Business Ethics

Author: Thomas Metcalf
Category: Ethics
Word count: 996

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Everyone does business, of some kind or another, on a near-daily basis. We buy food and shelter and pay for many other wants and needs. And most people sell their labor by working for an employer, or for themselves.

When all goes well, people enjoy rewarding jobs and paychecks, and lots of valuable goods and services. But when things go badly, people can lose their jobs, lose their money, ruin their reputations, and even end up in prison, in poverty, or dead.[1]

What happens in the course of business is therefore of great ethical significance: people can be harmed and benefited in many ways; people can be treated, and treat others, in respectful and uplifting ways, as well as disrespectful and degrading ones; and businesses can promote fairness and justice, as well as enable unfairness and injustice, in many ways.

Stakeholders are anyone who can be affected by a business. But not all stakeholders are individuals. Others include communities, countries, and even the natural world, including animals.[2] The scope of business ethics is thus very wide indeed.

Business ethics, therefore, is one of the most important areas of applied or practical ethics. Here we’ll review some of the ethical obligations that business owners, employees, and customers have to each other and to the rest of the world.

"Let's get ethical!" A scene from "The Office."
“Let’s get ethical!” A scene from “The Office.”

1. Obligations to Employees and Customers

Maybe most people don’t expect to ever own their own businesses. But they’ll still be employers from time to time. Suppose you hire someone to fix your roof. Do you need to ensure that your yard is free of unexpected dangers? Suppose your roofer quotes you an estimate and you agree to it, and then the roofer forgets their quote and asks you to repeat it. Do you have an obligation to tell the truth?

One main area of business ethics concerns an employer’s obligations to employees. Thus, business ethicists study the moral duties employers have to ensure safe working conditions and decent pay. While the law often requires such treatment, business ethics isn’t simply about following the law itself.[3]

Some argue that these moral duties arise from truly respecting your employees.[4] Fairness or justice might require that salaries or wages be relatively equal.[5] And employers have an obligation to ensure that women and people from other oppressed groups are treated fairly, which might extend to giving some preference to hiring women or people of color.[6] Beyond this, businesses might have obligations of loyalty or reciprocity not to replace striking workers, and not to offshore jobs.[7]

Employees also have obligations to treat their fellow employees fairly: help ensure a safe workplace and communicate honestly with the other employees. You might also have an obligation of fairness to not work during a strike.

As a customer, you have an obligation to treat employees with kindness: while they are means to the end of acquiring some product, they also deserve respect.[8] This respect might also include not buying from a business when its workers are on strike.

Agents of businesses should not deceive their customers, and perhaps should not sell defective or dangerous products to their customers, at least without warning.[9] There might be important moral obligations concerning advertising as well, such as not to advertise to children or other vulnerable groups.[10] And businesses might have obligations about protecting customers’ (and employees’) privacy.[11] We likely also have the obligation not to steal intellectual property.[12]

This is just a start; there are many other obligations.[13]

2. Obligations to Owners, Society, and the Environment

If you work for a retailer, do you have an obligation not to steal clothes from that retailer? What if your employer is a huge corporation and probably won’t miss the items? Is it okay to slack off when no one’s watching? Suppose your boss wants to pay you under the table: is it wrong to accept a tax-free wage? And if your boss orders you to dump a bunch of trash in a neighboring park, what should you do?

Most ethicists believe that businesses have some obligations to the business’s owners. Agents of a corporation have a fiduciary duty to the corporation’s owners. If I trust you with something as important as my investment money, then by accepting that trust, you take on substantial moral responsibility.[14]

One might also argue that businesses have obligations to the owners to not waste money by paying employees too much.[15] Similarly, even setting aside the law, there might be a moral obligation of fairness not to allow insider trading.[16]

Most business-ethics courses focus primarily on moral obligations of businesses to stakeholders and vice-versa. However, businesses have enormous political and societal influence, so business-ethics topics are inextricably linked to broader topics in economics, sociology, politics, and justice:[17] e.g., businesses commonly lobby Congress to pass special, rent-seeking laws that don’t benefit society nor the nation’s economy overall.[18]

Ethicists believe that businesses have many obligations to the broader society, such as to obey minimum-wage and intellectual-property laws,[19] to minimize pollution, and not support corruption.[20] And they might have obligations not to run sweatshops.[21]

As a customer, you might have an obligation of respect or beneficence to buy only from morally responsible businesses.[22] And as a potential employee, you might have an obligation not to work for an apparently immoral industry.[23]

3. Conclusion

As we can see, business ethicists deal with a wide variety of ethical questions. To answer them, we use the methods and resources of philosophical ethics, such as appealing to normative-ethical theories and arguments from analogy.[24]

Of course, some say that the only obligation in business is to make money.[25] But that’s implausible: there is a difference between what’s beneficial and what’s morally right, and it is selfish to always prioritize the former.[26] Ethicists therefore advocate for corporate responsibility: to take seriously the set of obligations a business has to the broader society and environment.[27]

Beyond this, fortunately, when a business is ethically responsible, that can also help it be profitable.[28] Sometimes, morality and self-interest converge.

The Office Ethics Dance.

Notes

[1] See e.g. Bryce 2002 for a prominent example of a disaster that can occur when businesses act insufficiently ethical; Rosenfield 2010 also provides a helpful account, and see also Brown and Dugan 2002. See also von Drehle 2006 for another famous example of failures of business ethics and the corresponding harms.

[2] The project of prioritizing all the people who can be affected by a firm is the project of adopting a stakeholder orientation. “Stakeholders” are anyone who can affect or be affected by the business, and the business attempts to satisfy its moral obligations to all these stakeholders. See e.g. Freeman (2010 [1984]) for one of the first entries in the advocacy for the stakeholder approach. See also Byers and Stanberry (2018, § 3.1).

[3] See Byers and Stanberry (2018, § 4.1, and especially ch. 4 itself) for more about corporations and the law.

[4] See also Werhane (1985, p. 132); Arnold (2003) and (2010); Byers and Stanberry (2018, § 6.1)  on working conditions and Wertheimer (1996, p. 230) on wages.

[5] Boatright 2010; Byers and Stanberry (2018, § 6.2).

[6] Himma (2001); Boxill (2010); Byers and Stanberry (2018, § 8.1).

[7] See e.g. Gould (2010, p. 309), Biondi (2010), and Byers and Stanberry (2018, §§ 6.3).

[8] See also Deontology: Kantian Ethics by Andrew Chapman.

[9] See e.g. Carson (2010, p. 343).

[10] Carson (2010, p. 351).

[11] See e.g. Byers and Stanberry (2018, §§ 6.4 and 11.1).

[12] Himma (2008); DeGeorge (2010); Byers and Stanberry (2018, §§ 7.1).

[13] For a recent, comprehensive survey, see Byers and Stanberry (2018).

[14] Goodpaster (2010, p. 131); Byers and Stanberry (2018, §§ 4.1). See also Marcoux (2003). More generally, in business ethics, we encounter principal-agent problems: cases where one person (the principal) hires someone else to do some work, and the principal wants to ensure that the agent gives the principal’s interests some priority. If I hire you to mow my lawn, you have a strong interest in making me believe that you did a good job, and I have a strong interest that you actually do a good job. Those aren’t the same thing. Jensen and Meckling (1976). One potential solution is to pay the employee a lot, but there might also be an obligation to the owner of the business not to waste money by paying the employee too much (Bebchuk and Fried 2004; Boatright 2010; Byers and Stanberry 2018, § 6.2).

[15] This can be especially important when a new CEO might be friends with people on the Board of Directors, who might prioritize their friendship over saving shareholders’ money. See e.g. Bebchuk and Fried (2004); Boatright (2010); Byers and Stanberry (2018, § 6.2).

[16] Engelen and Van Liederkerke (2007); Strudler (2010); Byers and Stanberry (2018, § 7.4).

[17] Thus, a comprehensive study of business ethics includes social-and-political philosophy, philosophy of law, and potentially also political economy and macroeconomics. See e.g. Heath (2014) for such an approach. Similarly, some ethicists have argued that firms can be like small governments, issuing orders to their employees (Anderson 2017). Economists have studied how the standard structure of the firm might mirror other structures in society in morally important ways (Coase 1937; see also Gaus 2010, p. 90).

[18] See Munger (2006) for a discussion of rent-seeking and some examples.

[19] De George (2010, p. 421).

[20] Sagoff (2004); Newton (2005); Newton (2010); Byers and Stanberry (2018, § 4.2). On corruption, see Rose-Ackerman (1999); Velasquez (2010); and Byers and Stanberry (2018, § 7.4).

[21] See n. 5.

[22] Arnold (2003); Arnold (2010); Powell and Zwolinski (2012); Newton (2010, p. 668); Byers and Stanberry (2018, § 8.5); cf. Huemer (2019) on the meat industry.

[23] See e.g. Williams (1973, 97 ff.).

[24] See e.g. Consequentialism and Utilitarianism by Shane Gronholz and Deontology: Kantian Ethics by Andrew Chapman.

[25] Some people think that businesses should not be too concerned with their moral obligations to anyone other than the businesses’ owners. For example, the economist Milton Friedman (1912-2006) famously argued that the only obligation a business has is to do what the business’s owners (typically, shareholders) want it to do. Usually, that means maximizing profits. See Friedman (1970). But business ethicists generally believe that firms have some moral obligations beyond simply increasing profits.

[26] See also Ethical Egoism by Nathan Nobis.

[27] We’ll assume that business owners actually do have moral obligations beyond simply obeying the wishes of the owners.

On corporate responsibility, see Farmer and Hogue (1973) and Den Uyl (1984). See also Goodpaster (2010) and Byers and Stanberry (2018, § 3.4). This is sometimes also called “corporate social responsibility,” but the broader term (without “social”) implies that firms might have obligations that aren’t to society or aren’t to members of society. Such obligations might include environmental protection for its own sake.

We should also assume that even in a capitalistic system, businesses can behave better or worse from the perspective of morality. We make this assumption because someone might argue that no business can be morally good in a capitalistic system, or at least, that no privately-owned business can be good. Indeed, some have argued that there can be no morally permissible consumption in a capitalist system (Tang 2021). For more, see my Arguments for Capitalism and Socialism and Defining Capitalism and Socialism. See also Gaus (2010).

[28] See e.g. Rosalsky 2019 and Morrison 2021 for useful discussions.

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Ethical Egoism by Nathan Nobis

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About the Author

Tom Metcalf is an associate professor at Spring Hill College in Mobile, AL. He received his PhD in philosophy from the University of Colorado, Boulder. He specializes in ethics, metaethics, epistemology, and the philosophy of religion. Tom has two cats whose names are Hesperus and Phosphorus. http://shc.academia.edu/ThomasMetcalf

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