A Concise Guide to Business Ethics


March 26, 2021 - Mark Fagiano

As the term "business ethics" enters your eyes and is interpreted by your senses, I would be willing to bet that the word "business" has a clearer meaning for you than does the word "ethics."

If this assumption is indeed true, you are not alone.

As a professor of ethics for over ten years, I have never felt completely at home with any proposed definition of ethics, and in consideration of the inherent complexity and plurality of this subject, I am confident that I will never feel this way.

I think this is a good thing, for it forces me to reconsider my assumptions and, consequently, to invite my mind to consider the insights of others.

Defining business ethics

For practical purposes, though, it is imperative here that we establish a few fundamental facts about what "ethics" is for the purpose of both understanding and practicing "business ethics."

Let's start with this truth, which I believe we all must take seriously:

Not everyone agrees about what is good or bad, right or wrong, and whether there is agreement, we often provide different reasons to support of our beliefs.

This truth could lead to very positive results if, for instance, it stimulates civil, open-minded, and crucial conversations about ethics and morality.

But it is quite problematic whenever, in the absence of a well-conceived, formal, and operative structure, we are unable to establish the ethical guidelines and behavioral expectations that are necessary for both individuals and organizations to flourish.

A business, however, must have this formal structure; and when it is well-conceived and highly functional, it becomes empowered to mitigate ethical, legal—and sometimes very costly—moral lapses in judgment.

We will need to expand upon this with much more refinement and in greater detail, but first we are going to have to introduce some clarity regarding the meaning, that is, the multiple meanings, of ethics.

So, what Is ethics? And how shall we define it?

Ethics as moral principles

Now, it might seem that defining ethics is not even remotely troublesome; after all, there are these books called dictionaries that define words, so what is all the fuss?

However, when we look up "ethics" in the dictionary, I am sad to report, it appears that more confusion is introduced.

Drawing from several editions, the most common definitions we found can be summarized as follows:

Ethics is:

  1. A serious study of and discussion about moral principles.
  2. The moral principles that govern a person, group, or society's behavior or those that guide the conducting of an activity.
Business ethics definition

Business ethics definition 1

According to the first way of thinking, to practice ethics is to engage in the activity of reflecting, analyzing, and communicating the value and utility of moral principles. This definition seems insufficient for gaining clarity about our differences about what it is right or wrong, good or bad, for it merely describes the process of thinking about and discussing our differences.

It does, however, elucidates a pragmatic meaning of "ethics" as we use it in the term business ethics:

The practice of business ethics involves ongoing reflection and discussion about ethical principles in business.

But this alone isn’t enough:

  • Practicing business ethics can’t simply mean thinking and speaking about principles.
  • What about actions?
  • Doesn’t the practice of business ethics involve acting morally?
  • Or, what about the development of our moral character.
  • Shouldn’t the practice of business ethics include the introduction of and participation in activities that develop our moral character?
  • And what about the consequences of our actions?
  • It seems right to say that the practice of business ethics must involve serious reflection upon the actual or conceivable consequences of our actions and not simply upon moral principles.

Moral principles are very helpful and important, for they sometimes guide our behavior. They help to form our ideals that influence our behavior and provide a working blueprint for our thoughts and actions. But to say that the practice of business ethics merely involves principles is very limiting.

Business ethics definition 2

In line with the second definition, to be ethical means either:

  1. That a person, group, society holds good moral principles and that their behavior is also governed by such principles
  2. That a given activity follows and abides by certain principles as regulatory rules

There are many problems with this approach to thinking about ethics as well.

First, we often use moral principles to justify the actions we favor.

We have found that this occurs very frequently in moments when we are under pressure to justify what we have done (especially when we fear that we have acted wrongly) as well as when do not have enough time—or simply do not take the time—to consider how the principles we hold should guide our choices.

Second, a moral principle does not signify good principles alone but bad ones as well. This is true even though seemingly everywhere we turn the word "moral" is used as a synonym for something good, desirable, or, at least, worthy of our attention.

Though it is true that we use "immoral" (bad) to mean the opposite of "moral" good), many "moral" i.e., good, principles of the past are now thought to be terribly immoral. I am sure you could think of some examples here.

Third, the simple act of holding a moral principle doesn’t make the moral principle itself good; rather what is good is recognized and felt as a result of following the principle.

In and of itself, a principle is neither good nor bad, right nor wrong; it is simply a rule of conduct based upon what one believes to be good or bad, right or wrong.

Despite its shortcomings, this second common definition of ethics provides us another pragmatic meaning of "ethics" as we use it in the term business ethics:

The practice of business ethics involves choosing good moral principles for business success and having these principles govern our behavior and guide our actions.

But, in consideration of the problems I have mentioned above, there must be more to "ethics" than simply studying, holding, and following principles for the purpose of having them help to act rightly.

Where shall we turn?

Ethics as character development

How about we begin at the beginning.

What is the origin of the word "ethics" and what was its original meaning? Perhaps gaining this knowledge we provide for us a stronger understanding of ethics for the purpose of applying such an understanding at work and in life.

Parthenon

The origin of ethics

"Ethics" is derived from two ancient Greek words ēthikós (ἠθικός), which meant "relating to one’s character," as well as ēthós (ἠθός) which chiefly meant an individual’s habits or character, but also culture’s "customs" or "mores," i.e., the general character of a people.

Your character is produced by habits or what you repeatedly do, but what does it mean to say that "we" possess a moral character?

Well, when we say that John has a strong moral character, we are saying the John possesses certain distinctive and morally good mental, behavioral, traits, qualities—and habits—that are a big part of who he is as a person.

Good and bad moral character

When we say that someone has a "good" moral character we are saying that his or her actions arise out of the formation of positive and constructive habits and/or that the person’s actions are in accord with the moral principles that person holds and lives by.

Conversely, when we disapprove of another’s behavior, that person is characterized as having a "bad" character; moreover, when someone acts in such a way that deviates from the habits that form her/his general character, we say that person has acted "out of character."

Now, let’s look at this word "character" for a moment. Isn’t it the case that others often "characterize" us, sometimes flippantly and inaccurately, and that these characterizations sometimes affect both our own self-image as well as how other people view our character?

Your character, as the habits you perform daily, in part, create your identity and shape "you,"

But what is also true is that one's characterization of you can affect what you do and alter your character, or at least how others perceive your character. It follows from this truth, then, that someone's characterization of you could alter the course of your life.

This shouldn’t cause you paranoia nor should it make you think that you need to conform to what others expect of you without good reasons; but it should remind you to always maintain a certain professionalism and be diligent about the displays of your character.

It still seems that something is missing.

Principled behavior

Principled behavior is important as is building a strong and consistent moral character, but what are the consequences, the results, the fruits of our principled behavior and the strength of one’s moral character? And what shall we say about those principles and habits that produce all-together unsatisfactory consequences?

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Ethics as the production of good consequences

Sound principles can guide for our actions and behavior in business and help companies create both behavioral expectations and healthy work environments. Likewise, our habits—the morally good actions we repeatedly do—build our character, which has the potential to produce similar ends.

But I can hold the right ethical principles and develop good habits for acting ethically in business, but still get bad results. Consequently, it seems that ethics must also involve serious reflection upon the actual and/or conceivable consequences of our actions and those of others.

Turning to experience, it seems quite evident that the moral principles we accept and follow as well as the habits we choose to build good moral character are always formed in reaction to something that has produced either good or bad consequences.

The moral principles we live by and the good ethical habits we repeatedly do are invented for the purpose of avoiding bad consequences and producing good ones.

This seems to happen in two ways.

  1. The first way is that we adopt and follow the moral principles and ethical habits that others have offered as formulas or blueprints for avoiding bad consequences, producing good results, and thus for living a good life.
  2. The second way this happens is by our own reflection upon the actual or conceivable consequences of our actions, and sometimes this requires that we either reject or reform existing principles and habits that are not satisfactory. This means of course that principles and habits can—and should—change if they are not producing good results.

Example of principles and consequences

At a very young age, we are often told to live by the principle "Look both ways before you cross the street." Now if you were taught this as a child, you lived by this principle if you turned it into a habit of action in which you exercised caution and looked both ways whenever you crossed a street. And if you did this consistently, the principle and the habit formed part of your character.

Why you were taught this might seem obvious, but here is a question to consider: if no child was ever harmed or even remotely endangered by not looking both ways before crossing any street, would this principle under discussion have even been created? Would children have developed the habit of caution that this principle instructs them to follow? The answer is "no" to each of these questions, for without any consequences, this principle and its companion habit would have never come into existence.

Consequences matter.

Examples of moral missteps

Accidental moral lapses are bound to happen, and unintended ethical missteps are inevitable, but with sound ethical principles, a strong moral character, and a careful consideration of the conceivable consequences our actions may produce, many lapses and missteps are—to a certain extent—preventable.

Unfortunately, as we are all aware, there are numerous examples of corporate leaders who intentionally acted immorally and unethically for their own gain, without a consideration of how their actions might bring harm to others.

Livent, FlowTex, HIH Insurance, WorldCom, Parmalat, MG Rover Group

We don’t have to explore very long to find myriad examples in which unethical practices destroyed the well-being of many lives as well as the once trusted names of numerous companies, such as Livent, FlowTex, HIH Insurance, WorldCom, Parmalat, MG Rover Group.

You know, all of those companies you have never heard of before despite the fact that the leaders of these corporations acted unethically and subsequently altered the lives of hundreds of thousands of people in a bad way.

Enron logo

Enron

Probably more familiar to you is Enron, a paradigmatic example of a company that brought about unmitigated harm to their employees, clients, and investors and proved once and for all, if there were any doubt, a business without ethics is doomed to fail. Enron executives began their fall from moral grace by deliberately using account loopholes and special purpose entities to hide billions of dollars in bank loans from failed projects.

Bernie Madoff

Or perhaps you recall how a former NASDAQ chairman and overall magnate Bernie Madoff "made off" with billions and was charged with securities fraud, investment advisor trust fraud, mail fraud, wire fraud, money laundering, false statements, perjury, making false filings with the SEC, theft from an employee benefit plan, all of which were part and parcel of a complex and quite devious Ponzi scheme.

Uber

Or even more recently, perhaps you are acquainted with Uber, a company that has recently settled a lawsuit, one part of which will require Uber to pay 20 billion into a Settlement Fund to pay its drivers and another part that demanded that they modify certain business practices.


Now, how might things have been different for these infamous execs and their respective organizations if only they took business ethics seriously and thought more carefully about the moral principles and habits they adopted?

How might unnecessary pain and heartache have been avoided if the leaders of these companies would have considered the conceivable consequences of their actions?

Do leaders need to practice business ethics? You bet!

If not them, who?

If not now, when?

Envisioning and revisioning the practice of business ethics

At this point, one might wonder what skills are necessary to practice business ethics.

It seems clear that the practice of business ethics ought to be conducted after a consideration of how to avoid harming others as well as how we might help others flourish in life.

On another level, the practice of business ethics should contribute to the financial, overall functional, and flourishing of a company; it should help a company exceed its bottom-line goals year in and year out. Moral lapses and ethical missteps work against this central goal, however, for they are as costly as they are destructive.

It seems right to have solid principles guide our behavior, but which ones shall we adopt? To be person who is habitually virtuous or excellent is most certainly desirable, but which habits shall we employ to practice business ethics at the highest level? Consequences matter, but what can we do to avoid the unforeseeable and morally unsatisfactory consequences of our action?

Recall one of the truths that began this concise guide was:

Not everyone agrees about what is good or bad, right or wrong, and whether there is agreement, we often provide different reasons to support of our beliefs.

This truth, along with the examples of major moral missteps we just examined—as well as the fact that the meaning of word "ethics" is more than just a tad ambiguous—might lead some to believe that the creation and implementation of sound business ethics practices is an elusive goal, but just the opposite is true.

The greatest thing about starting an organization is the ability to dispel all of the unnecessary and impractical questions about morality and ethics by means of establishing a moral and ethical vision in which behavioral expectations, ethical standards, and moral principles, are clearly communicated on day one.

Code of ethics

Establishing a code of ethics

This is quite often accomplished by creating and implementing protocol, establishing an influential code of ethics (or code of conduct), and developing a rational, bureaucratic, and legal structure that supports the formal structure of the organization. These important building blocks chart a way forward pragmatically for establishing a business ethics plan as well as for creating expectations for actions and behavior.

It seems intuitive, then, that these institutional processes required at the beginning of a company’s existence would ensure the existence and persistence of moral and ethical actions day in and day out, but we know this isn’t the case.

Why? Well, ethics is complex. It is not like rocket science, as you well know, because with rocket science at least you have definitive answers that help you to know precisely how to act and get the results you desire.

Acting ethically is fraught with uncertainty, people have different motivations for acting, they aim for different results they hold different principles and not everyone’s character is the same.

Meanwhile, examples of moral lapses and ethical failings abound, forewarning us of the possible consequences that might befall us if "we" do not take the necessary steps to teach—or at least converse with—others about how to develop an ethics in business.

Taking business ethics seriously means that an occasion might arise where you will have to risk everything you have worked for, you might even be required to quit your job for standing up for what is right and just, even though the consequences that will fall upon you will be for all accounts and purposes will entirely unjust, unfair, and perhaps even cruel.

Invest in effective learning experiences

Prevention is better, of course, and though there are many ways to prevent moral lapses and ethical missteps, one very good way is for business leaders to take business ethics seriously by investing in learning experiences that have proven to be functional and effective.

And though there is no single, final way this should be accomplished, we have found that putting members of organizations into embodied virtual reality simulations of real-life moral dilemmas in the workplace is a strategic way to prevent moral missteps and ethical lapses.

How does one begin a conversation about, say, embezzlement? Or how would you begin a conversation with your team about, for example, the misappropriation of funds or other similar moral lapses in cases of sexual harassment, bullying in the workplace, or even taking credit for another person’s work?

These aren’t topics that arise naturally during a conversation, but they are important to discuss. A productive and entertaining way to introduce these and other—seemingly unapproachable— topics is via technologies, which as tools have assisted us in the creation of novel and unique ways that will engage your team and bring about positive cultural transformations within your organization.