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Business ethics (also known as Corporate Ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.[1] These ethics originate from individuals, organizational statements or the legal system. These norms, values, ethical, and unethical practices are the principles that guide a business.[2]
Business ethics refers to contemporary organizational standards, principles, sets of values and norms that govern the actions and behavior of an individual in the business organization. Business ethics have two dimensions, normative business ethics or descriptive business ethics. As a corporate practice and a career specialization, the field is primarily normative. Academics attempting to understand business behavior employ descriptive methods. The range and quantity of business ethical issues reflects the interaction of profit-maximizing behavior with non-economic concerns.
Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, most major corporations today promote their commitment to non-economic values under headings such as ethics codes and social responsibility charters.
Adam Smith said in 1776, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."[3] Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. Ethics implicitly regulates areas and details of behavior that lie beyond governmental control. The emergence of large corporations with limited relationships and sensitivity to the communities in which they operate accelerated the development of formal ethics regimes.[4]
The term 'business ethics' came into common use in the United States in the early 1970s. By the mid-1980s at least 500 courses in business ethics reached 40,000 students, using some twenty textbooks and at least ten casebooks supported by professional societies, centers and journals of business ethics. The Society for Business Ethics was founded in 1980. European business schools adopted business ethics after 1987 commencing with the European Business Ethics Network.[12][13][14] In 1982 the first single-authored books in the field appeared.[15][16]
Firms began highlighting their ethical stature in the late 1980s and early 1990s, possibly in an attempt to distance themselves from the business scandals of the day, such as the savings and loan crisis. The concept of business ethics caught the attention of academics, media and business firms by the end of the Cold War.[13][17][18] However, criticism of business practices was attacked for infringing the freedom of entrepreneurs and critics were accused of supporting communists.[19][20] This scuttled the discourse of business ethics both in media and academia.[21] The Defense Industry Initiative on Business Ethics and Conduct (DII) was created to support corporate ethical conduct. This era began the belief and support of self-regulation and free trade, which lifted tariffs and barriers and allowed businesses to merge and divest in an increasing global atmosphere.
One of the earliest written treatments of business ethics is found in the Tirukkuṛaḷ, a Tamil book dated variously from 300 BCE to the 7th century CE and attributed to Thiruvalluvar. Many verses discuss business ethics, in particular, verse 113, adapting to a changing environment in verses 474, 426, and 140, learning the intricacies of different tasks in verses 462 and 677.[22][23][24]
Business ethics reflects the philosophy of business, of which one aim is to determine the fundamental purposes of a company. Business purpose expresses the company's reason for existing. Modern discussion on the purpose of business has been freshened by views from thinkers such as Richard R. Ellesworth,[25] Peter Drucker,[26] and Nikos Mourkogiannis:[27] Traditional views held that the purpose of a business organization is to make profit for shareholders. Nevertheless, the purpose of maximizing shareholder's wealth often "fails to energize employees". In practice, many non-shareholders also benefit from a firm's economic activity, among them empolyees through contractual compensation and its broader impact, consumers by the tangible or non-tangible value derived from their purchase choices; society as a whole through taxation and/or the company's involvement in social action when it occurs.[25][26][27] On the other hand, if a company's purpose is to maximize shareholder returns, then sacrificing profits for other concerns is a violation of its fiduciary responsibility. Corporate entities are legal persons but this does not mean they are legally entitled to all of the rights and liabilities as natural persons.
Ethics are the rules or standards that govern our decisions on a daily basis. Many consider "ethics" with conscience or a simplistic sense of "right" and "wrong." Others would say that ethics is an internal code that governs an individual's conduct, ingrained into each person by family, faith, tradition, community, laws, and personal mores. Corporations and professional organizations, particularly licensing boards, generally will have a written code of ethics that governs standards of professional conduct expected of all in the field.It is important to note that "law" and "ethics" are not synonymous, nor are the "legal" and "ethical" courses of action in a given situation necessarily the same. Statutes and regulations passed by legislative bodies and administrative boards set forth the "law." Slavery once was legal in the US, but one certainly wouldn't say enslaving another was an "ethical" act.
Economist Milton Friedman wrote that corporate executives' "responsibility ... generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom".[28] Friedman also said, "the only entities who can have responsibilities are individuals ... A business cannot have responsibilities. So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no, they do not."[28][29][30] This view is known as the Friedman doctrine. A multi-country 2011 survey found support for this view among the "informed public" ranging from 30 to 80%.[31] Ronald Duska and Jacques Cory have described Friedman's argument as consequentialist or utilitarian rather than pragmatic: Friedman's argument implies that unrestrained corporate freedom would benefit the most people in the long term.[32] Duska argued that Friedman failed to differentiate two very different aspects of business: (1) the motive of individuals, who are generally motivated by profit to participate in business, and (2) the socially sanctioned purpose of business, or the reason why people allow businesses to exist, which is to provide goods and services to people.[33] So Friedman was wrong that making a profit is the only concern of business, Duska argued.[33]
Another view of business is that it must exhibit corporate social responsibility (CSR): an umbrella term indicating that an ethical business must act as a responsible citizen of the communities in which it operates even at the cost of profits or other goals.[36][37] In the US and most other nations, corporate entities are legally treated as persons in some respects. For example, they can hold title to property, sue and be sued and are subject to taxation, although their free speech rights are limited. This can be interpreted to imply that they have independent ethical responsibilities.[citation needed] Duska argued that stakeholders expect a business to be ethical and that violating that expectation must be counterproductive for the business.[33]
Ethical issues include the rights and duties between a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. Issues concerning relations between different companies include hostile take-overs and industrial espionage. Related issues include corporate governance; corporate social entrepreneurship; political contributions; legal issues such as the ethical debate over introducing a crime of corporate manslaughter; and the marketing of corporations' ethics policies.[38]According to research published by the Institute of Business Ethics and Ipsos MORI in late 2012, the three major areas of public concern regarding business ethics in Britain are executive pay, corporate tax avoidance and bribery and corruption.[39]
This area of business ethics usually deals with the duties of a company to ensure that products and production processes do not needlessly cause harm. Since few goods and services can be produced and consumed with zero risks, determining the ethical course can be problematic. In some case, consumers demand products that harm them, such as tobacco products. Production may have environmental impacts, including pollution, habitat destruction and urban sprawl. The downstream effects of technologies nuclear power, genetically modified food and mobile phones may not be well understood. While the precautionary principle may prohibit introducing new technology whose consequences are not fully understood, that principle would have prohibited the newest technology introduced since the industrial revolution. Product testing protocols have been attacked for violating the rights of both humans and animals.[citation needed] There are sources that provide information on companies that are environmentally responsible or do not test on animals. 2ff7e9595c
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