Term Paper on "Business Ethics"

Term Paper 5 pages (1558 words) Sources: 5

[EXCERPT] . . . .

Business Ethics

The author of this report is asked to review two articles, one by Milton Friedman from 1970 and another by John Mackey from 2005, and to review the principles, standards and ethics cited and pointed to by each article and the merits of both. The articles some similarities but they also have some stark differences as well and the author of this report shall cover both in great detail.

Two major differences between the two articles leap off the page right away, that being that they were written nearly forty years apart and the other that the author of one was an economist and the other was (or maybe still is) the CEO of a major corporation so the perspectives of both, while similar, will also be quite different given the disparate times in which the articles were written and the different cultural and industry perspectives from which the two articles are written.

Milton Friedman's treatise is rather bold and perhaps controversial when it says that businesses have a moral and social obligation to increase profits. While the author of this report is not privy to the real-time conditions of 1970, it probably was a bold statement at the time and it certainly would be controversial to many people now. After making a point that a business cannot, itself, have "responsibilities" because only people can bear such a thing, he then mentions that even if social responsibility as a statement is just empty rhetoric, it seems to suggest that the social responsibility of a business either could or definitely runs counter to that of what would normally be expected out of a business or one its executives (Friedman, 1970).

He goes onto suggest that the term implies that political and/or socialist considerations should be factored into the business rather than just market concerns and the ongoing viability of the business. He covers this topic in gritty detail in the rest of the article but then he comes to a final salient point. That point is that so long as a company operates within the laws and rules that are absolutely in place vis-a-vis the legal operation of the business, the business' profits and revenues should be maximized as much as is reasonably and ethically possible because doing otherwise is a disservice and betrayal of what a corporate executive or employee is hired for and the root mission of any business is to make money so that continued expansion and growth can be realized (Friedman, 1970).

John Mackey, then Chairman and CEO of Whole Foods, directly targets the 1970 work by Friedman noted above and says that he strongly disagrees. He notes that there are other groups of people that a company bears a burden for including the customers and other stakeholders that are not necessarily interested in the profit margins and revenues of a company alone. However, Mackey is clear that he is not against profits in general but that it should not and cannot be the only concern that a business has. Even so, Mackey makes a thinly veiled jab at pro-profit people when he makes mention of how children are egocentric and single-minded about things (Mackey, 2005).

In short, Mackey's point is that being only profit-centric is not proper because it is far from being the only thing that matters at the end of the day. In a way, he is saying that charging a given price just because a company can get away with doing so does not make it right and even if more profit is realized and is sustainable, that does not mean that it should be done by the business in question. There is something to be said for that, in the view of the author of this report (Mackey, 2005).

Analysis

To put a fine point on what the two authors are saying, one is saying that profit and compliance with the law are the only metrics and the other is saying that it cannot and should not be the only metrics. While Mackey makes some valid points, the author of this report agrees much more with Friedman's point-of-view rather than Mackey. The author of this report has a number of reasons for asserting this. First, the yardstick that people use, from person to person, varies quite a bit. Some people would argue that only a certain percentage of profit is acceptable while others would argue that businesses should be run like non-profits and that a break-even is all that is required. Both of those arguments are specious and for a number of reasons.

The author of this report is well-versed on the general rules of supply and demand. Those rules dictate that there is a "sweet spot" as far as prices go that allow for maximization of profit while at the same time not resulting in a market imbalance that leads to too much supply or too little. Charge too little and there are shortages. Charge too much and there is a glut of supply. There is a reason that Ferrari's cost a quarter million and most iPods cost more than $200. It is not because they actually cost that much to make (not even close)…it's because that's the price the market demands. If iPod Classics were $500, they would rot on the shelves. If they cost $50, there would be a massive shortage. This is not to say that everyone needs an iPod or a Ferrari because that is clearly not the case. However, if that were the case and some good-willed person said that the prices should be capped or slashed, the market outcomes subsequent to such a cut would not be good. Even when talking about things like housing and medicine, price caps and/or prices too low in general actually hurt more than they help. Generally, the market should determine the price and the government should stay out of it.

However, Mackey does have two good points that have to be taken seriously. First of all, price gougers do exist. No doubt the recent tornado in Moore, Oklahoma led to gas stations charging more for gas just because they could and not because supply was short. This is a great example of how Mackey is spot-on with his take that stakeholders and all their different interests (not just the pro-profit people) should be assessed and taken seriously. Another example would be people like the Enron energy traders that were using market supply and demand principles against the consumers by intentionally taking energy off the market to inflate the price even though supply was not the issue. This is another example of avarice for profits victimizing people unnecessarily.

However, absent something of that nature, businesses should be left to decide and craft their prices as they see fit so as to optimize the number of goods sold and at the right price. Maximizing profit whilst at the same time recognizing what the equilibrium price is for a good is not a bad thing just because some people think otherwise. Mackey may not be clearly anti-profit, and the author of this report believes him, but there are a lot of people that are clearly anti-business, anti-capitalist and anti-profit and those people will not be satiated. The hard and fast rule of business that has to be recognized, both by Friedman (who clearly did) and Mackey (ditto) is that a business must make a profit to survive and thrive. If that is not the case, then absolutely nothing else matters because the ongoing viability of the business is the horse that has to lead the proverbial cart. If a business is not making money, no amount of good will or social responsibility is going to matter all that much because the business is going to die.

That all being said,… READ MORE

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