Tuesday, June 22, 2010

Business ethics

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 arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole. 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 can be both a normative and a descriptive discipline. 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 (e.g. BP's "beyond petroleum" environmental tilt).

Discussion on ethics in business is necessary because business can become unethical, and there are plenty of evidences as in today on unethical corporate practices. Even Adam Smith opined that ‘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’. Business does not operate in a vacuum. Firms and corporations operate in the social and natural environment. By virtue of existing in the social and natural environment, business is duty bound to be accountable to the natural and social environment in which it survives Irrespective of the demands and pressures upon it, business by virtue of its existence is bound to be ethical [Is this a fact or an opinion?], for at least two reasons: one, because whatever the business does affects its stakeholders and two, because every juncture of action has trajectories of ethical as well as unethical paths wherein the existence of the business is justified by ethical alternatives it responsibly chooses. One of the conditions that brought business ethics to the forefront is the demise of small scale, high trust and face-to-face enterprises and emergence of huge multinational corporate structures capable of drastically affecting everyday lives of the masses.


Business ethics being part of the larger social ethics, always been affected by the ethics of the epoch. At different epochs of the world, people, especially the elites of the world, were blind to ethics and morality which were obviously unethical to the succeeding epoch. History of business, thus, is tainted by and through the history of slavery history of colonialism and later by the history of cold war. The current discourse of business ethics is the ethical discourse of the post-colonialism and post-world wars. The need for business ethics in the current epoch had begun gaining attention since 1970s. Historically, firms started highlighting their ethical stature since the late 1980s and early 1990s, as the world witnessed serious economic and natural disasters because of unethical business practices. The Bhopal disaster and the fall of Enron are instances of the major disasters triggered by bad corporate ethics. It should be noted that the idea of business ethics caught the attention of academics, media and business firms by the end of the overt Cold War. Cold Wars, seen through pages of history were fought through and fought for American business firms abroad Ideologically, promotion of firms owned by American nationals were presented as if it were freedom and the local resistance against the excess of American firms were labeled communist upraising sponsored by the Soviet Block .Further, even legitimate criticism against unethical practice of the firms was presented as if it were infringement into the 'freedom' of the entrepreneurs by activists backed by communist totalitarians This scuttled the discourse of business ethics both at media and academics. Overt violence by business firms has decreased to a great extent in the democratic and media affluent world of the day, though it has not ceased to exist. The war in Iraq is one of the recent examples of overt violence by the liberal western states on the behalf of oil business interests

Overview of issues

General business ethics

This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated.
Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.
Ethical issues concerning relations between different companies: e.g. hostile take-overs, industrial espionage.
Leadership issues: corporate governance; Corporate Social Entrepreneurship
Political contributions made by corporations.
Law reform, such as the ethical debate over introducing a crime of corporate manslaughter.
The misuse of corporate ethics policies as marketing instruments

Ethics of finance

Fundamentally finance is a social science discipline. The discipline shares its border with behavioural science, sociology , economics, accounting and management. Finance being a discipline concerned technical issues such as the optimal mix of debt and equity financing, dividend policy, and the evaluation of alternative investment projects, and more recently the valuation of options, futures, swaps, and other derivative securities, portfolio diversification etc., often it is mistaken to be a discipline free from ethical burdens. However frequent economic meltdowns that could not be explained by theories of business cycles alone have brought ethics of finance to the forefront . Finance ethics is overlooked for another reason: issues in finance are often addressed as matters of law rather than ethics. Looked closer into the literature concerning finance ethics one can be convinced that as it is the case with other operational areas of business, the ethics in finance too is vehemently disputed

Ethics of the finance paradigm

Conventionally economics is seen as a moral science and philosophy directed at a shared ‘good life’. which Adam Smith characterized in terms of a set of external material goods and internal intellectual and moral excellences of character. Smith in his Wealth of the 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” However, a section of economists influenced by the ideology of neoliberalism, interpreted the objective of economics to be maximization of financial growth through accelerated consumption and production of goods and services Under the influence of the neoliberal ideology, business finance which was a component of economics is promoted to constitute the core of the neoliberal economics. Proponents of the ideology hold that financial flow, if redeemed from the shackles of ‘financial repressions,’ it can be put into service of the impoverished nations. It is held that the liberation financial systems would ensure economic growth through competitive capital market system ensuring promotion of high levels of savings, investment, employment, productivity, foreign capital inflows and thereby welfare along with containing corruption. In other words, it was recommended that governments of the impoverished nations should open up their financial systems to global market with the least regulation over the flow of capital. The recommendations however met with serious criticisms from various schools of ethical philosophy. For the pragmatically oriented ethicists, blind submission to the a priori claims, such as the claim of ‘invisible hand’ which are merely ideological, could be ethically counterproductive . The welfare claim of the Laissez-faire finance is disputed because, welfare would be overridden given a conflict with . Further, history of finance does not suggest that firms always maintain principles of honesty and fairness under unregulated environments. The prudence and ethics of recommendations to the countries which were impoverished by the ravages of centuries of colonial exploitation, subsequent cold wars and subjection to imperial hegemony to unconditionally open up their economies to transnational finance corporations is fiercely contested by ethicists from various quarter. Further, the claim that deregulation and the opening up economies bringing down corruption too is contested.

The firm, within the finance paradigm, is seen as a complex network of contractual relations, mostly implicit, between various interest groups. “Within this finance paradigm," 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”. Ethics of finance is narrowly reduced to the mathematical function of shareholder wealth maximization. Such simplifying assumptions are necessary in the field of finance for the construction of mathematically robust models. Such a mathematical chimera, it is observed, lets the experts in the field of finance into the vice of greed justification. However, the signaling theory and agency theory within the domain of finance reveal clearly the normative undesirability of wealth maximization . Ethics seen from the stakeholder perspective is the privilege of the immediate and remote stakeholders as much as it is the obligation of the firms towards them

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