What are business ethics? The term “ethics” is generally accepted to refer to the system of moral guidelines and principles that guides an organization, person or field. But what differentiates business ethics from other kinds of ethics? For that matter, are business ethics even necessary? It’s tempting to say that individuals can regulate their own behavior and government can police questionable corporations, but these solutions are inadequate for the needs of an increasingly interconnected and bureaucratic world. Business ethics guide the actions and decisions of corporations across America and the world, giving them an action plan to determine what is right, moral and proper in a given situation. They provide a framework by which both experienced corporate managers and newbies can come together to solve problems in a just fashion that upholds principles of goodness and charity. Without them, the business world would devolve into a morass of anarchy, with workers and managers seeking to metaphorically slit each others’ throats to succeed and corporations causing mass destruction and harm in the search for greater profits. To put it simply, ethics are what make the business world human, and what allow workers and managers to stay in touch with the people they serve. At least this is how the proponents of business ethics see things.
But is this how the world actually operates? While on paper, corporations and CEOs swear allegiance to ethical principles, the news is chock-full of stories of corporate and financial abuse. Whether it’s investment banks swindling their customers to the tune of billions of dollars to manufacturers dumping hazardous chemicals into the water supply, ethical businesses appear to be in short supply. Here’s a radical thought: the concept of business ethics itself is responsible for the abuses that corporations inflict on the environment, on other people, and on their own employees. Business ethics were specifically designed to enable sociopathic CEOs and managers to lie, cheat and steal their way through life while still being able to sleep as soundly as babies at night. Their existence is solely to smear a patina of respectability over the more dubious dealings of modern corporations. That’s how the critics of business ethics see things.
Which side is correct? While critics of the concept of business ethics, such as Peter Drucker, have some good points, to chuck the entire concept out the window is the equivalent of throwing the baby out with the bathwater (a tiresome cliché, but it illustrates the point). Business ethics can serve as an effective roadmap for corporations and their employees, so long as those ethics are designed in a fashion to bring out the best in those who adhere to them. By carefully designing ethical systems, business ethics can be used to guide the behavior of managers and employees in a positive direction.
What is Business Ethics?
Discussing the concept of business ethics is impossible without defining what they actually are. We know that ethics themselves are the codifications of morality, but what is morality? In order to understand business ethics, we need to understand these two concepts and what distinguishes them.
Morality is the cumulative collection of principles that guide human behavior and allow us to determine which acts are right and which are wrong. While there are a number of systems used for determining the righteousness and/or deplorability of certain acts, virtually all human beings agree that certain actions are noble and others are evil. For example, virtually everyone on Earth believes that murder, the unprovoked killing of another human being, is wrong. Rape, the act of forcing a woman to have sex against her will, is also generally considered a heinous act. Where morality becomes muddy is when situations become more particular or complex. For example, religious Christians typically view abortion as a heinous act because they regard fetuses to be human beings, while non-Christians do not. Attempting to rely on personal morality as the primary moral guidance system is ill-advised in a society as diverse and pluralistic as the United States, as the wide variety of cultures, religions and races within our country give Americans wildly differing conceptions of morality (Solomon, 1993). Because of this, personal morality cannot be used as the sole metric by which good and evil are determined; hence, the need for business ethics in an increasingly multicultural nation.
If morality is the system by which we determine which acts are right and wrong, ethics are the codification of that system (Blanchard, 1988). They are simple, easy-to-understand rules and guidelines that allow human beings to ascertain the morality of a given action with ease. For example, the Ten Commandments of the Christian and Hebrew Bibles are an example of an ethical system, providing ten clear, simple rules for adherents of those religions to follow. Business ethics constitute the codification of business morality: what actions are right and wrong in the context of corporate and business life. In general, ethical systems, including business ethics, are designed to be as nonspecific as possible in order to appeal to every type of person who might fall under their aegis (Blanchard, 1998). As noted previously, the increasing diversity of the American workforce renders personal morality an ineffective means with which to rein in unethical and immoral behavior. As a result, business ethics are crafted in such a fashion that they are universally applicable to all workers and managers, not just a select few (Donaldson & Dunfree, 1994).
Peter Drucker’s Criticism of Business Ethics
Without a doubt, the most famous critic of business ethics was the Austrian-American consultant and author Peter Drucker. Drucker’s conception of business ethics was quite simple: they don’t exist. His view was that business ethics were a meaningless distraction from true ethical problems at best; at worst, they were a smokescreen used by unsavory CEOs and managers to justify clearly unethical behavior (Schwartz, 1998). Why did Drucker feel this way and what made him argue that personal ethics were the only necessary form of ethics in the business world? A closer examination of his life and writings is required.
Peter Drucker’s conception of morality was rooted in traditional Western philosophical thought. Beginning from this premise, he argued that the concept of a separate system of business ethics was completely nonsensical (Drucker, 1981). As he termed it, the trajectory of Jewish and Christian moral thought going back to the Old Testament rejected the concept of separate ethical systems, arguing that there was only one set of ethics that applied to all human beings, no matter who they were. For example, the pagan and polytheistic religions that preceded Christianity in Europe applied different ethical systems to different types of people; Christianity rejected this precisely because differing ethical systems make it considerably easier for the rich and privileged to abuse and oppress those beneath them. In effect, Western philosophical thought imposes a sort of egalitarianism of morality; rich or poor, man or woman, black or white, all are subject to the same laws and restrictions on their behavior. While this has not always worked out in practice (and some would say it rarely has), Drucker’s belief is that this central belief still worked to make European and Christian societies more fair, prosperous and innovative than their pagan and Muslim neighbors.
It is from this philosophical foundation that Peter Drucker attacks the very concept of business ethics. He sums up his objection to business ethics with this line: “For [business ethics] asserts that acts that
are not immoral or illegal if done by ordinary folk become immoral or illegal if done by ‘business’” (Drucker, 1981). Drucker’s view was that constituting business ethics as a separate entity was devolving the West back to the days of paganism, in which morality was not universal but specific. The primary objection to business ethics is that the mere act of creating a separate system of ethics makes it easier for the wealthy and privileged to assert power over the weak. Effectively, business ethics’ only reason for existing is to give justification to acts of corporate wrongdoing. Drucker also objects to business ethics on the basis that they can also work in the opposite direction: inhibit businesses from engaging in activity that private citizens can (Schwartz, 1998). As an example, he lists extortion, which is considered immoral in all contexts but, under the regime of “business ethics,” implicates both the wronged and the wrongdoer as being immoral. He gives as an example of this principle in action the extortion of Lockheed by a Japanese airline, in which the latter forced the former to pay a fee as the price of considering purchasing one of Lockheed’s airplanes. Drucker compares this to a pedestrian getting mugged in Central Park, saying that while both Lockheed and the pedestrian have been the victims of extortion, Lockheed is considered to have acted immorally while the pedestrian is not (Drucker, 1981).
Finally, Drucker opposes business ethics on the basis that they prevent corporations from adjusting to the differing moralities of the countries in which they operate (Schwartz, 1998). Despite many commonalities between moral codes across the world, there is a great deal of variance when it comes to local customs, and businesses may have to accommodate these customs in order to operate and profit. The construct of business ethics, however, forces a one-size-fits-all conception of morality upon businesses, preventing them from flexibly adjusting to the needs of various cultures (Schwartz, 1998).
Responding to Drucker
Peter Drucker has some valid points in criticizing business ethics as they currently exist. He is correct that a good number of corporations and CEOs use business ethics as a means to get away with behavior that would otherwise be considered objectionable were an individual to engage in it. He is also right to point out that business ethics can sometimes seem like a straitjacket, preventing businesses from adapting to the realities of setting up shop in a new country. However, just because some individuals and corporations abuse the concept of business ethics does not mean that business ethics themselves are a fraudulent and dangerous concept. Properly designed, they can be an effective tool in regulating the modern workplace and ensuring moral behavior on the part of corporations.
The basis of business ethics should be personal ethics. While, as stated before, attempting to guide modern corporations solely on the ethical codes of their employees is a foolhardy measure, personal morality is the most sensible base from which to create a coherent system of business ethics. Indeed, all ethics ultimately springs from personal morality, as it is that context in which morality originally was formed. Going back to the Old Testament and the Code of Hammurabi, laws and ethical codes were originally established in order to govern personal behavior and prevent actions that would cause social disharmony such as murder, rape, adultery, theft, and so on. While society has become considerably more complex than it was in Hammurabi’s time, it’s still made up of human beings, who still have the same urges, wants and needs that humans have had since our species came into being. Ergo, the most logical place for the development of a coherent set of business ethics to start is with personal morality.
Business ethics should start, obviously, with the ideas that most people already agree upon: murder is wrong, despoiling natural resources is wrong, and so on (Solomon, 1993). The greater the commonality of the idea, the greater the reason for incorporating it into business ethics (Hoffman & Moore, 1982). The morality of business should be, at the very least, applicable to as wide a variety of situations and cultures as possible, in order to make it a truly effective and just morality. Business ethics should also incorporate the egalitarianism of Judeo-Christian moral theory, the theory defining Western philosophy, culture and jurisprudence, into its framework (Hoffman & Moore, 1982). Under this egalitarianism, everyone is held to the same standards and is subject to the same rules. The CEO of a company is no more justified in stealing than the lowliest janitor working the third shift. Only by enforcing the same moral code on everyone can it be truly effective; a law that binds only the workers and not the managers is a law that will be abused and used to justify atrocities.
Finally, to address one of Drucker’s criticisms, business ethics should be somewhat flexible in their interpretation. Allowances should be made for dealing with local customs and peccadillos in such a fashion that the company is able to both operate and serve the needs of its local community (Donaldson & Dunfree, 1994). For example, Drucker gives an example of how the existing structure of business ethics prevents American companies operating in Japan from employing “counselors,” retired Japanese civil servants. While in the U.S., the idea of allowing individuals to slide from working in government to working in business is seen as suspect, in Japan it is considered a foundational belief of the country’s business culture, and companies that do not employ counselors are seen to be in violation of Japanese societal ethics. A sane business ethical code would make an allowance for customs such as these that do not compromise the company’s operations and in fact enable to it retain a high standing in the eyes of the societies in which it operates.
Conclusion and Recapitulation
The debate over the efficacy and necessity of business ethics will likely continue to rage for the foreseeable future, as will the stories of corporate negligence and abuse pouring out of the mainstream media. It’s clear that the existing conception of business ethics is not serving anyone other than the wealthiest and most privileged in our society. At the same time, attempting to abandon the structure of business ethics entirely can only lead to chaos and disaster. A happy middle ground between these extremes must be found.
The solution lies in redeveloping business ethics to meet the needs of an increasingly diverse and globalized marketplace. Managerial capitalism can no longer afford to coast on the assumptions and codes of the Industrial Era, when nationalism reigned and countries were small and homogenous. We cannot go backwards, only forwards, and despite the protestations of individuals such as Peter Drucker, a separate business ethics is necessary in order to keep our corporations and businesses from taking advantage of the weak and disenfranchised.
What form will business ethics take in the future? An exact prediction is impossible, but as society becomes ever more pluralistic and individualistic, business ethics will have to adapt to meet its needs. Personal morality is fine for individual persons, but a large mass of employees acting individually is not a society, it is a mob. To maintain a basic standard of decency and respect, corporations must develop and impose a new ethical code that guarantees fairness and justice for all within its dominion. The world is changing, and it’s time for American businesses to get with the times.
Blanchard, K.H. (1988). The Power of Ethical Management. New York: William Morrow.
Donaldson, T. & Dunfree, T.W. (1994, Apr. 1). Toward a unified conception of business ethics: integrative social contracts theory. Academy of Management Review, 19(2), pp. 252-284.
Drucker, P. (1981). What is business ethics? National Affairs, 18-36.
Hoffman, W.M. & Moore, J.M. (1982). What is business ethics? A reply to Peter Drucker. Journal of Business Ethics, 1, pp. 293-300.
Schwartz, M. (1998, Nov.) Peter Drucker and the denial of business ethics. Journal of Business Ethics, 17(15), pp. 1685-1692.
Solomon, R.C. (1993). Ethics and Excellence: Cooperation and Integrity in Business. New York: Oxford University Press, USA.
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