations in the form of ethics codes, ethics officers, ethics committees and ethics training” (p. 67).
Since its development in the seventies business ethics has become a significant concept in any company or corporation. Some ask why ethics has become a predominant feature in the strategic planning of a business. The importance of a business to a society and the society of a business is one of the reasons ethics is regarded as important in modern times. If a corporation or a business is not acting in a way that is ethical towards an aspect of society the business will find that their popularity among the public, one of their key stakeholders, diminished. “Firms and corporations operate in a social environment. By virtue of existing in the social and natural environment, businesses are duty bound to be accountable” (Goodpaster, Nash, Bettignies, 1998, p. 58). Business malpractice can inflict huge damage on individuals and society at large. Ethical business practice is a way that companies can make decisions while taking all their stakeholders into consideration. This may be there shareholders, the customers, the pubic, the government, etc.
The growth of business ethics articles and books in the academic and professional press, suggests that these communities are becoming increasingly interested in ethics also. In the midst of the insider trading scandal on Wall Street in 1987, former Securities and Exchange Commission head John Shad gave Harvard Business School thirty million dollars for the purpose of starting a business ethics program there. Would John Shah give away thirty million dollars to a program he believed was only a passing craze? In numerous academic colleges ethics has become a significant module in many different disciplines of business courses. If business ethics were only a fad why then would it be taught to the future entrepreneurs and business minds? It is clearly something peers in the field feel as an important subject to place emphasis on.
The 1970’s saw numerous steps to clean up the environment: the National Environmental Policy Act, the Clean Air Act, the founding of Earth Day, the banning of DDT, the Water Pollution Control Act, and the Endangered Species Act (which the Supreme Court upheld in 1977. Disasters at Love Canal in 1978 and Three Mile Island in 1979 terrified the public with the visible consequences of toxic waste, pollution, and contamination (WebEcoist, retrieved on 6/11/2011)
In April 2007 an article was published in the Environmental Leader called “Green Movement Turns ‘Mainstream’ For Corporate America.” The name of the article itself is enough to illustrate that the ethical movement for businesses to become more environmental had become common practice in corporate America.
Today IKEA is an example of how a company showing high ethical standards and a passion for the environment is at the forefront of their industry. “IKEA is a leader in setting high environmental standards for its product. That means employing strict manufacturing methods and supply processes so that materials, technologies and transportation have the least damaging effects on the environment,” says Rene Hausler, Partner of the IKEA-San Diego Franchisee (Barret, Richard M. 2005) According to The Outstanding Sustainable Style Achievement (OSSA) Awards website in April 2005 IKEA the Swedish global furniture retail giant received the Award for eliminating the usage of Polybrominated Diphenyl Ether, a toxic fire suppressor used in manufacturing furniture. Most of IKEA’s products were made of wood. This wood was sourced from many different countries. It came to the attention of the company that the suppliers they used were exploiting children in the manufacturing of the goods and products. These discoveries led to IKEA’s management deciding to reorganize the company’s business policies and introduce stringent rules to ensure better social and environmental practices, both within the company and with its business partners. Commenting on IKEA’s decision, the company spokesman Marty Marston said, “At IKEA, we’re moving toward a way of thinking based on the philosophy that everything we take should be used, reused and recycled, either by ourselves or nature, in such a way that causes the least possible harm to the environment” (Reda, Susan, 1999).
IKEA are one of the worlds leading furniture manufactures and they are setting the example for business ethics. Business ethics plays a major role in IKEA’s strategy and one of the major reasons for the company’s success. Ngvar Hjartso, UNICEF Representative comments "We consider IKEA to be setting an excellent example for other corporations to follow. IKEA is prepared to go further than just saying ‘no’ to a supplier who exploits children. The company is showing a genuine interest in bringing about improvement for children by assuming a responsibility for child labour issues” (IKEA, 2001).
Scenarios where Business Ethics may have been perceived as a Fad
In February 2010 the Financial Crisis Inquiry Commission made a link between unethical business behavior and the current economic recession (Rushworth M. Kidder, 2011). The Institute for Global Ethics (IGE) published The Ethics Recession: Reflections on the Moral Underpinnings of the Current Economic Crisis, in 2009. When the last recession began to hit in 2008 the IGE began to examine the connection between economics and ethics. They began to ask themselves the question as scandal after scandal unraveled about multinational corporations, “whether the economic collapse arose not from innocent financial force but from a vast ethical meltdown?” (Rushworth M. Kidder, 2011). Unethical behavior was taking down empires.
In this case there was a lack of ethical behavior rather than unethical behavior. Corporations rejected their ethical standards when times got tough. Profit maximization was the influential factor and this meant cutting costs on what the organization saw as unimportant expenditures. Corporations dismissing their business ethics lead to a lack of consumer interest, which lead to a vicious downward spiral for the economy.
At the time when organisations were choosing to be unethical, the business itself could have felt that ethics was only a fad and that the company could still be successful without it. In my opinion I believe the consumer and the public are always aware of ethical and unethical behavior. The reality in the end proved that ethics are an influential factor in the success of an organization. Ethics in business is more important than ever and companies are now realizing this. The largest and most successful companies have been practicing this for years. Take Johnson and Johnson and the Tylenol crisis in 1982. Seven people in Chicago were reported dead after taking extra-strength Tylenol capsules. It was reported that unknown suspects tampered with the medicine and put extra cyanide into Tylenol capsules. Tylenol controlled 37 percent of its market with revenue of about $1.2 million. Immediately after the cyanide poisonings, its market share was reduced to seven percent (Purdom Nick). Johnson & Johnson had to think of the most effective way to deal with the problem without destroying the reputation of the company and its most profitable product. Johnson and Johnson chose the ethical way. They recalled every bottle of Tylenol in the United States. They put their consumers first above there shareholders, as a loss of millions was inevitable with the recall of the products. This is why Johnson and Johnson are still one of the leading pharmaceutical companies in the world. They realized from an early stage the importance of ethics and how it was lasting factor in the running of a successful business.
Corporate Social Responsibility and Business Ethics
“Responsibility is one of the five distinct core values that define, globally the idea of ethics” (Rushworth M Kidder, 2011). The other four values are honesty, respect, fairness and compassion. Ethics requires all five values. Corporations can have a strong sense of responsibility without being honest; likewise a corporation can be honest without having responsibility. But for an organization to be ethical it requires all five-core values. Corporate social responsibility attracts customers and is good business but this must go hand in hand with ethics for it to fully be sustainable.
If a consumer wants to buy a product, which is fair trade, they find themselves buying from ethical companies. This is meant to ensure the consumer that the company is producing the product to a high ethical standard. This may mean the coffee bean is sourced from countries and farms that don’t exploit the worker. The organization must not only pay attention to the product but it must place equal attention on how the product was produced. Cheryl Queen from Compass Group, a foodservice management company based in Charlotte, North Carolina implemented a voluntary deal to pay an extra 1.5 cents per pound to tomato-field laborers in Immokalee, Florida — a change that upped workers’ pay by nearly two-thirds (Rushworth M Kidder, 2011). This is a social responsible example of a business helping the tomato-field laborers to earn more money. Hypothetically if Compass had previously bribed union leaders to half the wages of the workers a few months previous to this voluntary deal so that in the long run they are paying them what they would have in the first place. Can you still call this socially responsible if it is not ethical? Business ethics must exist in order for an organization to participate in socially responsible practice. As Rushworth M. Kidder (2011) says, “they must not only do the right things (which is CR) but do things right (which is ethics).” Many current statistics according to Joyner and Payne (2004) support the premise that ethics, values, integrity and responsibility are required in the modern workplace.
Conclusion
Robin Aram, Head of External Relations for Shell International says, “Things ethical are here to stay” (Rushworth 2001). Shell is a company that took a public beating for its unethical behavior in the nineties. Shell International has been at the forefront of criticism for ignoring ethical process. The company has experienced first hand the repercussion of not partaking in ethical procedures and this is a clear indication that business ethics is not just a passing craze.
Another reassurance that ethics is not just a fad is the medias continuing interest in ethical issues. Many journals, magazine, blogs and websites are dedicated to business ethics spanning the forty years the term has been an influential factor in the running of a business. Colleges all over the world are adding business ethics to course modules. Recently the Private Sector Organisation of Jamaica in collaboration with the Inter-American Investment Corporation launched a business ethics programme for small and micro enterprise organisations in Jamaica (Morrison Hopeton, 2011).
Why are more and more companies all over the world engaging in ethical business? If a company is seen to be damaging the environment or treating workers improperly they are at the risk of being highlighted in the media. Investors and consumers have begun to take account a corporations ethics policies in making investment or purchasing decisions. Companies are now expected to have high ethical standards and act in a socially responsible way.
Investors are now looking to have an ethical investment share portfolio. Investors will avoid companies, which they perceive as having a poor ethical track record. It is not only in the interest of society for corporations to act ethically but it is now becoming in the interest of the corporations also.
Companies are now setting out standards of appropriate ethical conduct their staff can abide by. Crane describes codes of ethics as “voluntary statements that commit organisations, industries or professionals to specific beliefs, values and actions and/or that set out appropriate ethical behavior for employees/members”.
The Ethics resource center 2000 survey found that 79% of respondents reported that their companies have a written set of ethical standards compared with 60% in 1994 (Stanford Encyclopedia of Philosophy).
Ethical issues are a human characteristic; they are not a passing fad. If a corporation or orgainsation wishes to be successful they must realise in order to be thriving business they must take into account that business ethics is a major influential factor in our economy today.
By Lynn Ferrari November 2011
Referencing list
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