Four levels of Ethical questions in Business

What is Ethics?
We have defined ethics as the study of how our decisions affect other people. As previously noted, it is also the study of people’s rights and duties, the moral rules that people apply in making decisions, and the nature of the relationships among people.

We cannot avoid ethical issues in business any more than we can avoid them in other areas of our lives. In business, most ethical questions fall into one or more of four categories: societal, stakeholder, internal policy, or personal.

Societal: At the societal level, we ask questions about the basic institutions in a society. The problem of apartheid in South Africa was a societal-level question: Is it ethically correct to have a social system in which a group of people – indeed, the majority – is systematically denied basic rights? Although recent changes in South Africa have ended the apartheid system, it is difficult to project how smoothly the transition to equality will go. Companies wishing to do business there still face a complex set of issues as political, economic, and social dynamics change; the situation can be still present an ethical conundrum for many companies.

Another societal-level question concerns the merits of capitalism. Is capitalism a just system for allocating resources? What role should the government play in regulating the marketplace? Should we tolerate gross inequalities of wealth, status, and power? For some people, the relatively huge increases in executive compensation in the past decade or so in the United States are part of this issue. For example, in the United States from 1980 to 1990, while worker pay increased 53 percent and corporate profits 78 percent, CEO pay rose by 212 percent. In 1980 the chief executive’s average pay was $624,996 with total compensation 42 times the pay of a factory worker. In 1992 the average CEO made a record $3,842,247 in total pay – 157 times what factory workers earned. By way of contrast, in Japan CEOs make less than 32 times as much as the rank and file.. In 1992 there were only eight Japanese CEOs whose compensation was over a million dollars.

Societal level questions usually represent an ongoing debate among major competing institutions. As managers and individuals, each of us can try to shape that debate. Andrew Carnegie (along with other early theorists of corporate social responsibility) worked at this level when he argued that the proper role of a business such as his own Steel was to apply the principles of charity to assist the poor and unfortunate.

Stake holder: The second kind of ethical questions concerns stakeholders – suppliers, customers, shareholders, and the rest. Here we ask questions about how a company should deal with the external groups affected by its decisions, as well as how the stake holders should deal with the company.

There are many stakeholders’ issues. Insider trading is one; another is a company’s obligation to inform its customers about the potential dangers of its products. What obligations does a company have to its suppliers? To the communities where it operates? To its stockholders? How should we attempt to decide such matters? Kinko’s managers face the ethical question of whether to respect the rights of copyright holders as stakeholders.

Internal policy: A third category of ethics might be called ‘internal policy” Here we ask questions about the nature of a company’s relations with its employee. What kind of employment contract is fair? What are the mutual obligations of managers and workers? What rights do employees have? These questions too, pervade the workday of a manager. Layoffs benefit work rules, motivation and leadership are all ethical concerns here.

Personal: Here we ask questions about how people should treat one another within an organization. Should we be honest with one another, whatever the consequences? What obligation do we have both as human beings and as workers who fill specific work roles to our bosses, our employees, and our peers? These questions deal with the day-to-day issues of life in any organization. Behind them lie two broader issues: Do we have the right to look at other people primarily as means to our ends/can we avoid doing so?

One example of meeting ethical obligation is Kidd & Co. When a fire destroyed family owned Kidd & Co’s Nevada march mallow factory vice president John Kidd and his older brother Charlie decided to pay all 63 employees while they were rebuilding, honoring an obligation to employer and other stake holders. In turn, the employees performed community service work.