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]

Maintaining an ethical status is the responsibility of the manager of the business. According to a 1990
article in the Journal of Business Ethics, "Managing ethical behavior is one of the most pervasive and
complex problems facing business organizations today."[5]

Contents

1 History

1.1 Religious and philosophical origins

2 Overview

3 Functional business areas

3.1 Finance

3.1.1 Finance paradigm

3.2 Other issues

3.3 Human resource management

3.3.1 Trade unions

3.3.2 Management strategy

3.4 Sales and marketing

3.5 Inter-organizational relationships

3.6 Emerging issues

3.7 Production

3.8 Property

3.8.1 Modern history of property rights

3.8.2 Natural right vs social construct

3.9 Intellectual property

4 International issues

5 Issues

6 Influential factors on business ethics

7 Economic systems

8 Law and regulation

9 Implementation

9.1 Corporate policies

9.2 Ethics officers

9.3 Sustainability initiatives

9.3.1 Improving operations

9.3.2 Board leadership

9.3.3 Management accountability

9.3.4 Executive compensation

9.3.5 Stakeholder engagement

9.3.6 Employee engagement

9.3.7 Supply chain management

9.3.8 Transparency

10 Academic discipline

11 Religious views

12 Related disciplines

13 See also

14 Notes

15 References

16 Further reading

History

Business ethics reflect the norms of each historical period. As time passes, norms evolve, causing
accepted behaviors to become objectionable. Business ethics and the resulting behavior evolved as well.
Business was involved in slavery,[6][7][8] colonialism,[9][10] and the Cold War.[11]

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.

Religious and philosophical origins

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]

Overview

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]

Peter Drucker once said, "There is neither a separate ethics of business nor is one needed", implying
that standards of personal ethics cover all business situations.[34] However, Drucker in another instance
said that the ultimate responsibility of company directors is not to harm—primum non nocere.[35]

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]

Ethical standards of an entire organization can be damaged if a corporate psychopath is in charge.[40]

This will not only affect the company and its outcome but the employees who work under a corporate
psychopath. The way a corporate psychopath can rise in a company is by their manipulation, scheming,
and bullying. They do this in a way that can hide their true character and intentions within a company.

Functional business areas

Finance

Fundamentally, finance is a social science discipline.[41] The discipline borders behavioral economics,
sociology,[42] economics, accounting and management. It concerns technical issues such as the mix of
debt and equity, dividend policy, the evaluation of alternative investment projects, options, futures,
swaps, and other derivatives, portfolio diversification and many others. Finance is often mistaken by the
people to be a discipline free from ethical burdens.[41] The 2008 financial crisis caused critics to
challenge the ethics of the executives in charge of U.S. and European financial institutions and financial
regulatory bodies.[43] Finance ethics is overlooked for another reason—issues in finance are often
addressed as matters of law rather than ethics.[44]

Finance paradigm

Aristotle said, "the end and purpose of the polis is the good life".[45] Adam Smith characterized the
good life in terms of material goods and intellectual and moral excellences of character.[46] Smith in his
The Wealth of Nations commented, "All for ourselves, and nothing for other people, seems, in every age
of the world, to have been the vile maxim of the masters of mankind."[47]

Wikiquote has quotations related to Adam Smith.

However, a section of economists influenced by the ideology of neoliberalism, interpreted the objective
of economics to be maximization of economic growth through accelerated consumption and production
of goods and services. Neoliberal ideology promoted finance from its position as a component of
economics to its core.[citation needed] Proponents of the ideology hold that unrestricted financial
flows, if redeemed from the shackles of "financial repressions", best help impoverished nations to grow.
[citation needed] The theory holds that open financial systems accelerate economic growth by
encouraging foreign capital inflows, thereby enabling higher levels of savings, investment, employment,
productivity and "welfare",[48][49][50] along with containing corruption. Neoliberals recommended
that governments open their financial systems to the global market with minimal regulation over capital
flows.[51][52][53][54] The recommendations however, met with criticisms from various schools of
ethical philosophy. Some pragmatic ethicists, found these claims to be unfalsifiable and a priori,
although neither of these makes the recommendations false or unethical per se.[55][56][57] Raising
economic growth to the highest value necessarily means that welfare is subordinate, although
advocates dispute this saying that economic growth provides more welfare than known alternatives.[58]
Since history shows that neither regulated nor unregulated firms always behave ethically, neither
regime offers an ethical panacea.[59][60][61]

Neoliberal recommendations to developing countries to unconditionally open up their economies to

transnational finance corporations was fiercely contested by some ethicists.[62][63][64][65][66] The
claim that deregulation and the opening up of economies would reduce corruption was also contested.
[67][68]

Dobson observes, "a rational agent is simply one who pursues personal material advantage ad infinitum.
In essence, to be rational in finance is to be individualistic, materialistic, and competitive. Business is a
game played by individuals, as with all games the object is to win, and winning is measured in terms
solely of material wealth. Within the discipline, this rationality concept is never questioned, and has
indeed become the theory-of-the-firm's sine qua non".[69][70] Financial ethics is in this view a
mathematical function of shareholder wealth. Such simplifying assumptions were once necessary for the
construction of mathematically robust models. However, signalling theory and agency theory extended
the paradigm to greater realism.[71]

Other issues

Fairness in trading practices, trading conditions, financial contracting, sales practices, consultancy
services, tax payments, internal audit, external audit and executive compensation also, fall under the
umbrella of finance and accounting.[44][72] Particular corporate ethical/legal abuses include: creative
accounting, earnings management, misleading financial analysis, insider trading, securities fraud,
bribery/kickbacks and facilitation payments. Outside of corporations, bucket shops and forex scams are
criminal manipulations of financial markets. Cases include accounting scandals, Enron, WorldCom and
Satyam.[citation needed]

Human resource management

Human resource management occupies the sphere of activity of recruitment selection, orientation,
performance appraisal, training and development, industrial relations and health and safety issues.[73]
Business Ethicists differ in their orientation towards labor ethics. Some assess human resource policies
according to whether they support an egalitarian workplace and the dignity of labor.[74][75]

Issues including employment itself, privacy, compensation in accord with comparable worth, collective
bargaining (and/or its opposite) can be seen either as inalienable rights[76][77] or as negotiable.[78][79]
[80][81] Discrimination by age (preferring the young or the old), gender/sexual harassment, race,
religion, disability, weight and attractiveness. A common approach to remedying discrimination is
affirmative action.

Once hired, employees have the right to the occasional cost of living increases, as well as raises based on
merit. Promotions, however, are not a right, and there are often fewer openings than qualified
applicants. It may seem unfair if an employee who has been with a company longer is passed over for a
promotion, but it is not unethical. It is only unethical if the employer did not give the employee proper
consideration or used improper criteria for the promotion.[82] Each employer should know the
distinction between what is unethical and what is illegal. If an action is illegal it is breaking the law but if
an action seems morally incorrect that is unethical. In the workplace what is unethical does not mean
illegal and should follow the guidelines put in place by OSHA, EEOC, and other law binding entities.

Potential employees have ethical obligations to employers, involving intellectual property protection
and whistle-blowing.
Employers must consider workplace safety, which may involve modifying the workplace, or providing
appropriate training or hazard disclosure. This differentiates on the location and type of work that is
taking place and can need to comply with the standards to protect employees and non-employees
under workplace safety.

Larger economic issues such as immigration, trade policy, globalization and trade unionism affect
workplaces and have an ethical dimension, but are often beyond the purview of individual companies.
[76][83][84]

Trade unions

Trade unions, for example, may push employers to establish due process for workers, but may also
cause job loss by demanding unsustainable compensation and work rules.[85][86][87][88][89][90][91]
[92][93]

Unionized workplaces may confront union busting and strike breaking and face the ethical implications
of work rules that advantage some workers over others.[citation needed]

Management strategy

Among the many people management strategies that companies employ are a "soft" approach that
regards employees as a source of creative energy and participants in workplace decision making, a
"hard" version explicitly focused on control[94] and Theory Z that emphasizes philosophy, culture and
consensus.[95] None ensure ethical behavior.[96] Some studies claim that sustainable success requires a
humanely treated and satisfied workforce.[97][98][99]

Sales and marketing

Main article: Marketing ethics

Marketing ethics came of age only as late as the 1990s.[100] Marketing ethics was approached from
ethical perspectives of virtue or virtue ethics, deontology, consequentialism, pragmatism and relativism.
[101][102]

Ethics in marketing deals with the principles, values and/or ideas by which marketers (and marketing
institutions) ought to act.[103] Marketing ethics is also contested terrain, beyond the previously
described issue of potential conflicts between profitability and other concerns. Ethical marketing issues
include marketing redundant or dangerous products/services,[104][105][106] transparency about
environmental risks, transparency about product ingredients such as genetically modified
organisms[107][108][109][110] possible health risks, financial risks, security risks, etc.,[111] respect for
consumer privacy and autonomy,[112] advertising truthfulness and fairness in pricing & distribution.
[113]

According to Borgerson, and Schroeder (2008), marketing can influence individuals' perceptions of and
interactions with other people, implying an ethical responsibility to avoid distorting those perceptions
and interactions.[114]

Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions
including price discrimination and price skimming. Certain promotional activities have drawn fire,
including greenwashing, bait and switch, shilling, viral marketing, spam (electronic), pyramid schemes
and multi-level marketing. Advertising has raised objections about attack ads, subliminal messages, sex
in advertising and marketing in schools.

Inter-organizational relationships

Scholars in business and management have paid much attention to the ethical issues in the different
forms of relationships between organizations such as buyer-supplier relationships, networks, alliances,
or joint ventures.[115] Drawing in particular on Transaction Cost Theory and Agency Theory, they note
the risk of opportunistic and unethical practices between partners through, for instance, shirking,
poaching, and other deceitful behaviors.[116][117] In turn, research on inter-organizational
relationships has observed the role of formal and informal mechanisms to both prevent unethical
practices and mitigate their consequences. It especially discusses the importance of formal contracts
and relational norms between partners to manage ethical issues.

Emerging issues

Being the most important element of a business, stakeholders' main concern is to determine whether or
not the business is behaving ethically or unethically. The business' actions and decisions should be
primarily ethical before it happens to become an ethical or even legal issue. "In the case of the
government, community, and society what was merely an ethical issue can become a legal debate and
eventually law."[118] Some emerging ethical issues are:

Corporate Environmental Responsibility: Businesses impacts on eco-systemic environments can no

longer be neglected and ecosystems' impacts on business activities are becoming more imminent.[119]

Fairness: The three aspects that motivate people to be fair is; equality, optimization, and reciprocity.
Fairness is the quality of being just, equitable, and impartial.

Misuse of company's times and resources: This particular topic may not seem to be a very common one,
but it is very important, as it costs a company billions of dollars on a yearly basis. This misuse is from late
arrivals, leaving early, long lunch breaks, inappropriate sick days etc. This has been observed as a major
form of misconduct in businesses today. One of the greatest ways employees participate in the misuse
of company's time and resources is by using the company computer for personal use.

Consumer fraud: There are many different types of fraud, namely; friendly fraud, return fraud,
wardrobing, price arbitrage, returning stolen goods. Fraud is a major unethical practice within
businesses which should be paid special attention. Consumer fraud is when consumers attempt to
deceive businesses for their very own benefit.[118]

Abusive behavior: A common ethical issue among employees. Abusive behavior consists of inflicting
intimidating acts on other employees. Such acts include harassing, using profanity, threatening someone
physically and insulting them, and being annoying.[120]

Production

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.

Property

Main articles: Private property and Property rights

The etymological root of property is the Latin 'proprius'[121] which refers to 'nature', 'quality', 'one's
own', 'special characteristic', 'proper', 'intrinsic', 'inherent', 'regular', 'normal', 'genuine', 'thorough,
complete, perfect' etc. The word property is value loaded and associated with the personal qualities of
propriety and respectability, also implies questions relating to ownership. A 'proper' person owns and is
true to herself or himself, and is thus genuine, perfect and pure.[122]