Sunday, 13 January 2013

A2 Religious Studies: Business Ethics

Business ethics most importantly concerns the ethical relationship(s) between businesses and stakeholders. Stakeholders is a broad term and refers to an individual or group of people who has/have an interest in a business. This ranges from employers to employees to consumers.

But what is the purpose of business? This is where, surprise surprise, people disagree.

Some business ethicists argue that the purpose of business is to maximise profit for said business and/or shareholders. If this is the case, then only actions which actively increase profit are to be advised. This was the view of economist Milton Friedman (who argues from a Lone Ranger perspective), who argued that
"The purpose of business is to make me money."
Similarly, Maxwell simply argues (in a quote that's great to open an essay with) that
"There's no such thing as business ethics."
However, others argue that the purpose of business is to be morally responsible towards employees/consumers/local community/society/all of the above. This is often referred to as corporate social responsibility (CSR), which anyone from my school will know is Mr Harbertson's 'buzz-word' when it comes to business ethics. Whatever the question, make sure you put CSR in there somewhere.

Companies that have shown CSR include the Body Shop. Fronted by Anita Roddick, the Body Shop succeeded in tackling social issues such as animal rights and Fair Trade.

This just shows that it is perfectly possible to own a successful business that doesn't depend entirely on profit but also looks outwards as to how it can tackle other problems.

The other big theory on the purpose of business comes under the social contract theory. This theory states that stakeholders should be given a voice as to how a business should operate.

  • However, this theory has been criticised by several businesspeople for the plain reason that business is a property and not a means of distributing social justice
The social contract theory was sort-of developed and, in 1995, Will Hutton argued for the Stakeholder Theory. The stakeholder theory argues that all stakeholders should actually have shares in a business.

This put certain pressure on businesses, which in turn led to the Invisible Hand Theory, as proposed by Adam Smith. By 'invisible hand', Smith is talking about the self-regulating behaviour of the business marketplace. He simply suggests that businesses often have little control on what happens in the marketplace, and are
"led by an invisible hand"
You can't see the invisible hand (the clue's in the name, apparently), because it's just how business as a concept operates. For example, if there are shortages in the marketplace, the invisible hand is a metaphor for the price mechanism which raises prices to accommodate for the shortages.

  • However, some businesses (like big supermarket chains) discuss the lowest prices of other companies and try to match them - this leads to illegal control of the market 
Smith argues that the consumer is what drives the market in a win-win situation. We want fair prices and good quality, which rewards good-quality and fairly-priced businesses. If you think about it, 'win-win' is quite a utilitarian view, and it is fair to say that Smith presents a utilitarian view on business.

The view is often referred to as ethical egoism. Ethical egoism states that self-interest is not selfishness, because by putting your company first, you are helping serve the common good of others. Ethical egoist Louis Pojman describes ethical egoism as follows:
"We are concerned to promote our own good, but not necessarily at any cost."

  • However, naturally there are people who disagree with ethical egoism. Economists like Friedman argue that ethics and business do not co-operate, and Julian Baggini points out that
"Good ethics is not necessarily good business."

Issues in business

Exploitation is a big problem in certain businesses, especially among the impoverished (across the world, not just in the UK) and young people.

If you're arguing from a Christian ethics perspective, you can cite these examples as examples of Christian goodness to strengthen the argument that Christian ethics is a good approach to business:

  • in Victorian times, Christian entrepreneurs began to change exploitative practices like child labour
  • Rowntrees and Cadbury were originally of Quaker origin, and proved that good ethics could still pay
Externalities may also be an issue. Externalities refer to external costs that are negative, such as pollution, noise and congestion. These obviously need to be made up for by businesses. 

A good example of how externalities have been dealt is the actions of the Anglo-American Mining Company. The company situated the mind away from residents to reduce noise pollution, as well as doing other nice things for CSR and sustainability (which I'll come to in a minute).

A bad example of how externalities have been dealt which is the actions of trading company Trafigura. In 1996, Trafigura dumped toxic waste off the Ivory Coast. The waste caused burns and nausea as well as the release of noxious sulphur dioxide. 31,000 people were awarded £30m in compensation - but not until 13 years later.


Bad examples

When discussing business, it's always good to bring in bad examples of where businesses have gone wrong, often to support your own theory or knock another theory (such as util).

In 1971, Ford produced a car that was faulty. The fault would, on very rare occasions, cause fuel tanks to explode upon collision. The cost to repair every car would be $137m.

However, the approximated number of deaths would only cost $50m in compensation. Outrageously, Ford chose to let a small number of people die in order to save money. This is an example of where a utilitarian outlook on business has failed horribly (depending on how callous you are). 

Bentham would agree with the decision, whereas Mill might question the mental well-being of those affected over the wealth-based pleasure of the company.

In 1984, the Union Carbide Plant in Bhopal leaked a chemical that killed 8,000 people in just 3 days. Five years later, nearly $500m was paid in compensation. This is an example of failed CSR.

The company Enron was subject to huge corporate collapse due to the greed, corruption and ignorance of the owners. Executives were jailed and thousands of workers were made jobless. This is a perfect example to strengthen virtue ethics, Christian ethics and Kantian ethics:
  • Virtue: the owners were not virtuous and so the business failed
  • Christian ethics: the owners were not acting in the name of God and didn't pursue excellence and so the business failed
  • Kantian ethics: the owners used people as means to an end and so the business failed

Sustainability

Sustainability not only makes a business look good, but also ensures caring for future generations. This means it's brilliant to mention if you get a question on business and environment combined.

In 1992, the Rio Earth Summit was called to discuss sustainability - however, Earth summits (as discussed in environmental ethics) are often seen as, well, massive failures.

Sustainability is important in businesses for another reason: it often saves money.

Sustainability applies to utilitarianism and Christian ethics particularly well. As discussed in environmental ethics especially, Christians see caring for the environment (stewardship) as a God-given duty.

The Anglo-American Mining Company, as mentioned earlier, planted reed beds (an endangered habitat) in their local community, helping sustain the environment. Furthermore, the Co-op has won awards for its response to climate change, reducing 86% of their CO2 emissions and using 98% green electricity.


Globalisation

Globalisation is another important aspect of business. It refers to the cultural, social and political barriers that affect business over the world. The following areas (just for reference, not supposed to be explicitly mentioned in exams) would be affected by globalisation:
  • television
  • music
  • food
  • fashion
  • trade/economy
  • ethics
  • religion
Globalisation affects business in different ways. It may change ethical approaches to the markets of different cultures and may affect environmental policies when transport and trade comes into use.

When migrant workers come to new countries, particularly in bulk, they often bring elements of their own culture, such as food and language.

Furthermore, first-world countries often move big business branches to third-world countries. These multinational companies provide jobs and wealth to third-world countries. Multinationals also provide competition, leading to more jobs and lower costs.
  • However, multinationals in third-world countries often lead to lower wages for workers. Is this ethical?
Crane and Matten describe globalisation as
"deterritorisation"

Issues surrounding globalisation

Globalisation isn't all fun and games (nothing is in ethics):

  • sweatshops are all too common in third-world countries (250 million children work worldwide). Companies such as Nike, Gap and Primark have been criticised for their use of and involvement with sweatshops. Sweatshops are obviously a major issue for several reasons, some of which include:
    • child labour
    • poor health and safety
    • no breaks in order to boost production
    • abuse to workers
    • trade unions banned
  •  globalisation also means global weapons trade, which in turn leads to global terrorism. War is a business, but is it ethical to contribute to it?
  • interest is often charged on aid to third-world countries, which sometimes puts them in even more debt. This often leads to tied aid, whereby first-world countries provide aid to countries if they buy certain products from us.

APPLICATION

Utilitarianism

There is immediately an issue when applying utilitarianism to business ethics. How do we calculate the greatest number? The greatest number could refer to
  • customers
  • shareholders
  • employees
  • the community
  • other species (Singer would argue this - links to env. ethics)
Companies will often consider profit (happiness) over sustainability (number). But in an ethic which argues for greatest happiness for the greatest happiness, which is more important?

However, asking what makes the most people happy is arguably a good theory: it's logical to argue that financial stability makes the majority more happy. Furthermore, sustainability/CSR would be seen as good because it makes more people happy. 

For utilitarianism, though, motive is irrelevant. This is something which virtue ethics and Christian ethics in particular will take issue with. Utilitarianism argues that if a business endorses Fair Trade, for example, the motive behind doing it (which may be to boost popularity) is irrelevant, because the endorsement of Fair Trade itself leads to more happiness.

You can also mention Adam Smith's Invisible Hand theory as utilitarian approach to business.

The weaknesses of utilitarianism in business are as follows (I'd argue that it's the worst approach to business ethics and thus the easiest to attack):
  • the consequences of business cannot be foreseen
    • link this to the example of Enron's corporate collapse
  • utilitarianism seems to be suggesting that human life is measured against profit. Is that fair to humanity?
  • it will allow the majority to exploit the minority - so issues such as exploitation and sweatshops may be accepted
  • utilitarianism will also allow for theft and corruption if it makes more people happy
  • Mill would argue that money is a lower pleasure
  • example of Ford

Virtue ethics

Virtue ethics is concerned primarily with who we are as people. In business, owners should aim to be virtuous people in order to create a virtuous business. This can arguably be complicated - virtue ethics is agent-centred, and business is usually action-based which can make application tricky.

Virtues in business may include the following:
  • common sense
  • courage
  • diplomacy
  • intellect
  • tenacity
  • wisdom
Can a business be successful and virtuous? Friedman and Maxwell would possibly argue not. However, successful companies such as Rowntrees and the Body Shop suggest otherwise.

Weaknesses:
  • virtues may conflict in business
  • which virtues should be followed? Machiavelli and Nietzsche, for example, would argue that deceit and violence are virtues
  • companies could arguably make anything into a virtue
  • virtues vary culturally - not good for globalisation!
  • how do we work out virtues?
  • which virtuous businesspeople should be be inspired by? How do we decide who is virtuous?

Kantian ethics

Kantian ethics is usually (in my opinion) a poor theory when applied to ethical issues. For business, however, I'd argue it's the best. 

Kantian ethics clearly states that:
  • acts should be universal
  • people should be treated as ends in themselves
  • we have a duty (CSR)
Universalising acts in arguably an excellent approach to business; you can't lie, cheat, steal or exploit people, because such things cannot be universalised. 

Treating people as an end in themselves is also very important. Businesses can't treat customers or employees as a means to making money, which is an excellent approach to business.

There are, however, a few weaknesses:
  • collisions of duty between companies and stakeholders
  • Kant, like util, doesn't consider consequences
  • putting people over profit sounds nice, but arguably isn't realistic
  • maxims can be manipulated to allow pretty much anything

Christian ethics

In my opinion, Christian ethics is also a great approach to business, and is quite similar to virtue ethics.

Christians believe that taking care of those we are in relations with is a God-given duty, as is protecting the environment, which can be tied in with the environmental approach of stewardship. Like being a virtuous person, Christians argue that businesspeople should adopt a Christ-like character in business and strive for excellence - and nothing less.

The Puritan Work Ethic states that when you work, you should act as if you are working for God.
  • but what if someone asks you to do something contrary to God's work? There becomes a conflict of interests
  • what about in the case of strikes?
Christian ethics also highlights our purpose in business of being fair and achieving excellence, employing various Biblical quotes to enforce such a belief:
"Do it all for the glory of God"
"Whoever takes crooked paths will be found out"
"If you're cutting corners, the best will lose faith in you"
"The Lord detests dishonest scales"

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