An Introduction to Ethical Business

Critics of business ethics as a scientific topic argue that business is unethical by nature. Therefore, they argue, scientific research is not adequate on this topic. However, does that mean that ethics is not an important topic for business managers? This article tries to cover some basics about business ethics while subsequent articles will cover specific topics in business ethics.

In the past, unethical behavior led to various scandals such as accounting fraud and environmental scandals. The largest scandal in U.S. history is the Enron scandal that led to the bankruptcy of Enron Corp., an American energy corporation. The company used accounting loopholes, special purpose entities, and poor financial reporting to hide billions in debt from failed deals and projects. This excess of unethical behavior is a result of misleading at the top of the corporation, of misconduct and criminal behavior of the firms top executives.

Other scandals, such as the climate warming, which results from emitting of greenhouse gases and deforestation, is another case of unethical behavior. However, this behavior largely results from the burning of fossil fuels by the majority of the world’s population and is accepted by law makers and the general public.

Legal Considerations

The two examples show that some ethical cases (such as the Enron scandal) are considered illegal in courts and others (such as global warming) are considered legal. There is a difference between morally right or wrong and legally right or wrong. The law defines its own set of rules and usually define a minimun that has to be followed by business practitioners and the general public. Usually, the law is oriented on moral standards set by its society but also defines rules that are not grounded in ethical considerations. For example, in most countries, the law defines that cars drive on the right side of a street. However, it is not unethical to drive on the left side as in Great Britain.

In addition to the legal distinction, there is a distinction between morally right or wrong and strategically or commercially right or wrong. Doesn’t a company has to act unethical in order to achieve highest profits? For example, to burn fossil fuels or to use (legal) accounting loopholes? A company that follows strict ethical rules limit its own success. Does that mean that companies act unethical by nature as critics argue in the introduction of this article? No. Common business practice requires the maintenance of ethical standards, such as honesty, trustworthiness and co-operation on top of following the standards set by the law. Businesses who behave totally unethical would face opposition by their business partners, their employees, their customers, and by the public.

Business ethics is concerned with issues not covered by the law. It provides a framework to evaluate business activities that are legal by its nature but affect the interest of business partners, society or the environment. There is no standard of business ethics, every individual must make its own decisions when faced with ethical questions.

The Importance of Business Ethics

Business ethics is important because people, such as business partners, investors, customers and public pressure groups are demanding ethical behavior. In general, businesses have power and influence in society, therefore their ethical or unethical actions affect a lot of people. Business has the potential to provide a major contribution to our societies in terms of producing the products and services that we want, providing employment, paying taxes, and acting as an engine for economic development, to name just a few examples. On the other hand, business malpractices have the potential to inflict enormous harm on individuals, on communities and on the environment.

It is also an important topic as the demands being placed on business to be ethical by its various stakeholders are constantly becoming more complex and challenging. Managers have to follow a complex set of legal and accounting rules and keep the public opinion on their actions in view as well. However, only a few business people have received formal education or training in business ethics. Instead, they solely have to trust their gut feeling.

Business Ethics: an Actual Topic

Ethical infractions continue to occur in business. While law is further developed to close accounting loopholes or to prevent the most excessive infractions of business rules, ethical questions arise on a frequent basis. Pressure in the business environment remains high and employees often compromise their own or their organization’s ethical standards.

Business ethics can provide us with the ability to assess the benefits and problems associated with different ways of managing ethics in organizations.

Why Business Ethics is Important for You

As David H. Blake, Chair of the BGS Center for Ethical Business Leadership, pointed out in the introductionary video of this article, ethical issues can occur at any time in one’s career. Managers who face ethical dilemmas must learn how to deal with them. They should not wait until they face them – instead they should receive formal training and education as soon as possible to be prepared when they occur. They have to learn the things to do when confronted with ethical issues because wrongdoing (or doing nothing) can ruin careers and can ruin corporations.

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