2 Discussions w6 - 5010

Toward an Applied Meaning for Ethics

in Business D. Robin

ABSTRACT. The field of business ethics has been active

for several decades, but it has yet to develop a generally

agreed upon applied ethical perspective for the discipline.

Academics in business disciplines have developed useful

science-based models explaining why business people

behave ethically but without a generally accepted defi-

nition of ethical behavior. Academics in moral philosophy

have attempted to formulate what they believe ethical

behavior is, but many seem to ignore or reject the basic

mission of business. The purpose of this article is to offer

one view of ethics in business that accommodates the

mission of business. This purpose is achieved by

reviewing the mission of ethics in applied disciplines like

business and melding it into the mission of business in

capitalistic societies.

KEY WORDS: business ethics, business mission, ethics,

exchange of values, mission of ethics

The field of business ethics has been active for

several decades, but it has yet to develop a generally

agreed upon body of knowledge or an applied eth-

ical perspective for the discipline. What exists are

valuable contributions from business academics

focusing on the science of ethical performance and

valuable contributions from philosophers focusing

on moral philosophy without a true nexus between

the two. Academics in business disciplines have

developed useful science-based models of how and

why business people behave ethically or unethically

using personally perceived views of what the con-

cept ‘‘ethical’’ means (e.g., see Ferrell et al., 1989;

Goolsby and Hunt, 1992; Hunt and Vitell, 1986,

1993; Jones, 1991; Trevino, 1986). These empiri-

cally based models lack a universally agreed on def-

inition of ‘‘ethical.’’ Alternatively, academics in

moral philosophy have attempted to formulate what

they believe is and is not ethical behavior in business,

but many seem to ignore or reject the basic mission

of business. The purpose of this article is to present

one approach, with input from both disciplines that

business academics and business practitioners can

accept and apply to their work.

Rationale for the scientific approach/

normative approach gap

Philosophy has a long tradition of separation of the

empirical ‘‘is’’ of science from the prescriptive

‘‘ought’’ of moral philosophy. Basically, moral phi-

losophy limits the use of empirical ‘‘facts’’ to the

description of ethical situations. Then, logic, usually

based on a specific philosophical belief (e.g., Kantian

Deontology), is used to ‘‘solve’’ that ethical situa-

tion. A 1994 discussion of the connection between

the empirical side of business and its normative ethics

provides an introduction for this discussion. The

April issue of the Business Ethics Quarterly for that

year contained several important articles on the

topic. One of the articles by Weaver and Trevino

outlined ‘‘three conceptions’’ of the normative/

positive link in business ethics (p. 129). Tom

Donaldson, in another of these articles, stated a

preference for the ‘‘symbiosis’’ conception from the

Weaver and Trevino analysis. He states ‘‘We must

recognize that research in business ethics, or in any

field of applied ethics, requires both normative and

empirical insight, even if we refuse to adulterate the

distinctive logic of each (p. 165).’’

The symbiotic links between moral philosophical

approaches and business approaches suggested by

Donaldson (1994) and described by Weaver and

Trevino (1994) are likely to provide only limited

help in advising practical business behavior. In

describing this approach Weaver and Trevino state:

Journal of Business Ethics (2009) 89:139–150 � Springer 2008 DOI 10.1007/s10551-008-9990-y

‘‘In sum, symbiotic collaboration allows each ap-

proach to business ethics to benefit from the scrutiny

of the other while remaining grounded in its own

distinct assumptions, theories and methods’’ (p. 133).

There is even some belief that it is inappropriate

for moral philosophy to offer any advice to applied

disciplines. Beauchamp (1991) states it this way:

‘‘Philosophical theories are, of course, about

morality, but they are primarily attempts to under-

stand or unify morality, not attempts to develop

moral applications or to specify the practical com-

mitments of moral principles. … From this per- spective, there is no reason to think that a developed

moral philosophy such as utilitarianism, Kantianism,

Aristotelianism, right-based theories, and so forth,

would give us any edge or advantage in specifying

rules or fashioning policies. … There are, then, several forms of skepticism about applied ethics and

whether it expresses what moral philosophy is good

for’’ (p. 37). Nevertheless, it does seem appropriate

to adopt some of the core ideas from moral philos-

ophy in order to (symbiotically) help guide business

practice, even if the complete systems these philos-

ophies propose are inappropriate in the practical and

applied world of business.

The effects of the scientific approach/normative

approach gap can be observed in the instructional

literature for discipline of business ethics. While

there are a multitude of books on business ethics,

there is no unified body of knowledge on the sub-

ject. Each book seems to take its own approach,

with many of the ‘‘textbooks’’ being a collection of

readings and cases used to illustrate certain points.

Within other business disciplines, as well as the

physical sciences, social sciences, and the humanities,

there are usually many textbooks on the subject that

are very similar and deliver the mostly unified body

of knowledge in their areas. There is nothing similar

in business ethics. That fact is particularly disturbing

because the academic literature on the topic has been

filled with articles on the subject for well over two

decades. For example, the Journal of Business Ethics

began publishing in 1982, and many of the top

journals in the business disciplines contained articles

on the topic in the 1970s.

This article offers one approach for defining the

concept of ‘‘ethical’’ within the applied domain of

business that can help bridge the scientific approach/

normative approach gap. A logical beginning point is

to establish what moral philosophy and business are

attempting to achieve – the mission of ethics and the

mission of business. The discussion begins by

defining the fundamental purpose or mission of

ethics. Then, it asks how pursuing of the funda-

mental purpose of business can still achieve the

mission of ethics. The discussion continues with a

proposed solution. This solution is probably not the

only approach, but simply an approach. Other

approaches should be solicited as well, and the pri-

mary test for all approaches is if they can produce

practical managerial advice that accommodates both

the mission of business and the mission of ethics.

The mission of ethics

The idea that ethics has a mission is not new.

Philosophers like Aristotle, Mill, Hobbes, and, in the

twentieth century, Warnock suggest that the pur-

pose of ethics is to provide an environment that

allows people to live a more structured, happy life

than would exist without ethics (Warnock, 1971).

Ethics cannot make the lives of people perfect in the

empirical world that exists, but ethics can prevent, or

decrease the amount of, certain harms. What the

discipline of business ethics can and must do is to

provide an approach for improving the lives of the

stakeholders who, with business, live in an imper-

fect, and sometimes harmful, world.

Ethics is often defined, at least in part, as acting to

prevent a substantial harm to others when an indi-

vidual or group has an opportunity to do so for their

own benefit. Velasquez puts it this way, ‘‘Moral

standards deal with matters that we think can seri-

ously injure or seriously benefit human beings’’

(Velasquez, 2002, p. 10). Beauchamp states, ‘‘Moral

judgments … function to condemn human plans or activities … that make things ‘go badly’ (for others); and … morality functions to limit selfish actions that cause harm to others’’ (Beauchamp, 1982, pp.

25–26). By definition, stakeholders represent the

groups most subject to potential benefit or harm by

business. For the purpose of this article, stakeholders

include employees, customers, other supply-chain

companies, stockholders (as a special group), and

communities in which the company operates.

All groups are directly impacted by business, and all

are candidates for potential benefit and/or harm.

140 D. Robin

Traditionally, managers are supposed to operate as

agents for stockholders, and the mission of stock-

holders can be considered the mission of business,

which is why they are considered a special group

(e.g., see Friedman, 1970).

A useful analogy for describing the mission of

ethics is the comparison of human life to the life of

animals in the jungle, where reasoned ethics prob-

ably does not exist. Animals in the wild face con-

ditions in which power, in many forms (i.e.,

strength, speed, cunning), as well as chance, dictate

the length and quality of their lives. With the higher

intelligence of humans, the possibility for the abuse

of power is much more of an issue than for an

animal’s daily life in the jungle. Thus, the mission of

ethics is to ameliorate the abusive use of power and

reduce the negative impact of chance in the every-

day lives of humans. Realistically, improving the

human condition of stakeholders within the natu-

rally occurring ‘‘human jungle’’ provides an appro-

priate test for business ethics.

What would an ethical society do to help establish

an environment for improving the lives of its peo-

ple? Such a society would certainly want to establish

an efficient and effective economic system. A system

that produces the opportunity for greater economic

welfare is very important in facilitating a well-

structured, happy life for the citizens of that society.

It is clearly not the only thing that an ethical society

would do, but it is one factor of particular impor-

tance to business and business ethics. However, since

few, if any, human social systems work perfectly, an

ethical society would also want to minimize the

abuses of the ‘‘imperfect’’ economic system selected,

while still attempting to maintain the creativity,

efficiency, and effectiveness of that system. This

society would also expect the companies operating

in that system to behave in a manner that minimizes

the abusive use of power and reasonably assists their

stakeholders with the negative impact of chance.

The business mission and relations

with stakeholders

Businesses are chartered and controlled by society

with the purpose of improving the economic welfare

of its citizens in an efficient and effective manner.

Given its pervasiveness throughout the industrialized

world, capitalism is accepted and assumed to be

fundamental for the rest of this analysis. Thus, the

assumed mission for business for the purposes of this

analysis is the mission of capitalistic firms. The

question for business ethics then becomes how to

make the practice of capitalism more ethical (i.e., less

potentially harmful to its stakeholders).

Thus, an important issue for this analysis is

understanding the nature of business interaction with

stakeholders. Each stakeholder group interacts freely

with business, and it does so with the expectation of

gaining value from the relationship. Customers buy

the products or services of the firm because they

believe that those products/services will provide

more value to them than the money and other value

they have to give. Similarly, employees work for

business because they expect to gain more value than

they give; suppliers also expect more from the

relationship than they give; and communities seek

relationships with business that produce a net gain as

well. On the other side of these relationships, busi-

ness also expects to gain more from their relation-

ships with stakeholders than they give. Because each

party to these exchanges values things differently, it

is possible and usual that both business and its

stakeholders gain from the relationships. This posi-

tive-sum outcome is the basis for the benefits that an

economic system like capitalism provides society –

the win–win situation.

To avoid confusion, it is important that this

concept be differentiated from the ‘‘Stakeholder

Theory of the Modern Corporation’’ by Freeman

(2002). Freeman’s theory changes the relationships

between the corporation and its stakeholders to one

that is managed with the purpose of making all

stakeholders equal. For comparison, this approach

accepts the naturally occurring relationships between

the organization and its stakeholders and is an

attempt to make those relationships more ethical.

While participation in the exchanges between

business and its stakeholders represents a free choice

by each party, there is often a large difference

between the power of business and the power of the

stakeholders in these exchanges. By itself, this power

difference is neither bad nor good, but when the

difference exists, there is a chance of abuse. Recall

that the abusive use of power and chance was used to

describe the ‘‘jungle-like’’ environment that ethics is

intended to limit. Thus, it is at this interface between

Toward an Applied Meaning for Ethics in Business 141

the stakeholders and business that the application of

business ethics is most appropriate.

The power differential between business and its

stakeholders can arise for a number of reasons. For

example, one party to the relationship may have

limited options while the other party has several. In

that case, the party with limited options has less

power. A very important basis for a difference in

power is a difference in knowledge and/or infor-

mation. This power differential may historically be

the most abused of all power differences. Differences

in financial and/or market access strength are often a

basis for power differences in supply-chains, as well

as, other stakeholder relationships. It is impossible to

identify the entire basis for power differences

because they often depend on the characteristics of

the relationship based on a particular history, time

and circumstance, but it is important to note that

they exist.

The tenets developed thus far for a relationship

between business and ethics mandate that, (1) busi-

ness must be allowed to operate efficiently and

effectively, (2) business ethics must operate to reduce

potential harm to stakeholders, and (3) stakeholders

are sometimes at a disadvantage when exchanging

values with business. The mission of business and

ethics must be achieved from within the business

system supported by society and within the laws of

that society. Further, in an ideal situation, both the

business mission and the mission of ethics would

provide support for the other.

A proposed meaning for ‘‘ethics’’

in business ethics

Since (1) ethics is defined in terms of harm or

potential harm to an individual or group, (2) the

people most likely to be harmed by business are

defined as stakeholders, and (3) stakeholders operate

in free exchanges with business, then an appropriate

approach for defining ‘‘ethics’’ in business ethics

should come from examining the ethics of exchange

between these groups. The requirements for estab-

lishing and maintaining an ethical exchange between

business and its stakeholders should satisfy both the

business mission and the ethics mission, as well as fit

within the normal expectations of society. Stake-

holders and business must both continue to have free

choice, but weaknesses of stakeholders must not be

exploited.

What is the ‘‘ethics of exchange’’ between par-

ticipants who are not coerced? Here some (symbi-

otic?) help can be derived from philosophy. In his

Nicomachean Ethics, Aristotle discusses the theory of

exchange within the treatment of his virtue of justice

(NE 1132b21–1133b30). Aristotle’s approach is used

by Koehn in an article entitled ‘‘Toward an Ethic of

Exchange’’ (1992). In it she states ‘‘that the practice

of exchange properly understood reveals itself to be

inherently, ethically good’’ (p. 342). Aristotle’s

arguments tie an ethics of exchange to the intuitively

and philosophically satisfying concepts of fairness and

justice. Kohen’s evaluation provides some support

for using an ethics of exchange as a basis for business

ethics. However, it should be noted that all

exchanges are not ethical. Child pornography and

slave trading are examples of unethical exchanges.

Prudent societies should and do limit such

exchanges. Further, business operates at the will of

society and must obey its dictates in order to exist.

However, the freedom of choice should be main-

tained in most exchange relationships.

Unfortunately, Aristotle’s zero-sum reasoning

found in his ideas of proportionality (e.g., NE

1133a31–33) is inappropriate for business exchanges

where positive-sum outcomes and different views on

value by participants occur naturally. Another useful

concept comes from Immanuel Kant. Borrowing

from Kant, two things seem to fill the requirement

for ethics in exchange – attempts at fairness and basic

respect for people. Kant uses these two concepts as

fundamental to the meaning of ‘‘being ethical’’ (e.g.,

see Bowie, 1999). However, these Kantian ideas are

recommended without his formula-based approach

for applying them. Further, Kant demands that

people obey ethical prescriptions because it is their

duty to do so – his categorical imperative. However,

business exchange relationships with stakeholders

focus on hypothetical imperatives – if you want ‘‘B’’

you must do ‘‘A.’’ The ethical prescriptions sug-

gested in this article focus on making the normal

hypothetical imperatives with stakeholders more

ethical. Thus, only the fundamental concepts of

fairness and respect are borrowed from Kant.

The concepts of fairness and respect in exchange

relationships can be used to address the current

ethical issues most discussed in business ethics

142 D. Robin

literature. Using the table of contents from several

‘‘textbooks’’ on business ethics and business and

society, the following list of concerns in stakeholder

relationships with business was captured. Top man-

agement has a special fiduciary relationship with

stockholders – that of principal to agent. Cases of

CEO and top management excesses are easily eval-

uated in terms of fairness and respect for stock-

holders. For customers, issues related to products,

advertising, personal selling, and customer safety can

also be evaluated in terms of fairness and respect in

exchange. For employees, fairness and respect in

exchange can be used to evaluate issues like dis-

crimination, promotion, due process, employment

at will, and employment safety. Relationship build-

ing with suppliers and communities can easily be

analyzed using fairness and respect in exchange.

Finally, some environmental issues can be evaluated

using fairness and respect in exchange. Firms can

make accommodations for the environment in the

everyday flow of business, when doing so adds to

business efficiency. However, many of the concerns

about the environment will have to be dictated by

society through its legal system, much as it is today in

most industrially advanced countries. An elaboration

of this and similar topics appear in a latter section

entitled ‘‘Societal Desires Beyond Economic

Welfare.’’

Fairness

The two concepts for defining ethics in business are

discussed in sequence beginning with ‘‘fairness.’’

Each transaction with a stakeholder group is

expected to be a fair process, and business policies,

procedures, and rules should be in place to facilitate

fair treatment. Borrowing from MacIntyre (1988),

each situation, with its individual history, time, and

context, must be considered, in much the same

manner that common law considers them, to

determine the most ethical approach. That is, each

set of conflicting claims about fairness must be

weighed by business and unbiased judgments made

about their validity. These processes undoubtedly

produce what is called ‘‘imperfect procedural jus-

tice’’ (e.g., Beauchamp, 1991, pp. 357–358), but that

type of justice is often the best that can be achieved

and exists in most legal systems. The complexities

and unknowns of the empirical world limit business

to the best that they can do.

Distributive justice is another form of fairness. It is

concerned with the total distribution of value from

all transactions with a stakeholder group. There are

several candidates for a principle of distributive jus-

tice, including but not limited to (1) each an equal

share; (2) each person according to individual need;

(3) each person according to that person’s rights; (4)

each person according to individual effort; (5) each

person according to societal contribution; (6) each

person according to merit; and (7) each person

according to free market exchanges (Beauchamp,

1991, p. 348). No single approach seems to work for

all groups and institutions, or even for a single group

or institution in every situation. Borrowing an

example from Robert Solomon’s discussion of

Aristotelian ethics to provide an analogy: ‘‘Being a

‘tough negotiator’ is a virtue in business but not in

babysitting’’ (1992, p. 327). The analogy is: an

appropriate distributive justice in one setting, say a

free market allocation in business, may not always be

appropriate in another, say a family. However, in

many cases there does seem to be a fundamental

approach that is relevant for a single group or

institution most of the time. This approach is basic to

the mission and values of that group or institution

and helps define how it intends to operate in most

situations. This fundamental approach becomes the

default position when special situations do not exist.

For business, that fundamental approach is suggested

to be libertarianism. Other professions and organi-

zations can, and sometimes should, chose different

approaches.

The selection of libertarianism as the fundamental

form of distributive justice for business is based on its

previously discussed relationships with stakeholders.

The libertarian approach focuses on numbers 6 and

especially 7 in the preceding list of approaches to

distributive justice. The selection of merit applies to

the business desire for efficiency and effectiveness in

attaining its objectives. Merit must be used within

the system to attain maximum effectiveness, and it

would seem to flow naturally from applying the

concept of fairness to relationships with employees.

The idea of free market exchanges (number 7) is

fundamental to libertarianism. For example, under

Robert Nozick’s view of libertarianism, ‘‘The fol-

lowing inductive definition would exhaustively

Toward an Applied Meaning for Ethics in Business 143

cover the subject of justice in holdings. (1) A person

who acquires a holding in accordance with the

principle of justice in acquisition is entitled to that

holding. (2) A person who acquires a holding in

accordance with the principle of justice in transfer,

from someone else entitled to the holding, is entitled

to the holding. (3) No one is entitled to a holding

except by (repeated) applications of 1 and 2’’

(p. 151). It also implies that each individual or group

is responsible for making the best exchange of values

that they can. Since the relationship between busi-

ness and its stakeholders is one of free market

exchanges, the selection of libertarianism should not

be surprising. Further, any attempt to impose an-

other fundamental definition would likely destroy

the efficiency and effectiveness of business, reduce

the positive-sum outcomes from these relationships,

and fundamentally change business into something

remarkably different than it is today. The writings

of Robert Nozick on ‘‘Distributive Justice’’ and

especially ‘‘The Entitlement Theory’’ (1974, pp.

149–164) describe this approach.

While libertarianism is a natural fundamental

choice for business, other approaches may some-

times be warranted, subject to the history, time, and

context of the situation. For example, society

through its legal system can grant rights to individ-

uals or groups, and businesses must follow the laws

of society. Thus, businesses may need to use a dis-

tribution based on rights – number 3 from the

preceding list. An example is the ‘‘Americans with

Disabilities Act’’ of 1990 which grants a collection of

rights to disabled Americans, and business must

honor those rights. Different situations may call for

other selections from the list. The impact and

importance of society’s wishes for its economic

system is further discussed in a latter section.

Respect for people

The other dimension of treating stakeholders ethi-

cally is respect. Respect for individuals simply means

treating people as human beings and not just a means

to an end for the company. Certainly, each stake-

holder group is a means to an end for a business,

and as noted earlier, the company is a means to an

end for its stakeholders in their mutual exchange

of values. The requirement of respect means

understanding that stakeholders are also humans. It

means maintaining a degree of empathy for the

stakeholder and adapting to the special human needs

that they have. Respect means treating each stake-

holder group as you would like to be treated if you

were on the other side of the exchange. In an article

by Murphy and Enderle entitled ‘‘Managerial Ethical

Leadership: Examples do Matter,’’ they review the

behaviors of four former CEOs (1995). One of their

summary observations is that ‘‘these persons seem to

have an uncommon concern for how their decisions

affect others…Furthermore, this characteristic en- hanced their respective firms’ ability to create

worker participation, customer commitment, com-

munity involvement, and other desired stakeholder

actions’’ (p. 125).

It should be emphasized that fairness and respect

are applied from within the capitalistic business

system. For example, if business must cut its work

force to meet business needs, then the requirements

of fairness and respect for people apply to the process

involved in the layoff, and not to the question of

whether the layoff should occur. Accepting the two

goals of fairness and respect means that the mindset

for every business should be to continue doing those

things necessary to satisfy the mission of business, but

do so with fairness and respect in their relations with

stakeholders. Ideally, these two requirements should

be an active and daily part of the workplace envi-

ronment and a significant part of the culture and

core values of the company.

Synthesizing and summarizing the approach

Implementing these requirements should satisfy the

mission of ethics by reducing the abusive use of

power. Stakeholders should be no worse off in their

normal relations with business and in some (perhaps

many) cases, they should be much better off. Fur-

ther, with these requirements, businesses should be

better able to satisfy the expectations of the society

that licensed them. That is, business should be able

to provide for the economic welfare of society in an

efficient and effective manner but also find a way of

doing so that would minimize the negative impact

on the citizens of that society. Of course, like all

social systems, capitalism is operated by humans with

all of their strengths and frailties. On occasion, some

144 D. Robin

people will not behave ethically, and society must be

ready to correct serious unethical behavior through

legal constraints and directives. In fact, much of

consumer protection legislation, labor law, contract

law, and shareholder protection legislation, such as

the recent Sarbanes-Oxley in the U.S., has occurred

because of ethical abuses by businesses.

The concepts of fairness and respect have a direct

meaning for describing how business should treat

stakeholders, but it also implies other activities.

Business should treat each stakeholder group as if

they were partners in the success of the firm. This

approach works well within and between all business

functions, and it can work well with all of the

stakeholder groups. Other activities are implied by

the concepts of fairness and respect. Promise-keep-

ing is an example of treating stakeholders with fair-

ness and respect. Keeping both implied and formally

stated promises implies fair treatment and provides

basic dignity for the impacted stakeholders. Another

example is honesty in both behavior and commu-

nications. Being honest with stakeholders is another

dimension of both fairness and respect. Still another

dimension is transparency and openness with stake-

holders. Being open is one way to show respect for

the individual, but of course, it is constrained by the

need to protect intellectual property rights.

Important issues in applying this definition

of ethics

Three issues arising from applying this definition of

ethics are explored to develop a fuller understanding

of what has been proposed. The first issue concerns

the boundaries of commitment for business. What

level of commitment is required to satisfy the ethical

prescription of fairness and respect? How much is

enough? How much is too little? The second issue

looks into the synergistic effects from applying this

approach to the mission of business. For an applied

definition of ethics in business to be practical enough

to be accepted and used by businesses, it must allow

business to achieve its mission within its normal

competitive environment. The third issue explores

the interface between the domains of business ethics

and role of society/government. Some examples

relating to these issues appeared earlier, but this sec-

tion provides elaboration and focus on the subject.

The boundaries of commitment for business

There is no universal, specific formula for estab-

lishing the boundaries for business ethical commit-

ment. Only a general guideline can be created, and

that guideline must be applied within the specific

history, time, and context of the situation. The

guideline suggested requires a search for balance

between (1) the seriousness of harm to the stake-

holder and (2) the ability of the firm to help, given

the existing constraints of the market. The latter

guide simply recognizes that the ethical ‘‘ought’’ is

always constrained by the practical ‘‘can.’’ The fol-

lowing examples illustrate the attempt to balance

these two criteria.

Issues arising from situations external to business

The issues discussed here arise from conditions that

are mostly beyond the control of the business they

impact. Difficult situations occur naturally as part of

human lives. Natural and human-made disasters

cause problems for businesses and their stakeholders.

Neither business nor its stakeholders can avoid it.

Further, business cannot fully protect its stakeholders

from the impact of this jungle-like environment, nor

should that be expected by society if full economic

benefits of a system like capitalism are desired.

Operating within the system still requires that busi-

ness try to soften the blow of this environmental

impact on their stakeholders. The amount of that

effort is best determined by considering the history,

timing, and context of the situation, but always

directed by the intent of making the lives of its

stakeholders better, subject to the needs of the firm.

As an illustration involving employees, consider

the Boeing Corporation’s position immediately after

the 9/11 attacks on the World Trade Towers. They

guessed correctly that people would choose to fly

less, and that airlines would not need new equip-

ment for the near future. Thus, they were faced with

the business fact that they needed much less of their

labor force than they currently had employed, and

layoffs were necessary for the business to survive. For

Boeing and its employees, that was the world of

‘‘What Is.’’ The ethical world of ‘‘What Ought to

Be’’ becomes important in how the lay-offs were

handled. The company was responsible for mediat-

ing as best it reasonably could against the impacts

of this unpredictable disaster for its employees.

Toward an Applied Meaning for Ethics in Business 145

In the context of this particular example, where the

company was legitimately concerned about its own

survival, their attempts at mediation probably had to

be somewhat limited. However, even within these

conditions, they had the ethical responsibility to treat

their employees fairly and with respect. That approach

includes honest communication and behavior,

openness, and basic respect for the fact that

employees are humans, and not physical assets like

plant or equipment which could be easily cast aside.

One example involving customers is the now

famous Tylenol poisoning case. The company had a

viable product that was an effective pain reliever

when a sociopath began injecting cyanide into the

product at the retail level. Again, the world of

‘‘What Is’’ became very jungle-like for the makers of

Tylenol and their customers. Behaving fairly and

with respect toward their customers required

considerably more effort and expense than in the

previous example because in this context, human life

was involved. McNeil Labs, the makers of Tylenol,

did what was needed in order to respond ethically.

They removed the product from the market and

bought back unused portions in order to protect the

lives of their customers. Johnson and Johnson was

the parent company of McNeil Labs, and it is

interesting to note that their CREDO essentially

states that each stakeholder group is to be treated

fairly and with respect (see www.jnj.com).

These two examples illustrate how an extreme

and unexpected jungle-like environment can have a

great impact on business’ relationship with its

stakeholders. However, jungle-like conditions do

not require the dire events that existed in the first

two examples. An example of the impact of a mar-

ket-related external impact occurred at the end of

2003 when R. J. Reynolds Tobacco Company laid

off a substantial portion of its work force in North

Carolina because the company existed in a declining

domestic tobacco industry. However, the ethical

requirements are the same. The lay-offs had to occur

with attempts at fairness and respect toward its

impacted employees.

Issues arising from direct interactions with stakeholders

Unlike previous examples, these issues are events

over which business has substantial control. For

example, power differentials between business and

its stakeholders can occur for several reasons, some of

which were noted earlier (e.g., limited options by

one party, differences in knowledge or information,

and financial strength or market access). These

conditions can limit or obscure the best options for

stakeholders in their relations with business. Thus,

even if the stakeholders’ choice is freely made, they

may not be in position to make their best selection.

While businesses should not put themselves in the

position of deciding what is best for the stakeholder,

they should attempt to develop empathy for stake-

holders in the context of the situations they face.

This empathy, combined with an attempt at fairness,

requires that business try to understand what the

stakeholder group would desire, or how that group

would likely proceed, if there were no basis for the power

difference. Then, the appropriate ethical reaction is an

attempt to act with fairness and respect in response

to those stakeholder desires. The process can be

difficult and imperfect, as any new product manager

knows when s/he attempts to determine what

potential customers want. However, the business

should do a reasonable amount based on the history,

timing, and context of the situation. Stakeholders

cannot ethically demand what is reasonably beyond

management’s ability to provide. What is required of

business is neither an excessive nor severely limited

effort. Much good to stakeholders, society, and

business is likely to accrue from a reasonable attempt,

and that is compatible with the previously defined

role for business ethics.

As a general example of this approach, sometimes

stakeholders do not know that they are treated

unfairly and/or without respect. Then, the question

of why the firm should be concerned if the stake-

holder does not know that they are being treated

unfairly or without respect can be answered in two

ways. One response is simply that it is the ethical

thing to do according to the tenets developed earlier.

Another response is that it is likely that the stake-

holders will eventually find out, with disastrous

results for the firm. For example, management at

Johns-Manville (now Manville Corp.) kept the fact

that asbestos is a deadly product for both their cus-

tomers and employees secret for about three decades.

Neither stakeholder group knew about the problem,

and it might have seemed that the company got

away with it. Further, the company was within the

existing legal limits of fibers per unit volume for

most of that three decade period (Sells, 1994,

146 D. Robin

pp. 76–90). However, when the problem was dis-

covered, the company was severely damaged. It was

reorganized, and 80% of its profits went to pay

claims against it for many years. Thus, satisfying the

law, but not the fairness and respect criteria of ethics,

was not enough to protect the company.

Synergies with the mission of business

While fair and respectful interactions with stake-

holders are defined as ethical behaviors, it is

important to note that they are also trust-building

factors. That is, by pursuing ethical behavior with

stakeholders in this manner, business is also building

important trust links with each group. Each stake-

holder group then begins to trust the business to

treat them fairly and with respect. Gaining stake-

holder trust can become a performance multiplier for

business, thereby helping to achieve the business

mission while also satisfying the ethics side of busi-

ness ethics – a result with positive outcomes for both

missions. Since the purpose of this article was to

offer one approach for satisfying both goals, that

purpose is met. There may be other approaches that

satisfy both missions and this attempt should be

considered as only a beginning. Specific stakeholder

examples follow.

Relations with employees

Employees are often the most important assets

of a company even if they typically do not appear

on the firm’s balance sheet. Further, in the knowl-

edge-based, service-oriented economies of many

industrialized countries, they have become more

important assets. How can a company get the most

from their employees? What is it that people bring to

the job that machines cannot do? It is the ability to

think, reason, solve problems, take risks, and be

creative. What happens if an employee is asked to be

an innovative, problem solver and risk-taker and

s/he does not believe that the company will behave

fairly and treat her/him with respect? At best, satis-

ficing, or minimal acceptable performance, will

occur. Why should the individual take a chance at

doing more? Only when people are treated fairly and

with respect is it possible for the firm to gain the

most from their employees. Trust between the

company and its employees has been identified as

having the potential of producing a competitive

advantage that is difficult or impossible to imitate

(Barney and Hansen, 1994), and trust is best devel-

oped by fair treatment and respect.

Relations with customers

For the case of customers, the positive effects from

ethical behavior revolve around the importance of

long-term relationships. Keeping a customer is

sometimes cheaper and easier than trying to attract a

new one, especially for certain businesses. The

recently popular concept of relationship marketing

represents an approach that recognizes this fact.

Customers who do not believe that they are treated

fairly and with respect do not become repeat buyers.

Further, they tell others about their bad experience.

The negative word-of-mouth advertising can keep

people from becoming loyal customers, or even

trying the product/service at all. Relationship

building with customers requires fair treatment and

respect. Customer trust seems to create a perception

of value in maintaining a relationship with the seller,

and that trust impacts loyalty in relational exchanges

(Sirdeshmukh et al., 2002). Management should be

able to satisfy customers by treating them fairly and

with respect, and the results should help long-term

profitability.

Relations with suppliers

The subject of relationship building in the supply

chain is integral to the analysis of supply chain

management. Organization and relationship man-

agement are now a common topic within the liter-

ature on the subject. Good relations between

organizations in the supply chain help produce the

greatest value for customers at the lowest possible

cost. Kumar, in a Harvard Business Review article,

found that trust creation between supply chain

members improved sales and reduced costs (1996,

pp. 92–106). It does seem clear that no long term,

successful collaboration can exist in supply chain

relationships without mutual trust, and central to

trust building is the concept of fairness and justice.

Relations with communities

In relations with communities, fair treatment and

respect mean that the company must be a good

citizen in every location it operates. The choice of a

site must be a business decision, but once the firm

Toward an Applied Meaning for Ethics in Business 147

selects a location, they owe that community fair

treatment and respect. This company requirement

parallels the good citizenship that each individual

owes to their community. The positive, profit-based

justifications for being a good corporate citizen

comes from the reputation it builds. That reputation

is likely to make the company sought after by

communities and expand its options.

Societal desires beyond economic welfare

The prevalence of capitalism, and its efficient and

effective delivery of economic welfare to the citizens

of the society adopting it, makes it the obvious base

within which business ethics must operate. However,

the motivations inherent in capitalism do not cover

several important issues that are of interest to the

citizens of most societies. Further, the motivations of

individuals who operate capitalistic institutions do

not always follow the dictates the capitalistic model

suggests. Situations can exist where society must set

constraints and dictate directions for business. The

most obvious of these situations include protecting

the environment, protecting the ‘‘commons,’’ pro-

tecting future generations, and protecting stake-

holders against unethical businesses and individuals.

Society should expect its businesses to be good

citizens in the same sense that individuals in society

are expected to be good citizens even without leg-

islation. Examples include keeping property pre-

sentable to others, helping in community activities,

and encouraging employees to be good citizens.

Donaldson (1996) described this requirement as

‘‘work(ing) together to support and improve the

institutions on which the community depends

(p. 53).’’ However, asking businesses to go beyond

their good citizen role in a competitive environ-

ment, where there are no natural capitalistic moti-

vations, is unrealistic. At that point, it becomes the

role of society’s government to direct business as it

desires. Then the business task becomes compliance

with both the letter and spirit of the law. A discus-

sion specific to these issues follows.

Protecting the environment

Except in a limited number of cases, the short-term

motivation for capitalistic firms is to use the envi-

ronment to create firm value wherever possible.

In such cases, the pollution of soil, air, and water are

treated as ‘‘free goods’’ unless society restricts such

behavior or adds a cost to it. The government of

society has the power to direct businesses operating

in its domain, and it can react to the collective wishes

of society with regard to protecting the environment.

In practice, legal regulation of the environment

occurs throughout the industrialized world.

Protecting the ‘‘commons’’

If it is society’s wish to have common places for the

enjoyment of everyone, then it is in that government’s

purview to mandate and support them. It is also

within that government’s purview to mandate how

those common areas are used and maintained. This

practice also occurs in most industrialized countries.

Protecting future generations

Maintaining resources, so as to have a reasonable

quantity and quality available for future generations,

is also within the scope of government. There is no

natural motivation beyond maintaining normal

efficiency in business to save resources for the future.

If it is society’s collective wish to maintain such

resources, then it must do so through its regulatory

system. Once again, it is common for industrialized

countries to protect resources for the future.

Protecting stakeholders against unethical business practices

Business ethics is defined as protecting stakeholders,

but unethical people and unethical business firms

exist. Society must protect itself against these uneth-

ical entities. The existence of consumer protection

legislation, labor law, contract law, and antitrust leg-

islation in industrialized countries suggests that soci-

eties understand this need and have acted accordingly.

When government fails to protect its citizens

In some underdeveloped and developing countries,

governments may not fairly represent their citizens.

A business in the position of operating in such a

country has a duty to the people of that country and

not just their government. In such a situation, the

business still owes the community the basic business

ethics requirements of fairness and respect. It is also

required to fulfill good citizenship expectations.

Within these requirements are the people’s right to

good health and their right to economic advance-

ment (Donaldson, 1996, p. 53).

148 D. Robin

Summary and conclusions

Academics in the business disciplines have developed

useful science-based models to explain business

ethics behavior but have done so without a universal

definition of ‘‘ethical.’’ The purpose of this article is

to offer one definition that could be acceptable to

both business academics and business professionals. It

is acknowledged that other definitions are possible

and that they should be encouraged.

The approach offered in this article borrows ideas

from the moral philosophy literature to inform the

proposed definition but recognizes that those con-

cepts must be constrained by the practical needs of

business. These needs are assumed to be the

requirements of firms operating in a capitalistic

environment. Capitalism is pervasive among indus-

trially advanced countries because it satisfies the

economic mission most efficiently and effectively.

Business ethics then has the chore of making the

practice of capitalism more ethical.

The definition proposed to achieve that goal is

that stakeholders should be treated with fairness and

respect in their naturally occurring exchanges with

business. As other approaches are developed and

combined with this definition, and when they are

fully analyzed and critiqued, the result should be an

applied meaning of ethics in business that offers

practical advice to business managers and business

academics on how to achieve their goals both ethi-

cally and effectively.

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Wake Forest University,

Winston-Salem, U.S.A.

E-mail: [email protected]

150 D. Robin

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