Advancing Business Ethics

Dr Michael L Walsh

Leader, Edmund Rice Business Ethics Initiative

The complexities of doing business in contemporary society and the examples of injustice, exploitation and the search for profits in a highly competitive world have led to a renewed focus on business ethics. Any discussion of business ethics needs to start by clarifying the central notions.

Ethics is about right and wrong in human conduct. Ethics is about values, choices, dilemmas, and character. All these elements go up to assist us to make fundamental decisions about the kinds of people we are going to be and the kinds of actions we will or will not do.

The actual decisions we reach will be the result of a careful weighing of all these elements and a judgment of how our values can best be realised in a particular situation. But once we start talking about values, we have to face the fact that in a society like ours there is no essential agreement on values. We live in a multicultural and pluralistic society.

In the past, people belonged to more cohesive communities. There was a general agreement on values, often reinforced by a shared culture and religion. Nowadays that form of cohesion is gone, replaced at times by a reluctance to talk about one's values or by indifference.

Even when we share many of our values with others, there will always be room for differences; at least in the way we prioritise them. You may believe that truth is the most important value to be preserved in a certain situation. I may believe that loyalty ought to predominate. Both of us presumably believe that truth and loyalty are important values but we differ on how they ought to be ranked in this case. Such disagreements between reasonable people will occur on a regular basis and hence give ethics the name for being contentious.

Business is about the provision of quality goods and services within a community in a way that provides long-term financial benefit to the shareholders. If a business fails in the area of quality, of concentrates too much on short-term profits, it will not survive for the long haul, and shareholders will ultimately be the losers.

But business is about much more than survival. On the micro level it must focus on shareholder profit, but on the macro level it has to address the wider demands of social justice. It may survive, but it will not flourish unless it attends to the demands of ethics in the ways in which it pursues its goals within society.

What is needed is further reflection to enable business to come to grips with why it ought be ethical even in the face of a challenge to profit margins.

Business ethics

The conjunction of the two words, business and ethics, provokes some interesting and somewhat cynical reactions. Some say that business ethics would be the title of a very short book, or that the notion is an oxymoron. Others refer immediately to the scandals of the eighties and nineties where ethics have been clearly neglected in favour of profits.

Yet, most businesses do attend to the demands of ethics, even if they do not talk about ethics very often. Business cannot survive without certain foundational ethical principles and practices. These principles and practices may need to be reinforced by law, but business cannot survive long-term without acknowledging the part to be played by ethics.

Contemporary discussions of business and it purposes are moving away from ideas that business has its own goals and ethics is a private affair. Stakeholder theory in business management reinforces the notion that the demands placed on business are much broader than a focus on the bottom line. It must attend to the legitimate demands and interests of all stakeholders Business has obligations not just to shareholders, but to employees, suppliers, customers, the wider community and the environment.

Business does not exist in isolation, but is part of a community and needs to take note of the common good as well as the interests of its immediate shareholders. There are practices within business, which, while increasing profits, may well be exploitative of other stakeholders. Ethics demands that business honours all its obligations. While many Australian businesses are attentive to immediate obligations to shareholders, employees, suppliers and customers, many fail to appreciate their wider obligations within society.

Ethical obligations

As individuals we have ethical obligations, not just to ourselves and our immediate families, but also to the good of the community as a whole. Discussions of social justice make us well aware of such obligations, and many individuals can be held up as examples in areas such as working for the poor and underprivileged, efforts at reconciliation, care for the environment. But such obligations do not fall on individuals alone.

Business corporations have similar obligations of justice. Is sufficient attention being paid to these demands by Australian business? Has the response of the business community to the Wik debate, for instance, been too narrowly focused on profits? How has it responded to the questions of rights and justice for all?

If we understand business as being committed to providing long term profits to the shareholders, we can see more clearly why business needs to be concerned about ethics. It is not just window dressing. If it is to survive a business must be committed to its products and its customers, but if it is to flourish, it needs to conduct itself in accordance with the demands of justice and basic human decency. It has to respect the rights of all those with whom it deals. Exploitation of workers or the provision of low quality goods may seem to be a quick path to profits, but long-term survival demands higher standards.

Asset stripping to avoid obligations to retrenched employees, wholesale lying and deception, exorbitant demands about pay and conditions are examples of ethical failure. The current waterfront dispute highlights all of these.

If business is also to address the ethical demands of promoting the common good of society, it needs to take more of a leadership role in many contemporary debates. The voice of business needs to be heard in debates about reconciliation, social justice, respect for human rights, both at home and abroad. It is not enough to say the business is simply about making a profit for the shareholders.

Business practice and the making of business judgements clearly include assumptions about values, standards and priorities, all of which involve ethical issues. There is usually no problem in situations where everybody gains; the trouble begins when hard choices have to be made. These call for sound ethical judgement that can be developed by reflection and practice. It is important that companies try to assist this process of ethical judgement. They can do so by clarifying their values and priorities and making these known to their shareholders, employees, customers and the general public. This is sometimes done in the form of a mission statement or a code of ethics.

Codes of Ethics

Codes of Ethics are one attempt to address the issue. The usefulness of codes, particularly when they become public documents, is that they specify for the employees and the general public what are the values, standards and acceptable practices within the company or the profession. They guide employees in actual practice and they announce standards to the public. They serve as a means of public accountability.

When codes are clear, they can often help resolve a potential problem by marking out lines between acceptable and unacceptable practice. No matter how good they are, they will not replace the need to think issues through, as particular circumstances will always play a role. Ethical judgement will always be essential in resolving specific problems.

Codes work best if they are formulated by the group most likely to be affected by them. If they are simply written by an outsider, or handed down from on high by the board of management, they are less likely to be taken seriously, and apply not just to workers, but to the management. They need to be 'owned' by those on whom they impact. They are not a panacea for all ills, but they ought to be part and parcel of the approach in today's business world.

But if a code is to be introduced and prove effective, the process needs to be handled with care. It requires education not imposition. Once a code is in place, it needs to be seen to be part of the real management strategy, and referred to on a regular basis. It is not an end in itself, but a means to raise ethical awareness and practice with the company and a way of instilling in all the real values of the company.

Reflection on ethics helps business articulate its values and shape its role and contribution within society. In many situations good ethics will translate into good business in terms of long term profit for shareholders and benefit to various stakeholders. But sometimes good ethics will demand sacrifice.

One of the tasks facing this Business Ethics Initiative is to help people when they are facing these hard decisions. 

Dr Michael L Walsh