A Practical Guide to Evaluating Professional Business Ethics
Business has created wealth that has given numerous individuals financial
freedom, yet at the same time, it has widened the gap between the rich and the poor. The philosophy of business considers the primary principles that underlie the operations of an enterprise. Developing a balanced business ethic between profit-taking and honesty is perhaps one of the most difficult tasks for a corporation. In the wake of post-communism, we are now living in triumphant times of global capitalism; but the inevitability of corporate greed and deception in this system can create devastating results like Enron, WorldCom and Arthur Anderson.8 These corporations failed because of the people that work there; a series of deceptive operational decisions left these billion-dollar corporations and their millions of investors in demise. And there are many other examples of smaller companies undergoing “corporate restructuring” in an effort to save themselves. What business ethics involves is the plundering of natural resources, exploitation of labor in lesser-developed nations, unfair competition, impacts on the environment, treatment of employees and social responsibility.1 Business managers must keep all of these points in mind when making decisions on behalf of their organizations. This paper will look at the different factors a manager ought to look at when making informed decisions, with consideration of the stakeholders – the manager him/herself, the corporation and greater society. Through the use of the role-differentiated model, the utilitarian model and the professional contract model, I contend that a business manager has moral right but not the moral obligation to act up to the limits of law in any situation; in other words, the manager will be considered amoral only if he/she has broken the law.
First we must understand that all business is anchored in the subjective viewpoints of the manager, of the corporation and of society. Each of these distinct and interconnected entities hold their own beliefs on what businesses ought and ought not to do, and these beliefs often conflict with one another. What we need is a practical method of resolving morality in business dilemmas, and I feel the best way to do it is by reducing business ethics to the law. Legal reduction gives us a more practical way of resolving black and white issues, whereby the grey area is significantly reduced in size. The law gives managers a clear view of the limits of a corporate decision.
An opponent of this view might step in and argue that many business situations cannot be resolved to law. For example, if a business is giving customer ABC a favorable discount but not to customer XYZ, although not legally wrong some opponents would suggest that this is ethically wrong because all customers ought to be treated equally. However, we must recognize that this is part of regular business deals. Capitalism and wealth is created by imbalances of assets between countries, businesses and peoples. There is a certain amount of wealth in this world created by the perception of value by different groups of people. The imbalance of perceived value has made countries like USA and Canada richer than countries like Uganda and India. In addition, most business managers are smart people, they know how to develop relationships and how to make money for their organizations or they would not be where they are. Their decision to treat a specific customer favorably is calculated risk that they have decided to take on behalf of their organizations. Hence, giving one customer a favorable discount is simply a part of doing business in the global economy. According to the definition discussed in this paper, the above situation is not morally wrong because the business has not violated any legal rules.
I will limit my discussion to business managers within corporations in North America because these seem to be the highest group of people that are scrutinized when the issue of business ethics arises. In addition, different cultures have different business practices that we may not completely agree with (bribery in countries like China and India are common); limiting our discussion to what we know will make the topic more applicable to the North American business culture. However, do keep in mind that the concepts covered are more or less applicable to all businesses regardless of size, location and authority. I will also assume that all business managers make decisions based on the best interest of the organization.
Before going into the details, I will
discuss some background basics of business ethics. A corporation is “an association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.”6 Hence, a business is distinct from the individual; it has different social, legal and ethical rules from any human being. Many large corporations have a “corporate code of conduct” which is a set of company policies that define ethical standards for their conduct. This code is normally a reflection of a company’s culture, values and a representation of the law. It is completely voluntary, and can take a number of formats and address any issue. Fundamentally, the code is dependent on its credibility taken by industry, unions, consumers and governments.2 In most organizations, business managers make decisions based on this code because it’s simply the easiest thing to do, and it is likely to be what is best for the corporation. In some cases however, managers will choose to violate the code to gain a favorable position; this often results in moral dilemmas.
Role differentiation is a concept often employed by professionals of law, medicine and business. Role morality is based on the idea that there are certain moral responsibilities that change as we move between roles within society. These duties may conflict with those acceptable by reference to ordinary citizenry morality. For example, a defense lawyer because of her role must defend her client wholeheartedly even knowing that her client has committed the crime and is capable of repeating the crime if released. Similarly in business, decisions ought to be made based on the professional role of managers, and not the individual managers themselves. A corporation is owned by shareholders; managers are professionals representing the company who have special business acumen that majority of the population do not have. As a result, similar to how doctors are professionals of the medical system; an executive should practice in the interest of the business with the end-goal of benefiting the shareholders. A manager acting on behalf of the business may feel morally obligated one way toward a decision, but because she is acting on behalf of the business, the decision she makes is by no means an immoral one. If the manager does not take action because his personal morals overpower the professional morals, then he is not a good manager, which means that he may be penalized by the system – i. e. fired by management, decreased salary & bonus etc.
Albert Carr is a supporter of role morality. Carr’s game theory suggests that business is much like a poker game whereby bluffing is a sort of business strategy used by businesses to win the game. Carr’s theory is that if a business does not take advantage of a legal opportunity, then others will; hence, it is in the interest of the business manager to take the advantage up to the limits of law. For example, let us say that you are in the middle of a deal that if goes through would boost the company’s earnings significantly. Yet the deal is very tough to make because your buyer has five other vendors competing for the same contract. You know the buyer likes to watch the Los Angeles Lakers and you are confident that if you are able to accommodate his wishes - fly him down for the game with court-side seats, you will have a great shot at closing the deal. However, one of your personal values is to never bribe for anything, and to always earn it with hard work. What should you do?
We must evaluate this situation on the basis of a manager and not on the basis of the person. As a manager of the company, she has the obligation to grow profits for the company. It would certainly be in best interest of the company to send the buyer down to Los Angeles, with potential upsides of millions of dollars. Although the manager may not be happy with the decision personally, it is not his personal life that is at stake, but his professional life. He has a professional obligation to the shareholders and to all the employees of the organization, and as a result his role morality commands him to take action. In addition, if he does buy the tickets, likely one of the other vendors will, and he would lose the deal for his company. Consequently following Carr’s game theory, it would be more advantageous for him to act.
An opponent might argue that role-morality and the game theory are limitless in terms of how much a manager can do to gain the advantage. For example, if everyone else is depositing the vendor with millions of dollars into his personal bank account, should the manager also do the same knowing that this is clearly unethical? To answer this question, we must go back to our original argument that business decisions are moral up to the limits of law. Stuffing millions of dollars into someone’s bank account in hope of getting a business deal is clearly illegal. A good business manager would not risk the reputation and image of the organization and hence would not commit such fraudulent activities. The other vendors that are doing so are simply not good business managers, and they will eventually be prosecuted to the full extent of the law.
criticism to role-differentiation might be that that it’s simply too easy of a response to complex professional dilemmas in denying any notion of individual personal responsibility. Opponents might say that role morality is simply an expression of the way that humans are divided into separate segments which make up the general morality of our existence. They may argue that business dilemmas ought to be resolved by normal human morals because these are the ‘true’ morals that we must appeal to in all situations. Yet, these objections are faulty for many reasons. First, they are impractical. Appealing to broad morals makes the evaluation of a decision much tougher than targeted role morals. For example, in evaluating whether to dump chemical wastes in the nearby river, it would be much tougher to introduce one’s personal morals along with the business morals than to use business morals alone. Secondly, normal morality fails to account for professional roles that have specific responsibilities and expectations attached to them. Role differentiation helps to distinguish between these responsibilities so that a more specific moral dealing can be defined; in addition, it seems inappropriate to use normal values that lie outside of the professional context. If all business managers reduce their decisions to normal morals, then it would seem inevitable that equality would be restored to the capitalist system because normal values generally do not endorse taking an advantageous position over another person, company or country. In effect, this would collapse the entire global economy which is predominantly based on inequality.
Another common theory used in professional ethics is teleology – utilitarianism. Teleology focuses on the consequences of actions. Utilitarianism is a consequentialist theory stating that one ought to act as to produce the greatest good for everyone. Many utilitarian believe that this theory follows egoism – the belief that one should make decisions that maximize their own self-interest.3 Because business managers will likely make decisions to promote the good of that individual or organization, utilitarianism seems like a good model to ensue. This theory offers a straightforward method of deciding the morally right action in most situations. First, we must identify the various courses of actions we can perform. Second, we must determine all of the potential benefits and harms that would result from each action. Finally we must choose the action that provides the highest overall benefits subtracting out all of the costs.9
The calculated decisions that managers make will create the greatest happiness, sometimes with higher happiness to the corporation, and sometimes with higher happiness to society. We can see how that using the utility model, decisions can be morally justified to the limits of law. For example, what should the manager do in deciding whether or not a company should outsource its manufacturing to India so that it can be more price competitive? In this example, the manager would have to determine all of the advantages and disadvantages associated with this decision from the business’s point of view, and not his personal morals. Advantages may be that it boosts profits, improves productivity, and increases the developing country’s employment and training etc. Disadvantages may include that it increases globalization, widens the gap between the rich and the poor, slashes jobs in North America etc. After evaluating these items and recognizing that outsourcing does not violate the law, and that the potential upsides of outsourcing outweigh the potential drawbacks, then the decision to outsource operations abroad is morally qualified. If on the other hand, the manager discovers certain clauses in the agreement that violates North American law, then outsourcing is amoral, and the manager should change the clauses or withdraw from the action completely.
A concept that may be employed in the utility calculation is stakeholder analysis. A stakeholder is an individual or group that affects the organization and in turn, is affected by the company’s actions and decisions. Stakeholder management goes beyond the traditional production and managerial views of the company and calls for a broader view of the parties involved including shareholders, employees, customers, suppliers, banks, government and NGOs.4 In the example above, the utility calculation would involve everyone that is affected by the outsourcing.
An opponent might argue that utilitarianism fails to take into account considerations of justice.5 Using the above example, a business decision might very well produce the greatest happiness by going into India and enforcing child labor, so that all of its workers are less than eighteen years old with wages much lower than the norm. Critics might argue that this is clearly wrong and utilitarianism still sanctions it. Yet the critics are missing an important point in this paper – producing the greatest happiness up to the limits of law. Child labor is legally wrong, and no matter how much happiness the business might create, it is not morally right; hence, the utility calculation in this case would not sanction such actions.
Another objection might be that happiness is difficult to measure and compare. It is tough to determine the values of certain benefits and costs. For example, how would we go about assigning a value to life? How do we compare money to the value of time, or to the value of human worth? And how can we be sure that our subjective measurements are an objective view of the decision to be made? In looking at these questions, we must consider that just because measuring the utility of a decision is tough does not mean that it is wrong or invalid to do so. In addition, the opponent uses objectivism to defend his argument, but we can counter by saying that almost everything in this world is subjective. Even the law is formed based on individual subjectivism – adopted based on the values and beliefs that humans have developed over thousands of years. For example, the legal sanction that one not to kill is not objective in nature, but rather a subjective value that most of us have developed over our lifetimes. This illustrates that evaluating moral situations will inevitably fall in the hands of subjectivism. Hence, objectivism itself shouldn’t be a huge concern. What does matter is that the manager tries his best to asses the situation with as little bias as possible.
Building on the role-differentiation and utilitarian models of business managers, it seems likely that a contract model would best describe the relationship between a manager and a corporation. A manager enters an employment contract with the organization whereby the organization pays the manager for her services in growing the business.8 The manager enters the relationship voluntarily aware of the restrictions imposed by the business; the manager also retains a level of accountability and has a right to ask for justifications from higher-ups and from shareholders. Moreover both the manager and the organization can exit from the relationship at anytime in the process.10 As a result, the contract demands the wholehearted devotion of the manager to the business, similar to the contractual agreement between a lawyer and his client. Evaluating decisions based on the contract model involves looking at all of the stakeholders and their relationships with one another. The manager enters a contract with the organization; the organization is in contract with the shareholders, the suppliers, the consumers, and the government etc. Hence, working down the chain of contracts, the manager’s decision must include many parties both internal and external of the organization itself.
An example might best illustrate this model. A business manager is looking to hire an analyst for his team to work on a long-term project for one his clients who is Asian. He knows that hiring a Chinese person would benefit his team much more than hiring another race. He currently has two candidates to choose from: one is a Chinese person who graduated from Boston College with an Arts degree, while another candidate is Caucasian who graduated from the Wharton School of Business. What should he do? In looking at this situation, first we must decide how much hiring power this manager has over the HR department according to his contract with the organization. He should then evaluate the hiring policies of the organization and what the criteria are for evaluating candidates; using these contractual criteria, the manager should then evaluate both candidates and objectively come out with a solution based on the advantages and disadvantages of hiring either applicant. The manager should also understand the legal boundaries for human resources and ensure that he does not violate any rules.
An opponent might argue that a contract model often does not cover what has not been expressly agreed upon. This creates many problems in terms of moral and legal disputes because a situation was simply not covered in the papers. In the above example, if the contract did not tell the manager what his role is in hiring for the organization, and what the evaluation criteria is, then what should the manager do? Yet this criticism is unfounded; just because a term is not covered does not mean that moral evaluations cannot be made. If the criticism is true, then it would mean that most models are false because not all of their terms are clearly defined – e. g. the fiduciary model, the paternalistic model etc. A certain level of subjectivity exists in the contract model. The manager should be able to infer based on other terms of the contract what she ought to do in such a situation. In the example above, the manager has many options: 1. discuss the circumstances with higher management or with shareholders. 2. Subjectively evaluate the situation and make a decision based on what she believes is most professionally correct. 3. Modify the contract to include the new terms. The manager also needs to keep in mind the legal risks that he and the organization may face and incorporate these risks into her analysis. Morally speaking, if it is not legally wrong to hire for the sake of benefiting the organization based on ethnicity, then it would be morally right to do so.
In this article, we have evaluated several practical methods of assessing the moral grounds of business decisions. In looking at the role-differentiated model, the utilitarian model, and the contract model, we have come to a consensus that it seems appropriate for business managers to evaluate decisions based on the law. In other words, the business manger is not considered amoral until he has broken the law. Yet we must understand that no single approach can offer answers to all of the ethical questions or to be immune from all problems and criticisms. Acknowledging this, we must continually refine our theories to enrich and amplify professional ethics to higher levels.
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