Research Proposal on "Business Ethics Everybody"

Research Proposal 10 pages (3130 words) Sources: 10 Style: MLA

[EXCERPT] . . . .

Business Ethics

Everybody can agree that business needs to be conducted ethically. The problem with business ethics, however, is that there is no clear concept of what precisely is meant by the phrase 'ethical'. Managers have different stakeholders to concern themselves with. They operate businesses that are subject to multiple sets of laws simultaneously. They are subjected to the ethical judgment from dozens or hundreds of different cultures, each with its own ethical standards, and some with many different sets of ethical standards. It is no wonder that many firms stick to basic platitudes regarding ethical behavior. Pinning down specifics is almost impossible. As a consequence, however, we have situations that arise with alarming consistency in which managers make choices that would seem to violate every ethical standard conceivable.

This paper is going to examine the issue of business ethics. The first step will be to define what "business ethics" actually means, and understand why the term varies so widely for so many different people. The next step will be to introduce the practical, business element to the issue, explaining the role of managers and the ways in which ethical considerations affect their decision making. From there, this paper will investigate the complexity of the issue by looking at the key dimensions -- stakeholders, intercultural elements and legal elements and the role of government. From this, a conclusion will be drawn about the nature of business ethics and how managers should incorporate the concept into their decision-making.

Defining Business Ethics

Business ethics as a discipline is an offshoot of the philosophical study of ethics, with the concepts therein applied to practical situations as faced by managers. Ethics itself is the application of ethical norms to everyday life, so business ethics therefore is the application of ethical norms to business (deGeorge, 2005). This leaves us with the issue of defining ethical norms. They are standards of behavior that are relatively uniform within a culture or society. The society has typically outlined what the norms are, and these norms are generally understood by members of society. Society then enforces these norms through a number of means. The rule of law is one of the most important mechanisms for enforcement of social norms, but it is certainly not the only one. As long as there is a negative response from society at large that can be reasonably anticipated, then the action could reasonably be deemed to be unethical.

Importance of Business Ethics

Business ethics is an important field of study specifically because the corporation is an independent rational actor (Fisse & Braithwaite, 1993). As such, the actions of the corporation have been decoupled from the actions of the individuals who act on the corporation's behalf, for the most part. The ramifications of this are clear -- the corporation is a part of this world. Its actions affect the world around us for better and for worse. As the corporation functions within these bounds, it then becomes imperative that the corporation take into consideration the impact of its decisions and actions on the external world. The acceptability standards of these actions are set by the prevailing ethical norms.

The corporation as a legal and rational entity, of course, does not act in and of itself. The corporation the sum total of the actions undertake on its behalf by agents. Thus, there is no rational action save for that conducted on behalf of the corporation by agents (Ibid). These agents are the staff of the organization. The agency element adds a unique layer of complexity to business ethics. As agents, the role of managers within the organization is to direct activities with the expected objective of increasing shareholder wealth. This underlying premise is known as shareholder primacy, in which the manager's most important obligation is to the shareholders. Some theorists have even suggested that shareholder primacy has been responsible for some of the most visible ethical lapses in the past decade (Heath, 2009). Agency theory is rooted in game theory, wherein all managers are viewed to be rational actors.

While this theory is evidently contentious among ethicists (Ibid.), it is widely promulgated in business and serves as a valuable starting point for the discussion of business ethics. This is because poor business ethics often arises from conflict between the rational choice made to benefit one stakeholder vs. The rational choice that would have benefited another. Kenneth Lay and Jeffrey Skilling cooked the books at Enron because it benefited them personally, despite the fact that it did not, in the long run, benefit the shareholders of Enron. Indeed, in Lay's case it did not benefit him in the long-run; his actions were the result of a misinterpretation about what would happen in the long run (Barrionuevo & Eichenwald, 2006). This offended the ethical norms against managers violating their role as agents. Other ethical conflicts stem from adhering to the agency relationship, however. This can be the case for a manager whose firm pollutes the environment in the interest of enhancing shareholder profit. The ethical norm may hold that the pollution was excessive because the damage it did to society as a whole was more significant than the benefit the action gave to the shareholders. Shareholder primacy, we can therefore see, is secondary to the ethical conflict that arises from an agent placing one stakeholder's needs above the needs of other stakeholders.

The agency problem is typically addressed with a sub-category of business ethics that focuses specifically on corporate governance. Corporate governance is "the structure that is intended to make sure that the right questions get asked and that checks and balances are in place to make sure the answers reflect what is best for the creation of long-term, sustainable value." (Monks & Minow, 2003). What this means is oversight -- the board of directors is to oversee management and ensure that management's actions are consistent with those expected of agents of the shareholders.

The notion of corporate governance is applied to the concept of business ethics as follows. Society determines the ethical norms. If companies do not adhere to these ethical norms, there will be consequences. These can be in the form of legal punishments (fines, jail time) or they can be in the form of market punishments (boycotts, reduced sales). Companies whose behavior is consistent with the ethical norms will face no punishment; those whose behavior is inconsistent will face punishment. If the costs of punishment are higher than the benefits of the actions, then the managers as rational agents of the shareholders should not undertake the activity. The role of corporate governance is the board of directors ensuring that management makes the right choices.

This issue is foggier than it appears, however. The concept of rational decision-making is based on certain assumptions, some of which do not often hold true in practice. One of these is that the outcomes are predictive. There is not perfect information either for the managers or for society by which it can hold management accountable. Thus, what are sometimes seen as ethical lapses were simply calculated, rational risks that management took and lost. This brings us to a fundamental point about ethics, one that dramatically complicates the issue of business ethics.

There are two main schools of ethics -- deontological and consequentialist. The former refers to a philosophy that right and wrong are absolutes no matter the outcome; the latter refers to the philosophy that the outcome is more important, and is the standard by which an action's ethics should be judged. Different people within a society can subscribe to one school of thought or the other but more often they will subscribe to a mix of both, sometimes depending on specific circumstance and other times depending simply on whim. Thus, even with a small, homogenous group, there is not often a clear ethical norm.

Further Complications

Agency theory presupposes that ethical dilemmas in business can be resolved easily, because of shareholder primacy. Ultimately, society will dictate the punishments for transgression, against which the managers can make their rational decisions. This theory also presupposes perfect information on the part of the other stakeholders. However, it is evident that external stakeholders do not have perfect information. As a result, it is impossible to determine with complete accuracy the degree to which moral outrage will flow from a given decision. What are characterized as rational decisions on the part of managers are therefore more akin to gambles based on assumptions about the reactions of the various stakeholder groups.

Stakeholder analysis is a popular way of analyzing the ethics of business decisions. In simplest terms, the impacts of the decision on the various stakeholders are weighed, along with the importance of that stakeholders and the intensity of those impacts. Ultimately, management is expected to derive ethical guidance from such a stakeholder analysis (Goodpaster, 1991).

With any decision there are myriad stakeholders. They are both internal and external; direct and indirect. Because information is imperfect, most external stakeholders are unlikely to be able… READ MORE

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