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Business ethics Essay The quandary people find themselves in when they have to decide if they should act in a way that might help another person or group, and is the â€Å"right† thing to do, even though doing so might not be in their own self-interest. A dilemma may also arise when a person has to decide between two different courses of action, knowing that whichever course he or she chooses will result in harm to one person or group even though it may benefit another. The ethical dilemma here is to decide which course of action is the â€Å"lesser of two evils. † Suppose we see a person being mugged in the street. How will we behave? Will we act in some way to help even though you risk being hurt? Will we walk away? Perhaps we might adopt a â€Å"middle-of-the-road approach† and not intervene but call the police instead? Does the way we act depend on whether the person being mugged is a fit male, an elderly person, or even a street person? Does it depend on whether there are other people around, so we can tell ourselves, â€Å"Oh well, someone else will help or call the police. I don’t need to†? People often know they are confronting an ethical dilemma when their moral scruples come into play and cause them to hesitate, debate, and reflect upon the â€Å"rightness† or â€Å"goodness† of a course of action. Moral scruples are thoughts and feelings that tell a person what is right or wrong; they are a part of a person’s ethics. Ethics Ethics are the inner-guiding moral principles, values, and beliefs people use to analyze a situation and decide what is â€Å"right. † At the same time, ethics also indicate what inappropriate behavior is and how a person should behave to avoid doing harm to another person. Ethics is that study or discipline which concerns itself with judgments of approval and disapproval, judgments as to the rightness or wrongness, goodness or badness, virtue or vice, desirability or wisdom of actions, dispositions, ends, objects, or states of affairs. There are two main directions which this study may take. It may concern itself with a psychological or sociological analysis and explanation of our ethical judgments, showing what our approvals and disapprovals consist in and why we approve or disapprove what we do. Or it may concern itself with establishing or recommending certain courses of action, ends, or ways of life as to be taken or pursued, either as right or as good or as virtuous or as wise, as over against others which are wrong, bad, vicious, or foolish. The essential problem in dealing with ethical issues, and thus solving moral dilemmas, is that there are no absolute or indisputable rules or principles that can be developed to decide if an action is ethical or unethical. Put simply, different people or groups may dispute which actions are ethical or unethical depending on their own personal self-interest and specific attitudes, beliefs, and values. Ethical Behavior It is one thing to decide, in theory, that being ethical is good; in practice, it can be much more difficult to make the right decisions. Many people feel the same way about ethics—that somehow, instinctively, they know what is right and wrong. In real life, however, ethical dilemmas are often not black and white, but many shades of gray. The following ethics checklist will aid to managers in making tough decisions: †¢ What are the facts? †¢ What are the critical issues? †¢ Who are the stakeholders? †¢ What are the alternatives? †¢ What are the ethical implications of each alternative? †¢ Is it legal? †¢ How would it look in the light of day? †¢ What are the consequences? †¢ Does it violate important values? †¢ What kind of world would this be if everyone behaved this way? †¢ Is more than one alternative right? †¢ Which values are in conflict? †¢ Which of these values are most important? †¢ Can you find an alternative that is consistent with your values? What Are the Facts? Although this question seems obvious, people often forget in the heat of battle to listen to (and, more importantly, to hear) all the different viewpoints. Instead of relying on hearsay and rumor, it is crucial to discover the facts, firsthand, from the people involved. There is always another side to the story. What Are the Critical Issues? In analyzing ethical dilemmas, expand your thinking to include all the important issues. Avoid a narrow focus that encompasses only one or two aspects. Who Are the Stakeholders? Stakeholders are all the people potentially affected by the decision. That list might include subordinates, bosses, shareholders, suppliers, customers, members of the community in which the business operates, society as a whole, or even more remote stakeholders, such as future generations. The interests of these stakeholders often conflict. Current shareholders may benefit from a company’s decision to manufacture a product that contributes to global warming, while future generations are left to contend with a potential environmental nightmare. What Are the Alternatives? The next step is to list the reasonable alternatives. A creative manager may find a clever solution that is a winner for everyone. What Are the Ethical Implications of Each Alternative? Is the Alternative Legal? Illegal may not always be synonymous with unethical, but, as a general rule, you need to think long and hard about the ethics of any illegal activities. How Would the Alternative Look in the Light of Day? If your activities were reported on the evening news, how would you feel? Proud? Embarrassed? Horrified? What Are the Consequences of This Alternative? Ask yourself: Am I hurting anyone by this decision? Which alternative will cause the greatest good (or the least harm) to the most people? For example, you would like to fire an incompetent employee. That decision will clearly have adverse consequences for him. But the other employees in your division will benefit and so will the shareholders of your company. Overall, your decision will cause more good than harm. You should look with a particularly critical eye if an alternative benefits you while harming others. Suppose that you become CEO of a company whose headquarters are located in a distant suburb. You would like to move the headquarters closer to your home to cut your commuting time. Of course, such a decision would be expensive for shareholders and inconvenient for other employees. Do you simply impose your will on the company or consider the consequences for everyone? Does the Alternative Violate Important Values? In addition to consequences, consider fundamental values. It is possible to commit an act that does not harm anyone else, but is still the wrong thing to do. Some people question whether, as a diverse, heterogeneous society, we have common values. The following values are almost universal: †¢ Compassion means being aware of and concerned about other people’s feelings, desires, and needs. The compassionate person is able to imagine how he would feel in someone else’s place. †¢ Courage is the strength to act in the face of fear and danger. Courage can require dramatic action (saving a buddy on a battlefield) or quiet strength (doing what you think is right, despite opposition from your boss). †¢ Fairness requires that decisions be made without fraud, prejudice or favoritism. The fair manager treats those he likes at work the same as those who are not his friends. †¢ Integrity means being sincere, honest, and loyal. If you have integrity, you do not criticize others behind their back or take credit for their ideas and efforts. †¢ Responsibility means being trustworthy and dependable. The responsible person meets her commitments, lives up to her promises and contributes to her community. People can count on her. †¢ Self-control is the ability to resist temptation. The person with self-control does not drink or eat too much, party too hard, watch too much television, or spend too much money. Try compiling your own list of values and then check it periodically to see if you are living up to it in your business and personal life. What Kind of World Would This Be if Everyone Behaved This Way? Is this the kind of world in which you would want to live? Imagine that you could cheat on an exam without getting caught. You might gain some short-term benefit—a higher grade. But what would happen if everyone cheated? The professor would have to make the exams harder or curve everyone’s grade down. If your school developed a reputation for cheating, you might not be able to find a job after graduation. Cheating works where most people are honest. To take advantage of everyone else’s honesty is contemptible. Is More than One Alternative Right? Often, the most difficult decisions arise not in cases of right versus wrong but in situations of right versus right. 10 President Harry Truman’s decision to drop atomic bombs on two Japanese cities is a classic example of right versus right. He argued that if he had not ended the war by using nuclear weapons, more Americans and Japanese would have died during a land invasion. Looking simply at the consequences, he concluded that the terrible suffering by the Japanese people was justified because, ultimately, fewer people died overall. At the same time, none of us want to live in a world where nuclear weapons are used. Indeed, since the end of World War II, the United States has worked hard to ensure that no one else ever deploys nuclear weapons. Which Values Are in Conflict? There are many ways to justify a decision to lay off workers, even 40,000 of them. If managers avoid layoffs, then profits suffer, stock prices fall, companies merge, and executives lose their own jobs. Which of These Values Are Most Important? Suppose that, growing up, you had seen family members or neighbors suffering through bouts of unemployment. That experience might have taught you that compassion is a high priority. Managers must determine which values are important in their own lives. Can You Find an Alternative That Is Consistent with Your Values? The decision you make not only determines the kind of person you are now, but also sets your course for the future. Can you reach a decision that is consistent with the kind of person you are or want to be? Instead of announcing massive layoffs, some companies offer generous severance packages, retraining programs, and other voluntary methods of reducing the workforce. Shareholders may receive less benefit, but employees suffer less harm. Changes in Ethics Change over time: Neither laws nor ethics are fixed principles cast in stone, however. Both change over time. As a society’s ethical beliefs change, its laws change to reflect them. It was considered both ethical and legal to own slaves in ancient Rome and Greece and in the United States until the nineteenth century. Ethical views regarding whether slavery was morally right subsequently changed, however, and slavery was later outlawed. Confusing behavior: In most societies today behaviors like murder, theft, slavery, and rape are considered unacceptable and prohibited. But many other kinds of behaviors are open to dispute when it comes to whether they are ethical or should be made illegal or not. Some people might believe that a particular behavior such as smoking tobacco or possessing guns is unethical and should be made illegal. Others might argue that it is up to individual people if they want to own guns or smoke. Vary from country to country: In the United States it is, of course, illegal to possess or use marijuana even though it has been shown to have many medical uses. Some cancer sufferers and AIDS patients find that marijuana relieves many of the side effects of medical treatment, like nausea and lack of appetite. Yet, in the United States, the Supreme Court has held that the federal government can prohibit doctors from prescribing marijuana to these patients, so their suffering goes on. By contrast in Canada there has been a widespread movement to decriminalize marijuana, and in other countries, marijuana is perfectly legal. Laws can and do change as people’s ethical beliefs change: The point is laws can and do change as people’s ethical beliefs change. For example, in Britain in 1830, there were over 350 different crimes for which a person could be executed, including sheep stealing. Today there are none. Capital punishment has been abolished. No absolute standards exist to determine how we should behave: No absolute standards exist to determine how we should behave. Consequently, we frequently get caught in moral dilemmas and are continually faced with ethical choices. It is a part of life. Importance of Ethics to Society Does ethical behavior maximize profitability? Some people argue that, in the long run, ethical behavior does indeed pay. But they must mean the very long run, because to date there is little evidence that ethical behavior necessarily pays financially, either in the short or the long run. Society as a whole benefits from ethical behavior: Ethics and competitiveness are inseparable. We compete as a society. No society anywhere will compete very long or successfully with people stabbing each other in the back; with people trying to steal from each other; with everything requiring notarized confirmation because you can’t trust the other fellow; with every little squabble ending in litigation; and with government writing reams of regulatory legislation, tying business hand and foot to keep it honest. That is a recipe not only for headaches in running a company; it is a recipe for a nation to become wasteful, inefficient, and noncompetitive. There is no escaping this fact: the greater the measure of mutual trust and confidence in the ethics of a society, the greater its economic strength. Money does not buy happiness: Researchers who study happiness find that people expect material goods to make them happier than they actually do. Sure, you enjoy driving that snappy new car home from the dealership, but afterward your happiness quickly returns to its natural base level. People find themselves on the so-called â€Å"hedonic treadmill†Ã¢â‚¬â€struggling to buy more and more things so they can get that buyer’s high, only to discover that they can never buy enough to maintain the thrill. Almost no matter how much people earn, they feel they would be happier if their income were just a little bit higher. So what does make people happy in the long run? Good relationships, satisfying work, ties to the community—all available at no additional cost. People feel better when they behave ethically: Profitability is generally not what motivates managers to care about ethics. Managers want to feel good about themselves and the decisions they have made; they want to sleep at night. Their decisions—to lay off employees, install safety devices in cars, burn a cleaner fuel—affect peoples’ lives. Unethical behavior can be very costly: Unethical behavior is a risky business strategy—it may lead to disaster. An engaged couple made a reservation, and put down a $1,500 deposit, to hold their wedding reception at a New Hampshire restaurant. Tragically, the bride died of asthma four months before the wedding. Invoking the terms of the contract, the restaurant owner refused to return the couple’s deposit. In a letter to the groom, he admitted, â€Å"Morally, I would of course agree that the deposit should be returned. † When newspapers reported this story, customers deserted the restaurant and it was forced into bankruptcy—over a $1,500 disagreement. Unethical behavior does not always damage a business, but it certainly has the potential of destroying a company overnight. So why take the risk? Even if unethical behavior does not devastate a business, it can cause other, subtler damage. In one survey, a majority of those questioned said that they had witnessed unethical behavior in their workplace and that this behavior had reduced productivity, job stability, and profits. Unethical behavior in an organization creates a cynical, resentful, and unproductive workforce. Ethical behavior is more likely to pay off: Although there is no guarantee that ethical behavior pays in the short or long run, there is evidence that the ethical company is more likely to win financially. Ethical companies tend to have a better reputation, more creative and cooperative employees and higher returns than those that engage in wrong-doing. So why bother with ethics? Because when managers behave ethically, society will be benefited. Money does not buy happiness. Because ethical managers have happier, more satisfying lives. Because unethical behavior can destroy a business faster than a snake can bite. And because, in the end, ethical behavior is more likely to pay off. Stakeholders and Business Ethics The people and groups affected by the way a company does business are called its stakeholders. Stakeholders supply a company with its productive resources. As a result, they have a claim on and stake in the company. Because stakeholders can directly benefit or be harmed by its actions, the business ethics of a company and its managers are important to them. These various stakeholders are shown in Figure Stockholders Stockholders have a claim on a company because when they buy its stock, or shares, they become its owners. This stock grants them the right to receive some of the company’s profits in the form of dividends. And they expect to get these dividends. Stockholders are interested in the way a company operates because they want to maximize their return on their investment. Thus, they watch the company and its managers closely to ensure they are working diligently to increase the company’s profitability. Stockholders also want to ensure that managers are behaving ethically and not risking investors’ capital by engaging in actions that could hurt the company’s reputation and quickly bankrupt it. Managers Managers are a vital stakeholder group because they are responsible for using a company’s financial capital and human resources to increase its profitability and stock price. Managers have a claim on an organization because they bring to it their skills, expertise, and experience. They have the right to expect a good return or reward by investing their human capital to improve a company’s performance. Such rewards include good salaries and benefits, the prospect of promotion and a career, and stock options and bonuses tied to the company’s performance. Managers must be motivated and given incentives to work hard in the interests of stockholders. Their behavior must also be scrutinized to ensure they do not behave illegally or unethically and pursue goals that threaten stockholders’ (and employees’) interests. Employees A company’s employees are the hundreds of thousands of people who work in its various functions, like research, sales, and manufacturing. Employees expect that they will receive rewards consistent with their performance. One principal way a company acts ethically toward employees and meets their expectations is by creating an occupational structure that fairly and equitably rewards them for their contributions. Companies, for example, need to develop recruitment, training, performance appraisal, and reward systems that do not discriminate between employees and that employees believe are fair. Suppliers and Distributors No company operates alone. Every company relies on a network of other companies that supply it with the inputs it needs to operate. Companies also depend on intermediaries such as wholesalers and retailers to distribute its products to the final customer. Suppliers expect to be paid fairly and promptly for their inputs; distributors expect to receive quality products at agreed-upon prices. Once again, many ethical issues arise in the way companies contract and interact with their suppliers and distributors. Important issues concerning how and when payments are to be made or product quality specifications are governed by the terms of the legal contracts a company signs with its suppliers and distributors. Many other issues are dependent on business ethics. Customers Customers are often regarded as the most critical stakeholders: If a company cannot persuade them to buy its products, it cannot stay in business. Thus, managers and employees must work to increase efficiency and effectiveness in order to create loyal customers and attract new ones. They do so by selling customers quality products at a fair price and providing good after-sales service. They can also strive to improve their products over time. Many laws exist that protect customers from companies that attempt to provide dangerous or shoddy products. Laws exist that allow customers to sue a company that produces a bad product, such as a defective tire or vehicle, causing them harm. Other laws force companies to clearly disclose the interest rates they charge on purchases—a cost that customers frequently do not factor into their purchase decisions. Every year thousands of companies are prosecuted for breaking these laws, so â€Å"buyer beware† is an important business rule customers must follow. Community, Society, and Nation Community refers to the physical location in which a company is located, like a city, town, or neighborhood. A community provides a company with the physical and social infrastructure that allows it to do business; its utilities and labor force; the homes in which its managers and employees live; the schools, colleges, and hospitals that service their needs, and so on. Through the salaries, wages, and taxes it pays, a company contributes to the economy of the town or region in which it operates and often determines whether the community prospers or suffers. Similarly, a company affects the prosperity of a society and a nation and, to the degree that a company is involved in global trade, all of the countries in which it operates. Sources of Business Ethics Primarily ethics in business is affected by three sources culture, religion and laws of the state. It is for this reason we do not have uniform or completely similar standards across the globe. These three factors exert influences to varying degrees on humans which ultimately get reflected in the ethics of the organization. Religion It is one of the oldest foundations of ethical standards. Religion wields varying influences across various sects of people. It is believed that ethics is a manifestation of the divine and so it draws a line between the good and the bad in the society. Depending upon the degree of religious influence we have different sects of people; we have sects, those who are referred to as orthodox or fundamentalists and those who are called as moderates. Needless to mention, religion exerts itself to a greater degree among the orthodox and to lesser extent in case of moderates. Fundamentally however all the religions operate on the principle of reciprocity towards ones fellow beings. Culture Culture is a pattern of behaviors and values that are transferred from one generation to another, those that are considered as ideal or within the acceptable limits. No wonder therefore that it is the culture that predominantly determines what is wrong and what is right. It is the culture that defines certain behavior as acceptable and others as unacceptable. Human civilization in fact has passed through various cultures, wherein the moral code was redrafted depending upon the epoch that was. What was immoral or unacceptable in certain culture became acceptable later on and vice versa. During the early years of human development where ones who were the strongest were the ones who survived! Violence, hostility and ferocity were thus the acceptable. Approximately 10,000 year ago when human civilization entered the settlement phase, hard work, patience and peace were seen as virtues and the earlier ones were considered otherwise. These values are still put in practice by the managers of today. Still further, when human civilization witnessed the industrial revolution, the ethics of agrarian economy was replaced by the law pertaining to technology, property rights etc. Ever since a tussle has ensued between the values of the agrarian and the industrial economy! Law Laws are procedures and code of conduct that are laid down by the legal system of the state. They are meant to guide human behavior within the social fabric. The major problem with the law is that all the ethical expectations cannot be covered by the law and specially with ever changing outer environment the law keeps on changing but often fails to keep pace. In business, complying with the rule of law is taken as ethical behavior, but organizations often break laws by evading taxes, compromising on quality, service norms etc. Childhood Upbringing Without really thinking or even being able to avoid it, each person learns ethics from his or her parents—what they teach in words and perhaps more importantly through their actions. These teachings shape our most fundamental attitudes about what is right and what is wrong. As a very brief insurance-related example, the child of an insurance agent, upon reaching adulthood, is much more likely to be honest and truthful in settling claims under his or her insurance policies than is the grown child of another insurance agent if the other agent was terminated by the insurer under disputed circumstances. The child may not have understood the intricacies of those circumstances at the time, but as an adult, he or she is likely to believe in their heart that insurers are not to be trusted and do not deserve to be treated honestly. Later Life Experiences Similarly, a life-shaping event later in life may more directly and consciously shape a persons ethics. Thus, someone severely injured in an automobile accident may have a much higher opinion of the entire automobile-injury reparations system—including the police who investigated, the hospital that provided care, the lawyers and courts that resolved any legal issues, and the insurers that helped finance so much of the injured persons recovery—if that person is satisfied with the ultimate medical and financial result months and years after the accident. If, however, this victim feels the result was medically inferior or legally unfair, the victim may well treat everyone in the system unfairly—even years later in circumstances unrelated to the original accident—just to seek some measure of personal justice. Religious Beliefs Virtually all the worlds religions teach an essentially similar code of ethics that emphasizes honesty, respect for others and their rights, and selflessness. Therefore, in both business and personal situations, a highly religious person is likely to act in ways that most of us will regard as highly ethical. Their religion will give them highly explicit, generally internally consistent, guides to good personal conduct. These guidelines usually can be broadened to apply quite well to business activity. Moreover, those for whom religion is not a central force in their lives are more likely to act in self-centered, ethically questionable ways. Codes of Ethics Perhaps the most direct and explicit sources of our daily ethical guidance are codes of ethics for business conduct. Whether issued by professional societies (such as the Risk and Insurance Management Society, the Society of Chartered Property and Casualty Underwriters, or the American Society of Safety Engineers), by a business or fraternal society (such as an insurance agents association or the Lions or Elks), or by civic groups (such as local or national chambers of commerce), these ethical codes generally have two goals. The first is to set forth objectives like quality output, honesty, and public service in the customer or community dealings by the people who are governed by, or choose to subscribe to, a particular code. The second typical goal is to protect those to whom the code applies from harmful conduct by others governed by that particular code—conduct such as unfair competition or actions that that cast the entire group in a bad light. This second goal often is expressed through rather specific rules about what those governed by the code definitely must, or must not, do in their dealings with customers, one another, and the public at large. These self-protective rules can sometimes appear to conflict with religious, philosophical, or other sources of ethical guidance. Discussions with Others Almost daily, quite casually, and sometimes without thinking, virtually all of us talk about others and our own actions—offering frequent opinions about whether what they or we have been doing is good, right, and sensible (or perhaps very much the opposite). Buried in this small talk, chit chat, gossip, and mealtime conversations are implicit—sometimes very explicit—ethical judgments about the behavior being discussed. People and their words and actions are labeled wonderful, mean, greedy, generous, or hundreds of other qualities. Over time, these discussions lead each of us to a sense of what the people around us consider to be good and bad, ethical and unethical, conduct. Unless we have strong personal reasons or other commitments to believe otherwise, most of us tend to go along with the opinions of those around us, rather than bucking the tide by independently evaluating the ethical aspects of others actions. Thus, often almost automatically, the social consensus can become the approved, although unexamined, ethical standard. Ethical Philosophers In sharp contrast to these ethics of casual social consensus, the philosophers who have developed systems of ethics—such people as Plato, Aristotle, Kant, Bentham, and more recent ethical thinkers throughout the world—have developed basic principles from which they have derived systems of ethics. These principles fall into two general groups: those that are rules-based and those that are results-based. Examples of rule-based ethics appear in the Bibles Ten Commandments, in many professions codes of ethics, and in the Golden Rule: Do unto others as you would have others do unto you. Results-based systems of ethics emphasize principles such as physicians never knowingly doing or allowing medical harm; doing the greatest good for the greatest number of people (Bentham and other utilitarian), and Kants principle of universality—taking an action only if everyone could take the same action without bringing about more harm than good and without creating logical impossibilities (like the logical impossibility of every person being more generous to every other person than anyone is to the first person). Ethical Dilemmas. A final source of ethical insight (more a way of developing ones ethical awareness and sensibilities than a separate source of ethical guidance) is pondering ethical dilemmas. These dilemmas are real or imagined situations that pit two or more ethical principles, rules, or objectives against one another. To resolve the dilemma, one has to decide which of these ethically desirable ends is the more/most important or, alternatively, if there is a way to achieve both/all of these ends without committing some other ethical wrong. For example, if you are an adult and your father, convicted as a murderer, has escaped a federal prison in California to hide in your Missouri house, how do you respond when an FBI agent standing in your yard asks Is your father in your house now? Assuming he is, Yes breaks the commandment to honor ones parents, but No breaks the commandment to tell the truth in all morally significant situations. (When your spouse asks if she/he is especially beautiful/handsome as you are leaving you house to go to a friends birthday party, your response probably is not ethically significant for the community, but it may be very significant within your marriage. ) Classification of Ethics Ethics may be divided into four major areas of study 1. Meta-ethics 2. Normative ethics 3. Descriptive ethics 4. Applied ethics Meta-ethics Meta-ethics is a field within ethics that seeks to understand the nature of normative ethics. The focus of meta-ethics is on how we understand, know about, and what we mean when we talk about what is right and what is wrong. Normative Ethics Normative ethics is the study of ethical action. It is the branch of philosophical ethics that investigates the set of questions that arise when considering how one ought to act, morally speaking. Normative ethics is distinct from meta-ethics because it examines standards for the rightness and wrongnes.