Business Ethical Theory
Business Ethics is a very complex subject. The decisions that we make as individuals are not always what others would consider to be ethical, however are part of human nature such as breaking the speed limit when we are in a hurry, telling a lie to prevent ourselves, a friend or a family member from getting into trouble or to avoid hurting someone’s feelings. Business ethical dilemmas may be more complex; it is not based one or two people but many; in the case of a multi national firm it is not just based on one code of ethics but many for what may be normal procedure in one country (bribery and corruption), may be frowned on in another country. Several theories have been devised attempting to explain business ethics. (Crane et al, 2007)
Richard DeGeorge, (1999) claims that there are two extreme positions. Ethical Absolutism claims that there are eternal, universally applicable moral principles and that right and wrong are objective qualities that can be rationally determined. Ethical Relativism claims that morality is context dependant and subjective – there are no universal rights and wrongs that can be rationally determined as morality is determined culturally. Descriptive relativism is different as it only states that different cultures have different perceptions of right and wrong and so is different from Ethical Relativism as Ethical Relativism states that both cultures are equally right. (Crane et al, 2007) Traditional Ethical theories are usually absolutist in nature and contemporary theories are usually relativist in nature. (Crane et al, 2007)
Traditional theories can be divided into two categories; consequentialist and non-consequentialist. The two consequentialist theories claim that moral judgement is based on intended outcomes. Egoism (Adam Smith) focuses on maximisation of individual desires or interests and states that human beings act with limited knowledge and objectives. Utilitarianism (Jeremy Bentham and John Stuart Mill) focus on collective welfare and state that human beings are controlled by avoidance of pain and gain of pleasure. Non-consequesntialist theories are based on rights and duties. Ethics of Duties (Immanuel Kant) focuses on the categorical imperative for human beings to carry out their duty. Rights and Justice (John Locke and John Rawls) focuses in a human beings right to respect and dignity. (Crane et al, 2007)
Contemporary theories include Virtue Ethics, Feminist Ethics, Discourse Ethics and Postmodern Ethics. Virtue Ethics (Nielsen, 2006) “contends that morally correct actions are those undertaken by actors with virtuous characters, therefore the first step to morally correct behaviour is to form a virtuous character.” Feminist Ethics view human beings as interdependent with the goal of avoiding harm and maintaining relationships, valuing harmony, empathy, care, community responsiveness, integration, cooperation and compromise. There is a focus on processes and problems arise from conflicts of responsibilities in network relationships. (Maier, 1997 & Rabouin, 1997) Discourse Ethics (Steimann & Lohr, 1999) argue that ethical reflection has to start from real life experience as opposed to belief systems and that there are many different ethical perspectives and discourse is required to come to a solution. Postmodern Ethics (Bauman, 1993) show scepticism for the idea that an unshakeable, universal ethical code will ever be found. (Crane et al, 2007)0
Why Is It Important To Society That Businesses Behave In An Ethical Manner?
There is an argument that businesses have a responsibility to behave in an ethical manner as firms do not operate in isolation. (Hall et al, 1993) Businesses potentially provide a significant contribution to society in terms of paying taxes, the provision of employment, producing goods and services that we, as consumers need and want, driving and developing economic activity. (Crane et al 2007) During the 1980s and 1990s, there were a number of high profile business scandals and accidents that were well documented in the media such as the Mirror Group Pensions Scandal, Piper Alpha Disaster and the Paddington Rail Crash which led to public demands for greater accountability within businesses. This lead to investigations and reports such as the 1992 Cadbury Report. This aimed to investigate and suggest improvements to restore public confidence in the British corporate governance system. (Marcouse Et Al, 2003) This report made recommended that there had to be a change in corporate culture allowing for greater accountability and closer scrutiny of business activity. (Cadbury, 1992) The effects of unethical business activity are detrimental to society in many ways; corruption, exploitation, poverty, unemployment, illness, injury and death are some of the end results of businesses operating without a code of ethics. (Crane et al, 2007)
Why Is It Important For A Business To Conduct Itself In An Ethical Manner?
Ethical behaviour has some benefits for an organisation. There is a belief that a business that publicly declares and personally adopts an ethical approach to their activities, such as the Co-operative Bank, will be more attractive to consumers. (Hall et al, 1993) A study of between 41 and 86 companies from the FTSE 350, which sought an empirical answer to the question “Does business ethics pay?” was conducted in 2003. (Fisher et al, 2006) This compared companies based on several factors; those with ethics policies that have been revised in the last 5 years and those who had not revised their ethics policy and the companies’ positions and ratings on various league tables showing public recognition, admiration and respect. The study found that companies who had an up to date ethics policy had better ratings on these league tables than those that did not. (Webley & More, 2003) The study also compared this with the companies financial performance using various Performance indicators; Market Value Added, showing the difference between the money investors have put into a company over a defined period and the income they would gain from the sale of their interest in the company; Economic Value Added, showing the difference between the income they received from their investment in the company and the income they would have gained from investing the money elsewhere; Price/Earnings Ratio, the market value of a share divided by the shareholders earnings and the Return On Capital Employed which is the net profit divided by the total money invested and is expressed as a percentage. (Surridge & Gillespie 2008) Webley & More found that companies with a current ethics policy performed favourably, financially, in comparison to companies that did not have such a policy in all of the financial indicators except the ROCE which although there was little difference on a comparison within a year, the companies with ethical policies were slowly improving on a yearly basis while the companies without an ethics policy were deteriorating. (Webley et al, 2003) The ethical business should look after its workforce and treat them with respect which should result in the business benefiting in terms of the staff that they recruit, their staff retention levels and employee motivation. Well qualified, trained and motivated staff benefit a business as it allows for greater efficiency and reduces the costs of hiring and training new staff. (Hall et al, 1993)
What Negative Effects Might Ethical Behaviour Have On A Business?
Ethical businesses may incur higher costs in their efforts to use ethical suppliers, or to ensure that they do not pollute the area in which they operate their business, for example, using filters, more complex waste disposal procedures or it might mean not operating in, or refusing to trade with certain countries. It might be if the firm invests in other ethical businesses that the investments do not produce as good returns as other less ethical options, causing the business to make less profit. (Hall et al, 1993) This could result in shareholders being unhappy with the company’s ethical stance as it is reducing their income causing conflict within the business. For a business that is in the process of changing its practice to become more ethical their may be internal conflict amongst managers and different departments who are unhappy with extra work or costs incurred as a result of the change. (Hall et al, 1993)
How do Business Ethics fit into the current AQA A level Curriculum?
The subjects studied at AS and A2 level include; External Influences, Marketing, Accounting and Finance, People in Organisations, Operations Management, Objectives and Strategy, Business Analysis and Change (QCA, 2006). The subject of Business Ethics, appears to be absent from the AS level textbooks (Marcouse, Surridge & Gillespie, 2008) and present in the A level textbooks (Hall et al, 1993 and Marcouse et al, 2003) under the topic of External Influences. The topic of External influences is covered in the AQA specification as Module 3 at AS and Module 6 at A2. (AQA AS and A2 subject specification & Past Exam Papers)
In practice, in colleges (Aquinas College and Bolton 6th Form College), I have observed that the topics are not taught in the prescribed order. Modules 1, 2 and 4 are often grouped together as Module 4 (
The exam questions for Modules 1, 2 appear to offer no opportunities and 4 can sometimes offer very little opportunity for the students to use knowledge of business ethics. Module 4 appears to vary from year to year on the extent of knowledge of business ethics required to successfully answer the questions. (AQA AS and A2 subject specification & Past Exam Papers) This could mean that the subject of business ethics is largely cast aside by teachers with restricted time who need to ensure that their students are secure in their knowledge of the main theories and concepts that will definitely be present in the paper especially with weaker, struggling students. This may lead to teachers, in their desire to help their students do as well as they possibly can in the paper to teach the traditional, “orthodox” version, promoting business studies and celebrating business activity as they do not wish to confuse their students. (Hall, 2007)
This leaves the A2 year for Modules 3 and 6, which both cover External Influences, in which Business Ethics is covered and Module 5 which covers People and Operations Management, Marketing and Accounting and Finance. The exam for this involves writing a business report based on an unseen case study followed by questions that cover all of the subjects studied at AS in greater detail with a higher emphasis on evaluation. This paper offers a good opportunity for students to apply their knowledge of business ethics due to the nature of the task. (AQA AS and A2 subject specification & Past Exam Papers)
Making use of Opportunities to Introduce the Critical Dimension of Business Studies
The subject of marketing in A level Business Studies is traditionally presented in a very positive light, explaining how businesses meet the needs of the consumer using the marketing mix to produce the right products at the right price in the right place with the most suitable promotion to complement, causing consumers to buy their product increasing the businesses ability to make profits. (Hall, 2007) However, marketing has a dark side; this is explored to some extent in films such as “The Corporation” and “Super Size Me” which show how firms use large advertising budgets to promote unhealthy, educationally damaging, expensive products to children with a callous disregard for how the product will impact on the child and the family concerned in terms of health, future educational aspirations and on the family budget. “The Corporation” also shows how businesses go into markets in developing countries with inferior products, or products which are likely to cause more damage such as the promotion of powdered milk for babies as opposed to breast milk in countries where there are poor facilities for sterilisation and the costs of such products are unnecessary and detrimental in the face of the existing poverty. A series of lessons on the Marketing Mix could be greatly enhanced by using clips from these videos to show the unethical side of the marketing mix. There have also been several Panorama documentaries as well as clips on YouTube showing the labour conditions in clothing and shoe factories in developing countries where goods are made for companies such as Nike which could help to add a critical dimension to the topic of “improving competitiveness” which might be more suitable for a classroom situation.
"People in Organisations" is another subject with excellent opportunities to show the critical dimension of business studies. Although employment and anti discrimination law exists in the UK, there are many aspects of true ethical behaviour that are beyond what is required by law and there are businesses which manage to get around aspects of legislation and exploit loopholes. There are various official reports and surveys as well as investigative news writings and documentaries examining the gender gap in the workplace. (BBC News, 2009) There are case studies and business scandal stories which clearly demonstrate unethical behaviour of businesses towards their staff such as First Advice, an insurance company that collapsed and sacked all of their workers by text message. There are also opportunities to get the students to critically analyse Management and motivation theories and relate them to both positive and negative case studies. There are some exam questions touching on the issues of ethical treatment of employees which could benefit from critical analysis in class.
Unethical Business Behaviour in the area of Accounting and Finance is well documented in the media; cases such as Enron (Time Magazine, 2002) , Robert Maxwell and the Mirror Group (Independent, 1999) could be examined on video or as a written study with questions relating to legislation, company image and mistakes made.
The home topic for business ethics at A level is External influences and specifically stakeholders in a business. The impact of unethical business behaviour, regardless of what this is will always be felt by the stakeholders, be that a short term positive impact in the case of shareholders or a long term negative impact in the case of employees affected by the business moving elsewhere to cut costs, or customers who are ill, injured or dead as a result of poor quality management within an organisation. An exam question based on the issues surrounding a business relocating is quite common and giving students some case studies critically analysing the impact of this can do nothing but help them improve their skills for the final exam.
Bibliography
Super Size Me, directed by Morgan Spurlock, 2004
The Corporation, written by , directed by and ,
Business ethics and corporate social responsibility, Teaching Business & Economics, Vol 11, No. 2, ,
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