Business ethics

Business ethics In the 1920s, many large American corporations began, on a wide scale, to establish pension funds, employees’ stock ownership, life insurance schemes, unemployment compensation funds, limitations on working hours, and high wages. They built houses, churches, schools and libraries, provided medical and legal services, and gave money to charities. Since this is fairly surprising behavior for business corporations, there must be a good explanation.

And I guess we have it. First of all I’d like to mention that such words as “ethic” or “culture” used to be considered as having less in common with business. But it’s not so. Nowadays the positive image of an entrepreneur is essential part of any businessman, necessary for success in business. And hopefully this image isn’t just showing-off. Business and moral values are connected much closer than it might seem at first sight.

Business undertakings include dealing with people, creating different contacts, and as you know contacts with people are usually built upon the basis of trust. You don’t need to cheat to get profit. It is usually the result of situation when market price exceeds expenditures. Though many examples of concluding a bargain on parole testify to the fact that promise given by the person you trust sometime more valued than money given by somebody else.

Cheating, compromises with one's conscience are witnesses of immaturity of market relations, ignorance of businessmen. It seems to be quite logical, but many people running their own businesses forget about this elementary truism – unfair business has no future. Once betrayed, a person won’t trust you or even start to play this game himself. So to make a conclusion of the all above mentioned

I’d rather say that a company, any business has responsibilities to its suppliers, its customers, its employees, the local community and society in general as well as to its shareholders. It will provide profit in the way of fair bargains with partners, loyalty of workers, better environment, etc. Consequently large corporations introduced ‘welfare capitalism’ as a way of creating favorable public opinion. Even rational capitalists, starting with

Henry Ford, realized that a better paid work force would be more loyal, and would be able to buy more goods and services, and that a better educated work force would be more efficient one. Of course, pure free market theorists disapprove of welfare capitalism and all actions inspired by ‘social responsibility’ rather than the attempt to maximize profit. Since the benefits of such initiatives are not visible,

Milton Friedman criticized them for being unbisinesslike and for threatening the survival not only of individual corporations but also the general vitality of capitalism. In newspaper article titled ‘The social responsibility of business is to increase its profits’ he argued that responsibility of any company is to conduct the business in accordance with their desires, which generally will be to make as much money as possible, while of course conforming to the basic rules of

the society, both those embodied in laws and those embodied in ethical custom. Thus executives should not make expenditures on reducing pollution beyond the mount that is required by law or that is in the best interest of the firm. Nor should they deliberately hire less-qualified, long-term unemployed workers, or workers from ethnic minorities suffering from discrimination. To do is to be guilty of spending the stockholders’ (or the

customers’ or the employees’, whatever) money. Friedman does not consider the possibility that stockholders might prefer to receive lower dividends but live in a society with less pollution or less unemployment and fewer social problems. An alternative view to the stockholder model exemplified by Friedman’s article is a stakeholder model, outlined, for example, in John Kenneth Galbraith’s book, The New Industrial State.

According to this approach, business managers have responsibilities to all the groups of people with a stake in or an interest in or a claim on the firm. A firm which is managed for the benefits of all its shareholders, will not, for example, pollute the area around its factories, or close down a factory employing several hundred people in a small town with no other significant employers, and relocate production elsewhere in order to make small financial

savings. Proponents of the stakeholder approach suggest that suppliers, customers, employees and member of the local community should be strongly represented on a company’s board of directors. Another aspect of business ethic I’d like to cover concerns the difference between legitimacy of some actions and their relevance, conformation to the basic rules of society. Sometimes some actions we do are wide-spread but it does not mean they are legal.

For instance industrial espionage or bribing corrupt officials, telling only half the truth in advertisements and keeping quiet about bad aspects of a product. Lobbing, I mean trying to persuade politicians to pass laws favorable to your particular industry, is legal, but can be condemned by public opinion. So it’s rather difficult to choose what rules to follow – laws, business practice, own conscience…