Term Paper on "Corporate Ethics as One Analyst Notes"

Term Paper 12 pages (4342 words) Sources: 15 Style: APA

[EXCERPT] . . . .

Corporate Ethics

As one analyst notes, the debacles of Enron, WorldCom, and Arthur Andersen have created significant challenges for management for the foreseeable future (Isaza, 2005). It is clear that business leaders need a stronger ethical orientation and must set the tone for subordinates and for the business world as a whole. One of the unfortunate aspects of the recent scandals, including Enron, Worldcom, and Adelphia, is that the ethical lapses occurred from the top, setting a tone that might cause others in the companies to act similarly and that also brings the business world into disrepute, contributing to a loss of public confidence and so having far-reaching ramifications. A more ethical orientation is good for business, for as a report from Australia notes, "Poor business ethics can ultimately lead to greater industry regulation" (Lawrence, 2005, para. 1).

Ethical Issues

The issue needs to be considered from the smallest infraction to the major ones. The latter, of course, are what get a company into trouble, while the former often lead to the latter. However, business people seem to have a number of rationales for why certain behaviors that might be unethical in everyday life are not in business. Carr (1993) argues that there is an agreement among people in business that bluffing is accepted and that, in the words of British statesman Henry Taylor, "falsehood ceases to be falsehood when it is understood on all sides that the truth is not expected to be spoken" (Carr, 1993, p. 143). Carr argues that bluffing is not unethical in this context. It is not lying because while both bluffing and lying would be meant to deceive bluffing in business is accepted as part of the price of doing business and so cannot be considered lying.

In a way, Carr is arguing for a form of situational ethics, where ethics has different meaning according to the situation involved. Ethics thus means one thing in a game of poker, one thing in a business deal, and one thing when making a promise to a friend. However, it is not clear that this view of ethics would be accepted as widely as Carr intimates. Carr (1993) indeed compares the ethics of business specifically to the ethics of a poker game. In poker, he notes, it is acceptable to use deceit and cunning in planning and executing a strategy. The reason this is acceptable is because it is accepted, meaning there is an agreement among players that they will all use this sort of strategy in trying to gain an advantage. Carr thus sees business in a similar light as having a tacit understanding among business people that bluffing is a form of deception that is acceptable.

Lying begins when a company is formed, according to a recent analysis in FSB, which describes how this takes place:

Amar Bhide, visiting professor at the University of Chicago's graduate school of business, says company founders often do it because they find themselves in an "expectations trap": No one will do business with them until they appear successful, yet they can't be successful until people do business with them. "Startups," he says, "can fail just because others expect them to fail" (Should You Lie?, 1999, para. 7).

Resorting to lying can become too ingrained in the business if the leader keeps doing it and so communicates to subordinates that this is acceptable. Other ethical lapses can be justified along the way and lead to disastrous consequences.

Companies can find assistance in developing a more ethical standard, beginning with the educational system and what it can teach future business people about the subject,. Crane (2004) sees the teaching of ethics in business schools as a vital service, and he cites "a recent Aspen Institute study of graduates of the top business schools in the United States [that] found that business school (B-school) education not only fails to improve the moral character of students but actually weakens it. For example, the Aspen researchers found that students enter B-schools with idealistic ambitions, such as to create quality products and deliver customer satisfaction, but that only 2 years later these goals take a backseat to the boosting of share prices" (Crane, 2004, para. 2).

Miller (2004) writes that "the business of business everywhere is to pursue profits," and he believes that business leaders forget this when they show a concern for social responsibility. He also accepts certain ethical requirements, though, and cites "corporate values such as honesty, innovation, voluntary exchange, and the wisdom of the marketplace" (Miller, 2004). Thus, even those who argue against wider social responsibility call for business to adhere to certain ethical requirements.

Others take a different view and see a need for business to consider social responsibility as an operating principle. In the United Kingdom, a law was proposed that would require adherence to such an idea:

While the prevailing orthodoxy tends to agree with Milton Friedman and Friedrich von Hayek that "the business of Business is business" and a company should do no other than pursue shareholder value, the RSA [UK Royal Society for Arts, Manufactures and Commerce] asserted that Business has an obligation to maintain its "license to operate," a privilege accorded by society through invention of the law of limited liability, and should respond to constituencies beyond its market-based partners, fulfilling a "corporate social responsibility" (Doig, 1999).

This point-of-view of necessity requires adherence to ethical principles, though the principles that would be emphasized would be broader and geared to serving society as well as the shareholders. Views of what constitutes a socially responsible act range from "profit making only," to "going beyond profit making," to "a social obligation, beyond that required by law and economics" (Carroll, 1979, p. 499).

Business ethics have been challenged by several forces over the last 50 years. Ethics in business are defined primarily by social forces, and these are sometimes expressed in laws devised by the society. There have long been laws governing how business operates, and such laws are usually reactive. The monopolistic practices of business in the Progressive Age, for instance, led to a response in the form of anti-trust legislation. Business itself decides what is ethical based on a view of what the market will bear, and in the post-World War II era public opinion has been an important force shaping ethical considerations in the business world.

In the 1960s, concerns about ethics were raised with events such as the publication by Ralph Nader of his book on the dangers of the Corvair automobile, with his charge that General Motors was knowingly developing and selling a poorly designed vehicle. In the 1970s, the media and government gave more attention to business activities and to such specific issues as employment discrimination, false advertising, foreign bribery, and pollution. Environmental issues rose to public consciousness with the incident at Love Canal when Hooker Chemical Company was shown to have dumped tons of toxic waste into the canal, creating major health hazards. In the 1980s, one issue given much attention was product liability, and again it was the automobile industry in the spotlight with arguments about the Ford Motor Company and the Ford Pinto, considered dangerous because of a gas tank that could explode in even the most minor impact. In the 1990s, business was faced with issues concerning the environment, privacy, and financial governance (Vernon-Wortzel, 1994, pp. 129-130).

Ethical concerns exist at all levels of the business community, but the growth of Big Business in particular has raised ethical concerns from the view that such corporate entities are too big to be governed or to have a moral center. Ethical concerns were addressed at the developing multinational corporation, an entity seen as operating outside the controls of the legal system and often as operating in too free a fashion in foreign countries. Such corporations became an ethical concern not only for business regulators but for foreign policy analysts and regulators as well. One concern was the possibility of the bribery of public officials in foreign countries, a practice defended by some as the price of doing business in some countries. This argument has not had much appeal for the public, which is concerned as well that a company which conducts business in this manner in a foreign country may do the same thing in this one (Karrass, 1993, pp. 29-31). One response has been to pass legislation to stem the practice, such as the U.S. passage of the Foreign Corrupt Practices Act (FCPA) of 1977. This act is considered the most significant intrusion of government into corporate affairs since the passage of laws regarding securities in the 1930s (Cascini & Vanasco, 1992, pp. 24-29).

Rolston (1988) points out that the corporate structure tends to deaden and fragment all moral awareness, though this is not something that should be tolerated where it can be controlled. The reason for this is not specifically a belief in the responsibility owed to shareholders but a form of blindness that seems to go with the business… READ MORE

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