Business ethics is a form of ethics that is applied to professional companies and solve moral problems in the business world. It is important to have it, so it can guide different businesses to have fair laws and codes in their work strategy. By having it, businesses understand right from wrong, what is fair standards of work and minimum wage. It is also important to investors for a company to have a strong ethical business because they want to know the company they are investing into is socially responsible and continues to grow the proper way.
Business ethics was insignificant in the business world until 1960s. At this time the Civil Rights Movement was taking place and in1964, the Civil Rights Act was passed. This was also the same time of the Cold War and Vietnam War. The wars caused the chemical industry to boost and take down the smaller businesses as well as hurt our environment from all the chemicals being exposed to the air. This infuriated the public and led them to protest the industry and larger companies. The companies decided to do something about all the complaints and decided to create a code of conduct and value statements. They also created a company objective, which included goals and social responsibility. (Fine 2014)
By the 1970s, business ethics became the official term in a conference that took place in 1974 at the University of Kansas by Normal Bowie, categorizing it into its own academic field. Throughout the decade, it expanded to challenge human rights issues such as labor, wages and determine safe practice of work, which then created the US Occupational Safety and Health Act of 1970. This act set the standards to protect workers’ rights and reduce unsafe work environments by create health and safety programs every company had to abide to. The most imperative event from the 70s was the passing of the Foreign Corrupt Practices Act, which made it illegal for American companies to bribe foreign companies. This is important because it not allows the government to have control over the US companies that produce internationally.
It was not until the 1980s that business ethics was introduced as an official business course in over 500 different options to around 40,000 students. Around this time, many firms began to create their own ethical codes and structure in their company due to the profuse amount of scandals occurring due to the savings and loans crisis. Because of these events, in the 90s, the Defense Industry Initiative on Business Ethics and Conduct was created to protect and promote corporate ethics.
In contemporary society, business ethics is now a norm and is incorporated in every business and firm. For as long as the concept has been evolving, over 40 years, the definition of business ethics has not changed since it was created. (Fine 2014)
For a business to be ethical, they must follow twelve different principles. The first one is honesty; to always be honest and never to intentionally deceive others to succeed or get ahead. The next principle is integrity, which is when executives will always do what they believe is right no matter what kind of pressure they are being put under, and always fight for what they believe in. After integrity, there is promise-keeping and trustworthiness is following through with any verbal or written promise or commitment that is offered. If promises are kept, this leads to the company being loyal, meaning they are trustworthy and companies can rely on executives for their judgments and actions. Executives also need to be fair with the decisions they make and not abuse their power to make unfair rulings, as well as treat everyone fairly no matter the person’s ethnicity. They also need to be more open minded and be able to accept when they are wrong. The next principle is to be able to concern for others and to make sure that whatever business objective is being attempted to accomplish must be done in a way that it will not harm anyone. From having a concern of others, there also needs to be respect for others. Executives must respect every individual’s needs, rights, and privacy and be able to respect the person no matter that their race, culture religion or sex. The next principle is that every company must withstand the laws and rules that are set forth relating to their business. They then they need to be able to commit to excellence by constantly trying to improve in an accountable manner. There also must be a responsible leader that can be a strong role model to the rest of the employees in the business. Having a strong leader will give the business a good reputation, if it is done with respect and scold any inappropriate behavior. The final principle is accountability. An executive need to understand that they are personally accountable for every decision they make and know when making it how it will affect the company and the employees. (Josephson Institute of Ethics) All of these principles lead to a business having a position of corporate social responsibility.
Today in modern society, corporate social responsibility has been implemented into many businesses. Looking at all the principles applied to having an ethical business, companies are applying ethics and corporate social responsibility more than ever. Today, a business is not successful just for profit they make or how big they are. A lot of businesses are now taking advantage of their popularity and influence on their consumers by supporting things they believe in.
Corporate social responsibility is important to a business because it can connect with customers, improve the brand, and help employees feel they have more of a role. A business can engage with customers by having a purpose to their product. Some companies make their product more expensive so that some of the profit can go to a good cause. For example, TOMS, “With every product you purchase, TOMS will help a person in need.” They engage with the customers by showing them their goal is to also help others in need.
Another factor is improving the brands name. By the business being active and sharing their beliefs, they can engage more with customers, and more customers are more willing to buy their products if they agree. A company puts their name out by being active with the community. The only set back to this is if a customer does not agree with what the company is marketing, they may not want to buy any more of their products.
Employees benefit from corporate social responsibility by feeling they are worth more than just an employee. They work their normal job and have the benefit to help work in social events. This gives them a sense of pride to be able to help others and work for a great cause. (Murphy 2018)
One example of corporate social responsibility is Levi’s CEO and President, Chip Bergh. Levi’s is a company that sells quality denim. Bergh used Levi’s reputation to take a stand on gun violence prevention. Bergh states in his website that although this has nothing to do with jeans, it is still an important event that we should all be aware of. Bergh knows he can help by using his company name to make a difference. He started a fund that goes to nonprofits to help spread an end to gun violence in America. In addition to using his integrity to fight for his beliefs, he also has a concern for his employees that have had experience or have family with experience of gun violence. Bergh provides to his employees by giving them five hours a month with pay to volunteer and help expand political activism. He is a great example of a businessperson engaging in corporate social responsibility to express his beliefs and try to make a change through the influence of his company. Companies like Levi’s believe that there is more of a purpose in having a business than just making money. Their only responsibility is to maximize profits, expand and treat employees equally, but instead going above and beyond the requirements to protect our environment and help with social welfare.
Although corporate social responsibility is the new norm in business, there are some disadvantages to it. The first con are the high costs needed to be socially responsible. According to Alex Edmans, smaller companies struggle to do this because they can only employ around 10 to 200 people. They wanted to use social media or work with the community, they would have to hire more employees to get it done, and they might not have enough money to invest into it. If a small company were to try to do it, there was a chance their business could fail because they cannot afford all of costs to have social media, training or anything else needed to be socially responsible. (Lombardo 16)
Business that have corporate social responsibility also run into the problem of shareholder resistance. Shareholders look for business with strong business ethics because they want to be able to invest into a trustworthy company. They also want to work with a company that is maximizing their profits in a proper manner. By adding corporate social responsibility, companies are using their profit for social responsibilities. Some of the companies may profit from it, but most end up losing money from it. This turns investors away from the company, or if they are already a shareholder, they try to have businesses refrain from doing so.
Lastly, engaging in corporate social responsibility can lead to greenwashing, “practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, technology or company practice.” (Rouse) This can make a company look more environmentally friendly than they are. Management’s duty in a company is to maximize shareholders profit. By adding corporate social responsibility, this goes against what managers are supposed to do in their job description. A shareholder could choose to terminate a manager if they are not doing what they promised, which puts them in fear. This causes many businesses to say they want to become socially responsible, but never follow through for the fear of what the shareholders may do. (Lombardo 16)
Despite the disadvantages to corporate social responsibility, many businesses today don’t have an option but to follow business ethics. Adding social responsibilities to their name is a big advantage for the business as well as for their employees and consumers. Corporate social responsibility follows business ethics and makes a company more loyal to the consumers by upholding their morals and beliefs by interacting with the community and helping improve the environment. In my opinion, bringing corporate social responsibility into businesses is a great idea and although it may help businesses attract more consumers, it helps make a change in things that many of us cannot afford to do individually.
- “Corporate Social Responsibility.” Ethics Unwrapped, McCombs School of Business – The University of Texas at Austin, ethicsunwrapped.utexas.edu/glossary/corporate-social-responsibility.
- Fine, Lawrence. Business Ethics, 1 Feb. 2014, lawrencefine.com/businessethics/the-history-of-business-ethics/.
- Kielmas, Maria. “Pros & Cons of Corporate Social Responsibility.” Small Business - Chron.com, Hearst Newspapers, 29 June 2018, smallbusiness.chron.com/pros-cons-corporate-social-responsibility-56247.html.
- Lombardo, Crystal. “Pros and Cons of Corporate Social Responsibility.” Vision Launch, 15 Jan. 2017, visionlaunch.com/pros-and-cons-of-corporate-social-responsibility/.
- Murphy, Chris B. “Why Is Social Responsibility Important to a Business?” Investopedia, Investopedia, 18 June 2018, www.investopedia.com/ask/answers/041015/why-social-responsibility-important-business.asp.
- Rouse, Margaret. “What Is Greenwashing? - Definition from WhatIs.com.” SearchCRM, WhatIs, searchcrm.techtarget.com/definition/greenwashing.
- Rushton, Daniel Jonathan, et al. “12 Ethical Principles for Business Executives - Josephson Business Ethics.” Exemplary Business Ethics & Leadership, Josephson Institute's, 31 Dec. 2016, josephsononbusinessethics.com/2010/12/12-ethical-principles-for-business-executives/.
- “Social Responsibility Archives.” Levi Strauss, www.levistrauss.com/unzipped-blog/tag/social-responsibility/.