One day my brother, who runs tyre business , offered me to advertise and sell a brand of tyre that I had declined (for reasons) to mount on my personal car. The proposition put me in a sort of dilemma.
I had long cherished the dream that one day I would be a business manager. The offer was a chance to practice what I wanted to be but my conscience and the demand of the philosophy of morality (as per my understanding ) was forcing me to decline the offer as I was told to market what I didn’t like for myself. My desire for being a business manager was strong ; so was my conscience. I found myself between a rock and a hard place then. Drawing a line between business and ethics was difficult. I didn’t know where business should overrule ethics and where the philosophy of morality should be given priority over business.
The dilemma forced me to know the line along which conscience and business would run smoothly.
To discover that golden line and to analyse the issue at hand one need to keep in mind the definition of business ,business manager, ethics and business ethics. One needs to explore the different school of thoughts and theories regarding business ethics.
A business is defined 1 as an economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis.
A business manager 2 is a person who manages the work of others in order to run a business efficiently. He or she should have working smarts of the following areas, and may be a specialist in one or more: sales, marketing, and public relations; research, operations analysis, data processing, mathematics, statistics, and economics; production; finance; accounting, auditing, tax, and budgeting; purchasing; and personnel.
Ethics 3 is concerned with what is right or wrong, good or bad, fair or unfair, responsible or irresponsible, obligatory or permissible, praiseworthy or blameworthy. It is associated with guilt, shame, indignation, resentment, empathy, compassion, and care. It is interested in character as well as conduct. It addresses matters of public policy as well as more personal matters. On the one hand, it draws strength from our social environment, established practices, law, religion, and individual conscience. On the other hand, it critically assesses each of these sources of strength. So, ethics is complex and often perplexing and controversial
Business ethics 4 is a form of applied athics that examines ethical principles and moral or ethical problems that arise in a business environment. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics. Business Ethics is the application of Ethical values to the business world. It applies to any and all aspects of business conduct. Business ethics is relevant to the conduct of individuals and also relevant to the conduct of the business organizations as a whole. In the increasingly conscience-focused marketplaces of the current century, the demand for more ethical business processes and actions is increasing 5. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws . Businesses can often attain short-term gains by acting in an unethical fashion; however, such antics tend to undermine the economy over time.
Business ethics can be both a normative and descriptive .Traditionally, normative ethics ,also known as moral theory, is the study of what makes actions right and wrong. These theories offered an overarching moral principle to which one could appeal in resolving difficult moral decisions on the other hand descriptive ethics, also known as comparative ethics, is the study of people's beliefs about morality. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations.
Business managers must understand finance and marketing. But is
it necessary for them to study ethics? Managers who answer in the negative generally base their thinking on one of three rationales. They may simply say that they have no reason to be ethical. They say that why should they be
concerned about ethics, as long as they are making money and staying out of jail? Other managers recognize that they should be ethical but identify their ethical duty with making a legal profit for the firm. They see no need to be ethical in any further sense, and therefore no need for any background beyond business and law. A third group of managers grant that ethical duty goes further than what is required by law. But they still insist that there is no point in studying ethics. Character is formed in childhood, not while reading a college text or sitting in class.
At this point one can safely deduce that the two fields, ethics and management , are closely related. Business management is all about making the right decisions. Ethics is concerned with the distinction between right and wrong and then making the right decision, therefore, it is all about making the right decisions. So what is the difference between the two? Management is concerned with how decisions affect the company, while ethics is concerned about how decisions affect everything. Management operates in the specialized context of the firm, while ethics operates in
the general context of the world. Management is therefore part of ethics.
It seems that a business manager cannot make the right decisions without understanding management in particular as well as ethics in general. Business ethics seems management carried out in the real world. To check the validity of the above stated sentences lets explore the theories regarding business ethic, then one would be in a position to conclude the topic under discussion.
There are critics of the discipline of business ethics who often point out that business ethicists are usually academics who speak in the language of abstract ethical theory that are meaningless to the ordinary business person who possesses little or no philosophical training. Business people express themselves in ordinary language and tend to resist dealing in abstractions. What they want to know is how to resolve the specific problems that confront them. A charge that is frequently lodged against the practical utility of business ethics as a field of study concerns the apparent failure of communication between the theorist and the business practitioner.6
This justified criticism places the business ethicist on the horns of a dilemma. General principles are necessary if business ethics is to constitute a substantive normative discipline. However, if the only principles available are expressed in language unfamiliar to those who must apply them, they can have no practical effect. This suggests that the task of the business ethicist is to produce a set of ethical principles that can be both expressed in language accessible to and conveniently applied by an ordinary business person who has no formal philosophical training.
The search for such principles has led to the development of several theories : theories specifically tailored to fit the business environment. These theories attempt to derive what might be called "intermediate level" principles to mediate between the highly abstract principles of philosophical ethics and the concrete ethical dilemmas that arise in the business environment.
Currently, the three leading normative theories of business ethics are the stockholder, stakeholder, and social contract theories. These theories present distinct and incompatible accounts of a business person's ethical obligations. The stockholder theory is the oldest of the three and seems out of favor with many contemporary business ethicists: to them it represents a disreputable holdover from the bad old days of rampant capitalism. The stakeholder theory has gained such widespread adherence that it may currently be considered the conventionally-accepted position within the business ethics community.7 In recent years, however, the social contract theory has been cited with considerable approbation and might accurately be characterized as challenging the stakeholder theory for preeminence among normative theorists.8
Now let us analyze each of these theories: analyze their supporting rationale and canvass the chief objections against them. One would draw a tentative conclusion regarding the adequacy of each theory and finally on the basis of these conclusions one would suggest the contours of a truly adequate normative theory of business ethics.
The most famous statement of the stockholder theory has been given by Milton Friedman . Economist Milton Friedman articulates this view in an essay that is quite popular with business students, “The Social Responsibility of Business Is to Increase its Profits.” According to Friedman, corporate officers have no obligation to support such social causes as hiring the hard-core unemployed to reduce poverty, or reducing pollution beyond that mandated by law. Their sole task is to maximize profit for the company, subject to the limits of law . He expresses it, “there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud." 9
According to this theory, businesses are merely arrangements by which one group of people, the stockholders, advance capital to another group, the managers, to be used to realize specified ends and for which the stockholders receive an ownership interest in the venture. Under this view, managers act as agents for the stockholders. They are empowered to manage the money advanced by the stockholders, but are bound by their agency relationship to do so exclusively for the purposes delineated by their stockholder principals.
The existence of this fiduciary relationship implies that managers cannot have an obligation to expend business resources in ways that have not been authorized by the stockholders regardless of any societal benefits that could be accrued by doing so. Of course, both stockholders and managers are free to spend their personal funds on any charitable or socially beneficial project they wish, but when functioning in their capacity as officers of the business, managers have a duty not to divert business resources away from the purposes expressly authorized by the stockholders. This implies that a business can have no social responsibilities.
The stockholder theory holds that managers are obligated to follow the legal directions of the stockholders, whatever these may be. Thus, if the stockholders vote that the business should not close a plant without giving its employees a notice, should have no dealings with a country with a racist regime, or should endow a local public library, the management would be obligated to carry out such a directive regardless of its effect on the business's bottom line.
Noteworthy, the stockholder theory does not instruct managers to do anything at all to increase the profitability of the business. It does not assert that managers have a moral blank check that allows them to ignore all ethical constraints in the pursuit of profits. Rather, it states that managers are obligated to pursue profit by all legal, non-deceptive means.10 Far from asserting that there are no ethical constraints on a manager's obligation to increase profits, the stockholder theory contends that the ethical constraints society has embodied in its laws plus the general ethical tenet in favor of honest dealing constitute the ethical boundaries within which managers must pursue increased profitability. A significant amount of the criticism that is directed against the stockholder theory results from overlooking these ethical limitations.
The stockholder theory has come to be associated with the type of utilitarian argument frequently advanced by free market economists.11 Thus, supporting arguments often begin with the claim that when individual actors pursue private profit in a free market it promotes the general interest as well. It is then claimed that since, for each individual, "by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it," 12 . Therefore , it is both unnecessary and counterproductive to exhort businesses or business persons to act directly to promote the common good: businesses or business persons have no social responsibilities other than to legally and honestly maximize the profits of the firm.
This argument is most frequently cited in support of the stockholder theory. There is another quite simple argument as well. This argument is based on the observation that stockholders advance their money to business managers on the condition that it be used in accordance with their wishes. If the managers accept the money on this condition and then proceed to spend it to accomplish social goals not authorized by the stockholders, they would be violating their agreement and spending other people's money without their consent, which is wrong.13
The stockholder theory has been subjected to some harsh criticism by several of the leading business ethicists working today. It has been described as an outmoded relic of corporate law that even the law .For them the theory is not only foolish but cruel and dangerous in practice and misguided "from its nonsensically one-sided assumption of responsibility to his pathetic understanding of stockholder personality as Homo economicus ." 14 For a significant number of theorists, the stockholder theory is introduced into discussion not as a serious candidate for the proper ethical standard for the business environment, but merely as a foil for other, putatively more enlightened normative theories.
Most business ethicist take for granted that a free market produces coercive monopolies, results in damaging externalities, and is beset by other instances of market failure such as the free rider and public goods problems, and thus cannot be relied upon to secure the common good. 15 Accordingly, to the extent that it is associated with this line of economic reasoning, the stockholder theory becomes tarred with the brush of these standard objections to laissez faire capitalism.
The contemporary economic conditions are so far removed from those of a true free market that regardless of the adequacy of the stockholder theory in a world of ideal markets, the world in which we currently reside is one where businesses may gain competitive advantages by obtaining government subsidies, tax breaks, protective tariffs, and state-conferred monopoly status; having health, safety or environmental regulations written so as to burden small competitors; and otherwise purchasing governmental favor. In such a world, it is extremely unlikely that the pursuit of private profit will truly be productive of the public good.
The stockholder theory may be seriously flawed does not mean that the theory is untenable. This is because the deontological argument for the theory, which has frequently been overlooked, is, in fact, the superior argument. To the extent that it has received serious consideration, the primary objection against it seems to consist in the contention that it is not wrong to spend other people's money without their consent as long as it is being done to promote the public interest. This contention is usually bolstered by the observation that this is precisely what democratic governments do all the time. Since such action is presumably justified in the political realm, so the objection goes, there is no reason to think that it is not equally justified in the business realm.
There are two serious problems with this objection, however. The first is that it misses the essential point of the argument. As stated above, this argument is deontological in character. It is based on an underlying assumption that there are certain principles of conduct that must be observed regardless of the generalized benefits that must be foregone by doing so. One of the most fundamental of these principles states that individuals must honor the commitments they voluntarily and knowingly undertake. Hence, the essence of the argument is the claim that it is morally wrong to violate one's freely-assumed agreement to use the stockholders' resources only as specified even though society could be made a somewhat better place by doing so. To assert that a manager may violate his or her agreement with the stockholders whenever doing so would promote the public interest is simply to deny this claim. It is to declare that one's duty to advance the common good overrides one's duty to honor one's agreements, and that the moral quality of one's actions must ultimately be judged according to a utilitarian standard. While some ethicists argue that the principle of utility is indeed the supreme ethical principle, this is far from obviously true, and any contention that merely assumes that it is cannot serve as a compelling objection to a deontological argument.
The second problem is that the objection is based on a false analogy. The assumption that democratic governments are morally justified in spending taxpayers' money without their consent to promote the general interest does not imply that businesses or business persons are justified in spending stockholders' money without their consent for the same reason.
Once the citizens have made their required contribution to governmental efforts to benefit society, all should be equally entitled to the control of their remaining assets. Should a citizen elect to invest them in a savings account to provide for his or her children's education or his or her old age, a banker who diverted some of these assets to other purposes, no matter how worthy, would clearly be guilty of embezzlement. For that matter, should the citizen elect to use his or her assets to purchase a new car, go on an extravagant vacation, or even take a course in business ethics, a car dealer, travel agent, or university that failed to deliver the bargained-for product in order to provide benefits to others would be equally guilty. Why should it be any different if the citizen elects to invest in a business? At least superficially, it would appear that citizens have a right to control their after-tax assets that is not abrogated merely because they elect to purchase stock and that would be violated were business managers to use these assets in unauthorized ways. If this is not the case, some showing is required to demonstrate why not.
These comments in no way establish that the stockholder theory is correct. The most that they can demonstrate is that some of the objections that are frequently raised against it are ill-founded. Therefore it should continue to be considered a serious candidate for the proper normative theory of business ethics.
The second business ethics theory is the stakeholder theory which holds that management's fundamental obligation is not to maximize the firm's financial success, but to ensure its survival by balancing the conflicting claims of multiple stakeholders . Stakeholder is defined as anyone who has "a stake in or claim on the firm." 16 This has been interpreted in both a wide sense that includes "any group or individual who can affect or is affected by the corporation," and a more narrow sense that includes only "those groups who are vital to the survival and success of the corporation." 17 It is perhaps more familiar in its narrow sense in which the stakeholder groups are limited to stockholders, customers, employees, suppliers, management, and the local community.
The stakeholder theory asserts that, regardless of whether stakeholder management leads to improved financial performance, managers should manage the business for the benefit of all stakeholders. It views the firm not as a mechanism for increasing the stockholders' financial returns, but as a vehicle for coordinating stakeholder interests and sees management as having a fiduciary relationship not only to the stockholders, but to all stakeholders. According to the normative stakeholder theory, management must give equal consideration to the interests of all stakeholders and, when these interests conflict, manage the business so as to attain the optimal balance among them. This, of course, implies that there will be times when management is obligated to at least partially sacrifice the interests of the stockholders to those of other stakeholders. Hence the stakeholder theory does imply that businesses have true social responsibilities.
The theory works in accordance with two principles of stakeholder management. The first, called the principle of corporate legitimacy, states that "the corporation should be managed for the benefit of its stakeholders. The rights of these groups must be ensured and, further, the groups must participate, in some sense, in decisions that substantially affect their welfare." 18
The second principle , called the stakeholder fiduciary principle, states that "management bears a fiduciary relationship to stakeholders and to the corporation as an abstract entity. It must act in the interests of the stakeholders as their agent, and it must act in the interests of the corporation to ensure the survival of the firm, safeguarding the long-term stakes of each group." 19
The stakeholder theory, probably, enjoys a breadth of acceptance equal to that the stockholder theory was said to have enjoyed in the past. To some extent, this may result from the fact that the theory seems to accord well with many people's moral intuitions, and, to some extent, it may simply be a spillover effect of the high regard in which the empirical version of the stakeholder theory is held as a theory of management. It is clear, however, that the theory's widespread acceptance does not derive from a careful examination of the arguments that have been offered in support of it. In fact, it is often remarked that the theory seems to lack a clear normative foundation.20
Immanuel Kant's principle of respect for persons is the most frequently cited principle in support of the theory . This fundamental ethical principle holds that every human being is entitled to be treated not merely as a means to the achievement of the ends of others, but as a being valuable in his or her own right; that each person is entitled to be respected as an end in himself or herself. Since to respect someone as an end is to recognize that he or she is an autonomous moral agent, i.e., a being with desires of his or her own and the free will to act upon those desires, the principle of respect for persons requires respect for others' autonomy.
Freeman and Evan 21 apply this principle to the world of business by claiming that businesses are bound to respect it as much as anyone else. Thus, businesses may not treat their stakeholders merely as means to the business's ends, but must recognize that as moral agents, all stakeholders are entitled "to agree to and hence participate (or choose not to participate) in the decisions to be used as such." They then claim that it follows from this that all stakeholders are entitled to "participate in determining the future direction of the firm in which they have a stake." However, because it is impossible to consult with all of a firm's stakeholders on every decision, this participation must be indirect. Therefore, the firm's management has an obligation to "represent" the interests of all stakeholders in the business's decision-making process. Accordingly, management is obligated to give equal consideration to the interests of all stakeholders in developing business policy and to manage the business so as to optimize the balance among these interests.
The main problem with this argument is that there is a gap in the reasoning that leads from the principle of respect for persons to the prescriptions of the stakeholder theory. It may readily be admitted that businesses are ethically bound to treat all persons, and hence all stakeholders, as entities worthy of respect as ends in themselves. It may further be admitted that this requires businesses to treat their stakeholders as autonomous moral agents, and hence, that stakeholders are indeed entitled "to agree to and hence participate (or choose not to participate) in the decisions to be used" 22 as means to business ends. The problem is that this implies only that no stakeholder may be forced to deal with the business without his or her consent, not that all stakeholders are entitled to a say in the business's decision-making process or that the business must be managed for their benefit.
It is certainly true that respect for the autonomy of others requires that one keep one's word. To deceive someone into doing something he or she would not otherwise agree to do would be to use him or her merely as a means to one's own ends. For this reason, the principle of respect for persons requires businesses to deal honestly with all of their stakeholders. This means that businesses must honor the contracts they enter into with their customers, employees, suppliers, managers, and stockholders and live up to any representations they freely make to the local community. However, it is simply incorrect to say that respect for another's autonomy requires that the other have a say in any decision that affects his or her interests.
An adherent of the stockholder theory could point out that employees (including managers), suppliers, and customers negotiate for and autonomously accept wage and benefit packages, purchasing arrangements, and sales contracts, respectively. It does not violate their autonomy or treat them with a lack of the respect they are due as persons to fail to provide them with benefits in excess of those they freely accept. However, if managers were to break their agreement with the stockholders to use business resources only as authorized in order to provide other stakeholders with such benefits, the managers would be violating the autonomy of the stockholders. Therefore, the stockholder theorist could contend that not only is the stakeholder theory not entailed by the principle of respect for persons, but to the extent that it instructs managers to use the stockholders' money in ways they have not approved, it is, in fact, violative of it.
Freeman and Evan 23 have offered an alternative argument that claims that changes in corporate law imply that businesses consist in sets of multilateral contracts among stakeholders that must be administered by managers. Asserting that "all parties that are affected by a contract have a right to bargain about the distribution of those effects," they then apply a Rawlsian "veil of ignorance" decision procedure to deduce that "fair contracting" requires that all stakeholders be entitled to "participate in monitoring the actual effects of the firm on them,"( i.e., have a say in the business's decision-making process.
Unfortunately, this argument seems to have even more problems than the one it replaces. In the first place, Rawls' decision procedure was specifically designed to guide the construction of the basic structure of society and it is at least open to question whether it may be appropriately employed in the highly specific context of business governance issues. Further, deriving ethical conclusions from observations of the state of the law comes dangerously close to the classic fallacy of assuming that WHAT IS LEGALLY REQUIRED MUST BE ETHICALLY CORRECT. More significantly, however, this new argument seems to suffer from the same defect as its predecessor since the assumption that all parties that are affected by a contract have a right to bargain about the distribution of those effects is virtually equivalent to the earlier argument's problematic assumption that all parties affected by a business's actions have a right to participate in the business's decision-making process. As in the earlier argument, this is the assertion that must be established, not assumed. 24
Another recent attempt at justification has been undertaken by Donaldson and Preston 25 who claim to base the stakeholder theory on a theory of property. After asserting that the stockholder theory is "normatively unacceptable," they contend that because 1) property rights must be based on an underlying principle of distributive justice, 2) among theorists, "the trend is toward theories that are pluralistic, allowing more than one fundamental principle to play a role," and 3) "all critical characteristics underlying the classic theories of distributive justice are present among the stakeholders of a corporation," it follows that "the normative principles that underlie the contemporary theory of property rights also provide the foundation for the stakeholder theory as well." However, because the authors have failed to provide any specification for what "the contemporary theory of property rights" is, this can be regarded as, at best, a preliminary sketch rather than a fully developed justificatory argument.
The stakeholder theory’ despite its widespread acceptance, is simply not well-grounded. At this point, its adequacy as a normative theory of business ethics must be regarded as open to serious question.
The third theory of business ethics is the social contract theory. The theory asserts that all businesses are ethically obligated to enhance the welfare of society by satisfying consumer and employee interests without violating any of the general canons of justice. 26 . Let us explore the rationale of the theory.
Some theorists asserts that business enterprise is characterized by a myriad of "extant social contracts," informal agreements that embody "actual behavioral norms which derive from shared goals, beliefs and attitudes of groups or communities of people." These extant social contracts are not quasi-contracts, but true agreements which represent the view of the community concerning what constitutes proper behavior within the confines of the community. Whenever the extant social contracts pass a "filtering test," i.e., are found not to be violative of the tenets of general ethical theory, they give rise to "genuine ethical norms" that managers are ethically obligated to obey. 27
It is not clear whether the theory contains an implicit norm against entering into social contracts that give rise to incompatible obligations or are incompatible with obligations that arise from one's earlier voluntary agreements. If it does, the theory seems to collapse into the stockholder theory which instructs managers to deal honestly with others and honor all agreements that do not violate their antecedent voluntary agreement to use the stockholders' resources only as authorized. If it does not, it seems to prescribe a host of incompatible obligations. Furthermore, because the filtering test has not been specified, this version of the social contract theory reduces to the claim that one is obligated to abide by the informal agreements one has entered into as long as doing so is ethically acceptable. Finally, if it prescribes a general obligation to behave as though one had made an agreement with perfectly rational, self-interested, free and equal hypothetical people, the theory might produce a set of social responsibilities .In its present skeletal form, in one’s opinion , the theory is of limited usefulness.
Some theorists have derived a version of the theory from the political social contract theories of thinkers such as Thomas Hobbes and John Locke, . These political theorists have imagined a world where government is absent and asked themselves as what conditions would have to be met for citizens to agree to form one. The obligations of the government toward its citizens were then derived from the terms of this agreement.
In the same way a society is imagined in which there are no complex business organizations and then conditions are questioned that would have to be met for the members of such a society to agree to allow businesses to be formed. The ethical obligations of businesses toward the individual members of society are then derived from the terms of this agreement. Thus, the social contract theory posits an implicit contract between the members of society and businesses in which the members of society grant businesses the right to exist in return for certain specified benefits.
In granting businesses the right to exist, the members of society give them legal recognition as single agents and authorize them to own and use land and natural resources and to hire the members of society as employees. The question then becomes what the members of society would demand in return. The minimum would seem to be that businesses would be required to "enhance the welfare of society...in a way which relies on exploiting corporations' special advantages and minimizing disadvantages" while remaining "within the bounds of the general canons of justice." 28
The social contract thus constituted would have two terms: the social welfare term and the justice term. The social welfare term recognizes that the members of society will be willing to authorize the existence of businesses only if they gain by doing so. The social welfare term of the social contract requires that businesses act so as to benefit consumers by increasing economic efficiency, stabilizing levels of output and channels of distribution, and increasing liability resources; benefit employees by increasing their income potential, diffusing their personal liability, and facilitating their income allocation; while minimizing pollution and depletion of natural resources, the destruction of personal accountability, the misuse of political power, as well as worker alienation, lack of control over working conditions, and dehumanization.
The justice term recognizes that the members of society will be willing to authorize the existence of businesses only if businesses agreed to remain within the bounds of the general canons of justice. However, since there seems to be general agreement that the least they require is that businesses "avoid fraud and deception,...show respect for their workers as human beings, and...avoid any practice that systematically worsens the situation of a given group in society. 29
The social contract theory holds that managers are ethically obligated to abide by both the social welfare and justice terms of the social contract. Clearly, when fully specified, these terms impose significant social responsibilities on the managers of business enterprises.
Critics of the social contract theory point out that the social contract is not a contract at all . This is because there has been no true meeting of the minds between those who decide to form businesses and the members of the society in which they do so. Most people who start businesses do so by simply following the steps prescribed by state law and would be quite surprised to learn that by doing so they had contractually agreed to serve society's interests in ways that were not specified in the law and that can significantly reduce the profitability of the newly formed firm. To enter a contractual arrangement, whether expressly or by implication, one has to at least be aware that one is doing so. Thus, the critics maintain that the social contract must be a quasicontract, which is merely a fiction rather than a true contract.
The social contract theorists freely admit that the social contract is a fictional or hypothetical contract, but go on to claim that this is precisely what is required to identify managers' ethical obligations. As Thomas Donaldson 30 has put it, "if the contract were something other than a 'fiction, it would be inadequate for the purpose at hand: namely revealing the moral foundations of productive organizations."(What the social contract theorists are admitting here is that the moral force of the social contract is not derived from the consent of the parties. Rather, they are advancing a moral theory that holds that "productive organizations should behave as if they had struck a deal, the kind of deal that would be acceptable to free, informed parties acting from positions of equal moral authority...".
This seems perfectly adequate as a response to the objection. It does suggest, however, that much of the psychological appeal of the social contract theory is based on a confusion. This is because a great deal of the theory's appeal to ordinary (philosophically untrained) business practitioners derives from their natural, intuitive identification of contract terminology with consent. To the extent that the language of contract suggests that one has given consent, it has a strong emotive force. People generally accept consent as a source of moral obligation, and this is especially true of the business practitioner who makes contracts every day and whose success or failure often turns on his or her reputation for upholding them. Most people would agree that when one voluntarily gives one's word, one is ethically bound to keep it.
Business practitioners as well as people generally are psychologically more willing to accept obligations when they believe they have consented to them. By employing contract terminology when consent plays no role in grounding the posited social responsibilities of business, the social contract theory inappropriately benefits from the positive psychological attitude that this terminology engenders. For this reason, it is not unreasonable to suggest that the social contract theory trades upon the layperson's favorable attitude toward consent with no intention of delivering the goods.
This, of course, casts no aspersions on the theory's philosophical adequacy. However, the admission that the social contract is actually a quasi-contract does provide good reason to believe that the social contract theory has not been adequately supported. Once consent has been abandoned as the basis for the posited social responsibilities, the acceptability of the social contract theory rests squarely on the adequacy of the moral theory that under girds it. This theory asserts that justice requires businesses and business managers to behave as though they had struck a deal "that would be acceptable to free, informed parties acting from positions of equal moral authority." This may be correct, but it is not patently so. It is far from obvious that justice demands that managers behave as if they had made an agreement with hypothetical people, especially when doing so would violate real-world agreements made with actual people (e.g., the company's stockholders). It seems equally reasonable to assert that justice demands only that managers abide by the will of the people as it has been expressed by their political representatives in the commercial law of the state, or perhaps merely that they deal honestly with all parties and refrain from taking any illegal or harmful actions. Until the theory of justice on which the social contract theory rests has been fully articulated and defended, there is simply no reason to prefer it to any other putative normative theory of business ethics. At present, therefore, this version of the social contract theory cannot be regarded as established.
After the exploration of the three theories the stockholder theory is not as obviously flawed as it is sometimes supposed to be and that several of the objections conventionally raised against it are misdirected. The deontological argument in support of the stockholder theory is not obviously unsound. The supporting arguments for the stakeholder theory are significantly flawed and that the social contract theory either has not been adequately supported or is too underdeveloped to be useful. Thus, I have suggested that the amount of confidence that is currently placed in the stakeholder theory and is coming to be placed in the social contract theory is not well founded.
So on can conclude that all three normative theories share a common feature; they all either explicitly or implicitly recognize the preeminent moral value of individual consent. The stockholder theory is explicitly based on consent. The ethical obligations it posits are claimed to derive directly from the voluntary agreement each business officer makes on accepting his or her position to use the stockholders' resources strictly in accordance with their wishes.
The stakeholder theory is at least implicitly based on consent. The ethical obligation it places on business officers to manage the firm in the interest of all stakeholders is supposed to derive from the claim that every stakeholder is entitled to a say in decisions that affect his or her interests, which itself contains the implicit recognition of each individual's right to control his or her own destiny.
Finally, consent resides at the heart of the social contract theory as well. This is clear with regard to the extant social contract variant of the theory in which the manager's ethical obligations are explicitly based on consent. However, even the hypothetical social contract variant indirectly recognizes the moral significance of consent. For although it derives managers' ethical obligations from a depersonalized, morally sanitized, hypothetical form of consent, there would be no reason to cast the theory in terms of a contract at all if consent were not recognized as a fundamental source of ethical obligation.
“A business is a voluntary association of individuals, united by a network of contracts" 31 organized to achieve a specified end. One would note the fact that all business ethic theories rely on the moral force of individual consent .
Businesses consist in nothing more than a multitude of voluntary agreements among individuals, it is entirely natural that the ethical obligations of the parties to these agreements, including those of the managers of the business, should derive from the individual consent of each. Clearly, any attempt to provide a general account of the ethical obligations of businesses and business people must ultimately rely on the moral force of the individual's freely-given consent.
If businesses are merely voluntary associations of individuals, then the ethical obligations of business people will be the ethical obligations individuals incur by joining voluntary associations, i.e., the ordinary ethical obligations each has as a human being plus those each has voluntarily assumed by agreement. Individuals do not become burdened with un-agreed upon obligations by going into or joining a business.
One may also conclude that an adequate normative theory of business ethics must capture the ethical obligations generated when an individual voluntarily enters the complex web of contractual agreements that constitutes a business.
The stockholder theory comes closest to achieving this because it focuses on the actual agreement that exists between the stockholders and managers. It is incomplete, however, because it does not adequately address the limits managers' ordinary ethical obligations as human beings place on the actions they may take in the business environment, and entirely fails to address the managerial obligations that arise out of the actual agreements made with the non-stockholder participants in the business enterprise. Of course, recognizing these deficiencies of the stockholder theory also highlights the essential difficulty in constructing a satisfactory normative theory of business ethics; the need to generalize across the myriad of individual contractual agreements that are the constituent elements of the business.
Can a theory be devised that gives a manageable set of principles expressed in language accessible to the ordinary business person? Considering the differing nature of the relationships and agreements involved in a business of any complexity, devising such a set of principles may appear to be a daunting task. For one this is a challenge that must be undertaken if a supportable normative theory of business ethics is to be devised.
Now that we have explored the definition of business ,business manager, ethics, business ethics and theories of business ethics and have drawn some conclusions. One feel that one should try to answer two questions: 1) Why business people should be ethical? 2) Why business managers should study ethics?
When business people ask why they should be ethical, they have a different question in mind: what is the motivation for being ethical or good ? Is their something in it for them? As for motivation, good behavior often brings a reward, but not every time. If it were always in one’s interest to be good, there would be no need for ethics. We could simply act selfishly and forget about obligation. People invented ethics precisely because it does
not always coincide with self interest.
To look to ethics for motivation is to misunderstand what ethics is all about. It is like studying finance to find a reason to make money. Finance does not teach one to want to be rich. It teaches one how to be rich, assuming one wants to be rich. So it is with ethics. Ethics teaches one how to be good, assuming one wants to be good.
Business ethics addresses the opposite question: how can one do good by doing well? It begins with the premise that managers want to do something good with their lives and investigates how to accomplish this through business. In other words, it treats profit and business success as means to a greater end: making the world a little better.
Granting that a business person’s ultimate objective is to make the world better, how is this best achieved? A common view is that it is achieved by making as much money as possible. The best thing business people can do for society is to be good business people, which is to say, to maximize the company’s profit. They should therefore stick to finance, marketing and operations management rather than waste time with ethics.
Milton Friedman 32 articulates this view in an essay, “The Social Responsibility of Business Is to Increase its Profits.” According to Friedman, corporate officers have no obligation to support such social causes as hiring the hard-core unemployed to reduce poverty, or reducing pollution beyond that mandated by law. Their sole task is to maximize profit for the company, subject to the limits of law and “rules of the game” that ensure “open and free competition without deception or fraud.”
Friedman advances two main arguments for this position. First, corporate executives and directors are not qualified to do anything other than maximize profit. Business people are expert at making money, not at making social policy. They lack the perspective and training to address complex social problems, which should be left to governments and social service agencies.
Second, and more fundamentally, corporate officers have no right to do anything other than maximize profit. If they invest company funds to train the chronically unemployed or reduce emissions below legal limits, they in effect levy a “tax” on the company’s owners, employees and customers in order to accomplish a social purpose. But they have no right to
spend other people’s money on social welfare projects.
Friedman’s position has two fallacies. One is the idea that company officers somehow usurp authority when they act ethically at the expense of owners. It is just like saying that it is wrong for an individual to kill a person but he can avoid responsibility for murder by hiring a hit man to do the deed. Agents who act ethically at company expense therefore do not usurp the authority of owners. On the contrary, they carry out duties that the owners are bound to observe, whether they run the business themselves or through agents.
This is not to say that managers should use company funds to support any cause that strikes the owners’ fancy. Managers must of course know how to recognize what sorts of obligations are imposed specifically by business ethics. THIS IS PRECISELY WHY THEY SHOULD STUDY BUSINESS ETHICS AS WELL AS FINANCE, MARKETING AND OPERATIONS.
The second major fallacy in Friedman’s position is his misapplication of libertarian principles. He states that spending the owners’ money in the service of ethics is coercion and therefore wrong, while operating in a free market to increase their wealth compromises no one’s
freedom and is therefore permissible.
The inadequacy of Friedman’s philosophy is particularly evident from a famous case study describes how the Nestlé Corporation marketed its infant formula in parts of Africa by hiring nurses in local clinics to recommend formula over breast feeding. The nurses convinced mothers that using formula was sophisticated and Western, while breast feeding was primitive and third-worldish. Unfortunately clean water was often unavailable to mix with the powdered formula, and babies often became ill. The company continued its marketing efforts despite worldwide protests and relented only after years of massive consumer boycotts of its products. On Friedman’s theory, the company’s intransigence was perfectly justified. Its directors had no right to withdraw a profitable and legal product, even though it caused innocent babies to suffer, until boycotts changed the financial equation. The task of business ethics, then, is to identify the duties that business people have as business people. What are these duties? One can begin with the most basic ones mentioned by Friedman: the duty to obey the law and the “rules of the game,” which provide for “open and free
competition without deception or fraud.”
Yet even these basic obligations are disputed. Albert Carr’s very popular essay, “Is Business Bluffing Ethical?” 33 argues that deception, for example, is a legitimate part of business. Business, he says, is like a poker game. There are rules, but within the rules it is permissible to bluff in order to mislead others. In fact one must do so or lose the game. The ethical rules of everyday life therefore do not apply to business.
What the poker analogy actually tells us, however, is that “deception” is not really deception when everyone expects it as part of the game. Nobody is deceived when advertisers say their product is the best on the market; everyone says that. So Carr does not actually defend deception. Hiding a card up one’s sleeve, on the other hand, is truly deception because it breaks the rules of poker and no one is expecting it.
One problem with Carr’s poker analogy is that he overextends it. In a poker game everyone knows the rules, but business situations can be very ambiguous. If a food processor places false labels on packaging, it is highly unclear that consumers are “in on the game” and expect this sort of thing. Such practices are illegal precisely because they genuinely deceive customers.
Even granting that business ethics is important, many seem to believe that there is no point in studying the subject. Ethics is something you feel, not something you think. Finance, marketing, operations, and even business law lend themselves to intellectual treatment, but ethics
does not.
Even when they grant that ethics has intellectual content, people often say that studying the field will not change behavior. Character is formed in early childhood, not during a professor’s lecture. If the suggestion here is that college-level study does not change behavior, we should shut down the entire business school, not only the ethics course.
None of the above convinces one to be good, but it is useful to those who want to be good. The golden line that I have discovered for myself is that I CAN DO GOOD BY DOING WELL and that ethics teaches one how to be good, assuming one wants to be good. Business ethics addresses the question: how can one do good by doing well. Ethics not only should be studied alongside management, but the two fields are closely related. Business management is all about making the right decisions. Ethics is concerned with the distinction between right and wrong and then making the right decision, therefore, it is all about making the right decisions. So what is the difference between the two? Management is concerned with how decisions affect the company, while ethics is concerned about how decisions affect everything. Management operates in the specialized context of the firm, while ethics operates in the general context of the world. Management is therefore part of ethics. A business manager cannot make the right decisions without understanding management in particular as well as ethics in general. Business ethics is management carried out in the real world. This is why business managers should study ethics.
NOTES
1. http://www.businessdictionary.com/definition/business.html
2. The definition is given by Wikipedia, the free encyclopedia
3. http://www.onlineethics.org/CMS/edu/precol/scienceclass/sectone
4. Wikipedia English - The Free Encyclopedia
5. http://en.wikipedia.org/wiki#cite_note0
6. check Andrew Stark, "What's the Matter with Business Ethics?", 71 Harv.
Bus. Rev. 38 (1993). Also check Thomas Donaldson and Thomas W.
Dunfee, "Integrative Social Contracts Theory: A Communitarian
Conception of Business Ethics
7. The textbooks that are being written from the stakeholder perspective.
See, e.g., Ronald M. Green, The Ethical Manager (1994), Joseph W.
Weiss, Business Ethics: A Managerial, Stakeholder Approach (1994),
Archie B. Carroll, Business and Society: Ethics and Stakeholder
Management (1996).
8. the special issue of Business Ethics Quarterly devoted to the social
contract theory. Business Ethics Quarterly 167 (Thomas W. Dunfee, ed.,
1995)
9. Milton Friedman, “The Social Responsibility of Business Is to Increase
Thomas Donaldson and Al Gini, eds., Case Studies in
Business Ethics, 4th ed., Prentice-Hall (19xx) 56-61.
10. Milton Friedman, Capitalism and Freedom. The additional restriction of Friedman's formulation that requires managers to engage solely in open and free competition is usually ignored.
11. Check :William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corporation: Kantian Capitalism," in Ethical Theory and Business
12. 15 Adam Smith, The Wealth of Nations, chapter. 2, para. 9.
13. Milton Friedman used the argument:See Milton Friedman, The Social Responsibility of Business is to Increase Its Profits, . See also Friedman, Capitalism and Freedom,.
14. Robert C. Solomon, Ethics and Excellence (1992).
15. Evan and Freeman, at 77-78.
16. Evan and Freeman, at 76..
17. Evan and Freeman at 79. Also check E. Freeman and D. Reed, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," in Corporate Governance: A Definitive Exploration of the Issues .
18. Evan and Freeman, at 82.
19. Goodpaster's multi-fiduciary stakeholder synthesis in Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis,"
20. Donaldson and Preston in "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," at 72, who point out that in most of the stakeholder literature "the fundamental normative principles involved are often unexamined.".
21. William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corporation: Kantian Capitalism," in Ethical Theory and Business 75, 76,77
22. William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corporation: Kantian Capitalism," in Ethical Theory and Business” at 78
23. Edward Freeman and William Evan, "Corporate Governance: A Stakeholder Interpretation “ at 337,352,353
24. ., Thomas M. Jones and Leonard D. Goldberg, "Governing the Large Corporation: More Arguments for Public Directors," at 606
25. Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," at 82
26. Check Thomas Donaldson, Corporations and Morality, ch. 2 (1982)
27. Check Thomas W. Dunfee, "Business Ethics and Extant Social Contracts," 1 Business Ethics Quarterly 23 (1991)..
28. Donaldson, Corporations and Morality at 43,44,53,54
29. Donaldson, Corporations and Morality at 53
30. Thomas Donaldson, The Ethics of International Business at 61
31. Robert Hessen, "A New Concept of Corporations: A Contractual and Private Property Model,"
32. Milton Friedman, “The Social Responsibility of Business Is to Increase its Profits,” New York Times Magazine (September 13, 1970). Reprinted in Thomas Donaldson and Al Gini, eds., Case Studies in business ethics,4th edition
33. Albert Z. Carr, “Is Business Bluffing Ethical,” Harvard Business Review (January-February, 1968) 2-8
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