As engines of wealth creation, businesses have long been viewed as entities that must operate free of ethical standards of social responsibility. Many, including economist Milton Friedman, have contended that the well-being of America’s corporate/financial edifice depends on unfettered corporate interests, manned by employees whose only requirement is that they must obey the letter of the law. However, events of recent years, during which corporate and financial malfeasance has contributed to the nation’s current economic malaise, have reopened the debate over the role of business ethics. More contemporary observers have argued that there are no “shades of gray” when it comes to ethical behavior, contending that right is right and wrong is wrong regardless of whether the scenario is the corporate boardroom or the household.
A Consideration of Business Ethics in a Profit-Motivated Landscape
“Never give a sucker an even break, or smarten up a chump.”
W.C. Fields’ famous maxim, perhaps more than any other, captures the essence of an early-20th century American “on the make,” the quintessentially unscrupulous individual for whom the ends neatly justifies the means. In the modern era, Fields’ canny yet cynical advice would seem to describe the mindset of corporate America, the sheer power of which has in recent years resisted the imposition of government regulation and monitoring (or “interference,” as some would have it) that may well have prevented the historic depredations of Enron, heedless Wall Street financiers and financial institutions that backed the pre-crash housing market. One would think that when President Calvin Coolidge declared “the business of America is business,” corporate America took it as an absolution of sin and never looked back. There were profits to be made and, consequently, notions of business ethics have traditionally been regarded as irrelevant.
Such would seem to be the position of Peter Drucker and Milton Friedman, whose writings on the subject impressively atomize and parse what would seem to be a relatively simple and straightforward issue. The insistence that a distinction must be made between “business ethics” and “ethics in business” recalls images of Bill Clinton’s obfuscatory exposition on the meaning of the word “is” within the context of his impeachment trial. Ultimately, Drucker and Friedman would have us believe that core cultural beliefs concerning acceptable social behavior and the ethical philosophy that Plato and Aristotle espoused runs counter to the principles upon which American corporate Capitalism are founded. Thus, it seems that what is acceptable in the business world is wholly different from the ethical guidelines by which society operates. If the past few years have taught us anything, it is that there is no room for double standards when it comes to ethical behavior – within or outside the boundaries of corporate America.
In “What is Business Ethics,” Drucker argues that there is no place for business ethics, that a reliance on the standards of individual conduct are sufficient to keep business interests from engaging in unethical behavior. “There is only one ethics, one set of rules of morality, one code, that of individual behavior in which the same rules apply to everyone alike” (Drucker, 1981). In making his case, Drucker asserts that the rules of conduct are the same “for prince and pauper, for rich and poor” (1981). Writing 30 years ago, Drucker cannot have foreseen today’s 10 percent national unemployment rate, widespread foreclosures and rise in bankruptcy that now seem commonplace. By Drucker’s logic, rich and poor are on equal footing and, as such, powerful corporate interests bear no more personal responsibility than a minimum wage worker. But it must be clear to even the most casual observer that there is no level “playing surface,” that average Americans are clearly impacted by the actions of boardroom executives, whose primary concerns are stock options and golden parachutes, not feeding a family.
For all intents and purposes, Drucker’s contention is that business ethics implies that business is intrinsically guilty or at fault, an offensive and superfluous assumption given that businesses exist to make money and are driven only by concerns aimed at achieving that end. In other words, Drucker says corporations function according to a different moral standard entirely.
His argument that “’business ethics’ assumes that for some reason the ordinary rules of ethics do not apply to business,” is a misleading one. By arguing that individual morality should be the same for everyone, “for rich and poor,” he unwittingly contends that individuals function as large businesses, with similar resources and concerns. But this is not so: because corporate entities exist in a vastly different reality than the individual (i.e. the consumer), have vast resources and proprietary rights bestowed upon them through the marketplace, the individual worker/consumer requires special protections. If government is unwilling to take a stronger regulatory hand, then business ethics should be introduced into corporate culture and rigorously supported by those in control to prevent unethical behavior leading to exploitation of the powerless.
Perhaps Drucker’s most curious position is his portrayal of business as an oppressed segment of American society. He characterizes business ethics as typical of a long-standing antagonism toward big business. Business ethics, he writes, “is plain old-fashioned hostility to business and to economic activity altogether – one of the oldest of American traditions and perhaps the only still-potent ingredient in the Puritan ethic” (Drucker, 1981). To be sure, there is an element of distrust toward corporations and to corporate culture, which can be traced to the notorious conglomerates of the early 20th century, the powerful and un-regulated concerns that famously became the focus (or targets) of Theodore Roosevelt’s domestic economic policy. But the business-friendly attitude toward corporations emphasized in the agendas of the Reagan and Bush administrations speaks to a strong element in modern-day American politics, an attempt to return to pre-New Deal principles. If America has returned to the philosophy so succinctly voiced by Calvin Coolidge and, to a loose regulatory environment, then the need for business ethics becomes all the more pressing.
The economist Milton Friedman’s position on the subject of business ethics is more straightforwardly opposed to business ethics than Drucker’s. For Friedman, as long as corporations go about the business of turning a profit within the boundaries established by law, they bear no further responsibility. Writing in 1970, Friedman was perhaps influenced by the fallout from America’s “red scare” period when he characterized business ethics as a socialistic proposition. As the unofficial spokesman for that uniquely American belief in unfettered Capitalism, Friedman championed a separate, corporate world that functions as the engine of American prosperity. As such, it must exist apart from ethical constraints that might conflict with its mission.
In “The Social Responsibility of Business is to Increase its Profits,” Friedman makes a forceful yet simplistic argument that the corporate executive who acts in a socially responsible manner is not in accordance with the primary objectives of business. “What does it mean to say that the corporate executive has a ‘social responsibility’ in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers” (Friedman, 1970). Friedman contends that in so doing, the businessman places himself in a contradictory position in which he must, for example, refrain from pricing the company’s products too high to ensure that inflation does not result and damage American consumers (1970).
Friedman uses an extreme scenario to make his point. Seeking the highest possible return for a company’s product is entirely in keeping with the fundamental precepts of Capitalism. There is no consideration for genuinely unethical behavior in the way that businessmen interact and go about their work. One presumes that Friedman believes corporations are sufficient to
the task of policing their employees, of making certain that transgressions like insider trading simply do not occur. But in looking back over the morally reprehensible behavior that has typified American business in recent years, one is reminded that putting the inmates in charge of the asylum simply does not work. As such, it does not seem unreasonable to regard Friedman’s position as irresponsible, even dangerous.
There is an uncomfortable hint of the “just following orders” excuse in Friedman’s logic, which asserts that “in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporationand his primary responsibility is to them” (Friedman, 1970). If, as Friedman contends, the manager’s responsibility is solely to his superiors and that he bears no social responsibility beyond that, then there are no safeguards in place to ensure that unethical and illegal practices do not take place. In such a scenario, business ethics would seem to hold particular relevance. It may well be true that business is crucial to the well-being of the American economic system, but it seems a stretch to claim that the maximizing of profits is a social responsibility. As with Peter Drucker’s essay, Friedman plays fast and loose with the definition of ethics. Ethics are part and parcel of social responsibility, and business ethics can help make certain that businessmen understand the importance of ethical integrity, in and of itself.
Friedman goes on to separate “individual” social responsibility from social responsibility within the corporate paradigm. As an individual, the corporate employee may exercise moral integrity as a father, or as the member of a church community. But, Friedman argues that, in so doing he is acting as a “principal, not an agent” (Friedman, 1970). Because he is not
representing his employer when acting as an individual, he is upholding proper and accepted ethical social mores. But when he is pursuing the best interests of his employer, he is exempt from having to adhere to a social moral code. As the agent of a company’s stockholders, any attempt to apply company proceeds to “social purposes” is inappropriate because it renders him a “civil servant;” he is no longer a representative of corporate interests (1970). “If they are to be civil servants, then they must be elected through a political process” Friedman states, an awkward “apples-to-oranges” argument in that civil servants are constrained from behaving unethically and illegally (1970). But just because businessmen do not themselves function in the public sector, they are not absolved from the same human ethical duties that transcend all walks of life.
Those businessmen that actively support the kind of social responsibility that business ethics reinforce come in for criticism; Friedman accuses them of nothing less than subverting the common good of corporate America. “They are incredibly shortsighted and muddleheaded in matters that are outside their businesses but affect the possible survival of business in general” (Friedman, 1970). He cites the example of a businessman calling for wage and price controls, which would undermine the company’s financial well-being. Again, this is an extreme situation that precludes the importance of ethical behavior in less overt, but no less important, internal business activity. Friedman says that the shortsightedness of businessmen who promote social interests exacerbate public anger over corporate greed. But events in recent years have shown that it is the lack of ethical consideration, of social responsibility within the framework of business itself, that has done so much to promote frustration and mistrust of corporate America among the consumer public it purports to serve.
In “To Be Ethical or Not to Be: An International Code of Ethics for Leadership,” Ala’ Alahmad offers a very different notion of ethics and the nature of morality in the business environment. In particular, Alahmad considers the role that ethics, and an international code of ethical leadership, may come to play among business executives the world over. One of the more intriguing concepts of this essay is that humility is one of the most important aspects of ethical leadership, as put forth by Alahmad. Humility is essential not only to the executive, but Whereas Drucker and Friedman essentially argued that there is one set of ethical standards by which all must conduct business, Alahmad proposes that establishing a universal notion of right and wrong among executives will benefit the overall business climate. The most appealing aspect of Alahmad’s essay is that it proposes to encourage (not impose) business leaders to contemplate the meaning of right and wrong and the impact that their ethical, or non-ethical, decisions have on their businesses and on other businesses. Again, the top-down effect of ethical corporate leadership is key to establishing the kind of social responsibility that Milton Friedman claimed is not within the purview of businesses. Alahmad writes that ethical leadership “is the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships” (Alahmad, 2010). Two-way communications and the reinforcement of socially responsible behavior is a significant part of the process (2010).
In assessing the relative value of the Drucker, Friedman and Alahmad essays, it is significant that Alahmad writes in full knowledge of the scandals that have rocked the corporate/financial world over the past decade. When he writes of the United Nations’ Peace and Governance Programme and an international code of ethics for business leaders, he does so without the idealistic credo of a Friedman or Drucker concerning the role of business in a capitalistic society. And while the U.N. initiative may have been naïve and overreaching, one cannot ignore what occurs when corporate leaders abrogate any sense of ethical responsibility toward their employees or their customers.
Patrick Murphy’s essay also focuses on individual rather than collective corporate responsibility. Murphy’s assessment of articles that consider programmatic approaches to business ethics leads him to determine that more and better research is needed in order to effectively analyze and extrapolate what is meant by the term “responsibility” as it is used in corporate statements. Murphy dissects ethical responsibility based on specific social and business arenas, including corporate, consumer, social and legal (Murphy, 2010). In examining each of these business subsets, Murphy concludes that the key component of corporate responsibility is the individual bearer or subject of responsibility within the organization. In this, he is in agreement with Alahmad, who held that the display of ethical behavior among executives permeates the entire company.
Murphy argues that if social responsibility is to become integral, then it must be present throughout the company, beginning with the company’s adherence to legal ethics. As such, “legal responsibilities are the ones that should be viewed as the baseline” (Murphy, 2010). If the official bearer, or “keeper,” of the company’s ethical standards of conduct communicates core principles to the next layer of authority, to key stakeholders within the company, then the company’s ethical culture will spread to lower levels of authority. But buy-in and support at the intermediary level is crucial. As Alahmad argues, leadership must embody social responsibility if the rest of the company is to accept this mode of behavior.
According to Murphy, it is important that some definition or concept of responsibility be determined before effective and responsive business ethics program can be fashioned. Corporate Social Responsibility (CSR) is an attempt to infuse a well-rounded notion of ethics into the business world, both inside the corporate community and the community at large. For instance, the European Community seeks to integrate “external activities like philanthropy and volunteerism” into the mainstream of business activity (Murphy, 2010). This is a noble and high-minded goal but how best to accomplish it, as Murphy points out, should first be determined by a better (and comprehensive) understanding of how businesses function, both internally and in relation to the community.
Each of us learns rules of proper ethical conduct from an early age. We are taught that these rules are steadfast, and not to be bent or altered to suit our individual needs and desires. This is why they are called “standards” of conduct. For Milton Friedman and Peter Drucker,
who wrote their essays long before the “villain-ization” of America’s corporate culture, business ethics is an absurd idea imposed by those who would hamper the ability of business to function as the wealth-creating engine it is intended to be. For Alahmad and Murphy, whose opinions were formed in full knowledge of what can happen when morality is removed from the equation, business ethics is a pressing need, though care and deliberation must be taken in order to effectively and lastingly integrate an ethical standard within the business environment.
Alahmad, A. (2010). To Be Ethical or Not to Be: An International Code of Ethics for
Leadership. Journal of Diversity Management. 5, 31-35.
Drucker, P.F. (1981). What is “Business Ethics? National Affairs. 63, 18-36.
Friedman, M. (1970, September 13). The Social Responsibility of Business is to Increase its
Profits. The New York Times Magazine. pp. 122-126.
Murphy, P.E. (2010). The Relevance of Responsibility to Ethical Business Decisions. Journal
of Business Ethics. 90, 245-252.