Introduction and Meaning of Business Ethics
The term ethics means inquiry into the state and basis of morality. Primarily, morality refers to right decisions, principles, and rules of demeanor. In some cases, ethics has been termed as the discipline that deals with the human behavior, with an emphasis of verifying right and wrong.
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The distinction between a normal choice and an ethical one is that the latter requires one to exercise the duty of weighing virtues and arriving at a judgment in a case that is unique from the others that he or she has encountered prior to this. Another distinction relates to the amount of accent placed by decision makers on their own principles and accepted ways of doing things in their own company.
Accordingly, values and principles play a significant part when people or organizations have to make decisions that are ethical in nature. It is an agreeable fact that elevated ethical standards is determined by the ability of both persons and businesses to ascribe to sound moral values. Nonetheless, some things must be put into consideration when using ethics in the business setting.
First, businesses must make profits to continue surviving. If profits have to be made through ways that are morally questionable, then the survival of such businesses is jeopardized. For example, companies like Enron and WorldCom went bankrupt after making scandalous headlines regarding their business transactions. Secondly, businesses must hold an equilibrium perspective between their gains and the societal demands.
To address this challenging feature of the business community, the society has devised both legal and implicit regulations to direct businesses in their attempts to make gains in ways that do not adversely affect other people and the society.
Building on this on this fundamental understanding of ethics, business ethics may therefore be defined as the values and standards that direct demeanor in the business world. Investors, workers, clients, the legal framework and the society normally dictate whether a certain action is acceptable or not based on certain agreeable ethical perspectives.
Although these parties may not necessarily be correct, their decisions affect the way in which the society accepts or refuses a business and its dealings (Ferrell, Fraedrich, and Ferrell 6). This paper aims at critically comparing and assessing Adam Smith and Albert Carr’s standpoints on their defense of the narrow pursuit of self-interest (regarded by businesses as profit maximization) as the sole goal that should direct business strategy.
The objective of business with respect to standpoints of Adam Smith and Albert Carr
Business was regarded as unprincipled in some settings mainly due to its single purpose of maximizing profits. Adam Smith’s opinion in the 18th century is often regarded as support for this assertion. Smith emphasized the positive responsibility that personal initiative and the aspiration for gains in economic growth.
He candidly opined that in an economically independent and competitive community, the exceeding personal interest of an individual would be put in control by other people’s self-interests. Smith’s stand is seen to have been embraced to show that businesses were independent and free from ethics.
He also pointed out that the geocentricism and insatiability that capitalism advocates would ultimately devastate the system itself (Anon. 30). In a modern debate, Albert Carr brought forth his perspective of the fact that business has its own ethics and he gave the analogy of the poker. He argued that just like the rules and informal guidelines of demeanor that surround poker, it could not be played in church.
In the same vein, business has its own lawful regulations and standards of playing that encourage fairness among the operations of all rivals. Apparently, Albert’s analogy holds water.
However, when business-based choices cause serious damage to third parties, who are not cognizances of the fact that they are participants in a different business game, the analogy cannot stand. Many customers who depend on the information presented through adverts regarding the quality, value and safety, are not participants in the game (Anon. 30).
The focus of most business organizations is profit maximization and it has been disputed that the focus on any other aspect is bound to not only distort but also misguide its transactions (Anon. 30). Conventionally, such activities interfere with a business organization’s economic growth. Most neo-classical economists agree with the fact that making high profits is the enterprise’s only ethical responsibility and social commitment.
Albert Carr terms this responsibility as ‘playing by the rules of the game’. He argues that there is a clear demarcation between business and religious ethics and it is in order for the businesses to engage in sham ventures so as to win.
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The neo-classical economists’ perspective in this regard indicates that economics and ethics are not connected in any way because whereas the former is a technical aspect, the latter is result oriented. The ethical standing of persons and the society have an impact on the demeanor and attitude of all stakeholders (Anon. 30).
These stakeholders have affected business transactions in turn. In this perspective, ethics cannot be separated from the fiscal efficacy of a business. Studies reveal that the focus of most business people can lead to their obvious trend to underestimate the social costs obliged on other people.
A breach always exists between the businessperson and the customer’s knowledge with regard to the commodity being offered in order to meet the societal demand. This requires that the respective government interject to rectify the alterations and imbalances in the performance of the organization’s economic activities (Anon 30).
The government does this in several ways that include control of rivalry, consumer protection, protection of the surrounding, enhancement of equity and security. However, the upcoming tendency is in the preference of self-regulation by corporations in form of volitional code of ethics and self-governing regulations.
At the same period, queries have been put forth with regard to the efficiency in applying these volitional codes to real life situation. The regulations being purely volitional, can easily allow for the clash between the interests of customers and those of the business that may become hard to resolve.
In practice, the interests of the consumers are forfeited, neglected, or subordinated in the pursuit of increasing profits. At this point also, government rules have shortcomings in either avoiding or paying the penalty in the view of when they anticipate resulting gains are bound to be of profit to the business.
Social and fiscal dimensions require that business organizations add to the ethical aspects while aiming at profit maximization. Apart from having both straightforward and implementable self-regulations, it is the key role of the government to arbitrate in ensuring the enacted laws have been effectively enforced to ensure that the interests of both consumers and the society as a whole have been met (Anon 31).
A critical assessment of Adam Smith and Albert Carr’s standpoints
Profit maximization and self-interest are not sold in the same package. The inability to draw a clear demarcation between the two concepts is recipe for immense confusion. Business ethics as a discipline is chiefly concerned with the moral roles of individuals who manage businesses.
Managers often find themselves positioned in a state where the aspiration to balance between raising the gains of decision makers is at conflict with their self-interest (Hodgson 70). Due to this rudimentary confusion, there has been a noticeable trend in the business ethics literature to disregard suggestions that enhance profit motive seriously.
The more outspoken effect of this confusion is the popular notion that for business ethics to be truly meaningful, it must be able to let groups assume managerial duty rather than shareholders. Profit maximization seen as an obligation rather than an extension of self-interest, provides a viable foundation for the establishment of a full-bodied ethical code.
Yet, if profit maximization is an obligation, a question of the source of this obligation arises. It is in our efforts to substantiate the profit motive that we realize that the most suitable duty of managers is not to maximize gains from any strategy at hand, but rather to capitalize on given opportunities for profits (Hodgson 70).
Some studies reveal that traditional business ethics is not applicable to managers because of its inadequacy to present the managers with practical counsel. It is also argued that moral philosophy enables one to do well for the sake of making other people benefit rather than individually benefiting from it.
Consequently, proponents of business ethics have had regarding the most likely conflict between morals and interests, and more so, how managers are supposed to deal with such conflicts when they come up (Hodgson 72).
To understand the concept, we can replace managers with doctors, and picture critiquing medical ethics on grounds that they do not provide doctors with guidelines on what to do incase their interests are at conflict with those of patients.
For example, one can imagine the case way a patient does not require a surgery but the medical doctor would really want to perform it. The action taken by the physician in such a case is what ought to be considered.
Conventional wisdom dictates that whenever there is a disagreement between one’s self-interest and their moral commitments, the latter will win that is from the moral perspective. The issue of when is supposed to be forgiven for dismissing their moral responsibilities that is behaving in an immoral way, is a detached one and is unspecific with regard to the realm of business ethics.
It is vivid that the professional behavior of medical practitioners is mainly determined by their responsibilities to the patients, and as such, they are not allowed to let aspects of self-interest interfere.
In a similar way, profit maximization would affect managers; for instance, the mangers of the failed companies like Enron and WorldCom have never had anyone defending them just because their demeanor was influenced by their self-interest.
Well, if the incentive mechanisms have been properly constructed, managers will be very much interested in maximizing the value of the organization’s main decision makers (like it the way physicians will find interesting to attend to their patients). However, this is inadvertent and immaterial in the in the moral dimension. In a situation where a conflict arises, the professional requirements supersede over the couple of interests.
Where matters may be unique is where asset of professional responsibilities conflict for instance, a situation where a health provider can better the life of a patient by disclosing incorrect information to them or of a business manager who manages to please investors by putting an exaggeratedly stern downsizing (Hodgson 72).
The attitude to business ethics that makes profit maximization as the principal focus is normally perceived with doubt because it has been conventionally used often in defense for unbecoming demeanor rather than a foundation for a heart-felt attempt to come up with a code of moral values.
As earlier on elaborated, the profit maximization tactic to business ethics cannot be integrated with the concept of self-interest on the part of managers. Therefore, Milton Friedman’s assertion that the social obligation of a business is to maximize gains is on the trust-based association between managers and shareholders. The relationship between a manager and a shareholder can be compared to that between a lawyer and his client.
The manager is expected to fulfill the needs of the shareholder, not his personal interests. This calls for trust and hence ethical obligation between the two parties. It should not be forgotten that there are numerous ways through which the lawyer can take advantage of this association for personal gain, as the manager can do (Hodgson 77).
Business ethics refer to the values and standards that guide behavior in the business world. Neo-classical economists like Albert Carr not only regard profit maximization as the main obligation of a business, but also attribute ethics to religion while arguing that ethics cannot be married with business.
This assertion is discounted by the fact that the behavior of stakeholders is affected by the ethical standing of people in the society.
This in turn causes stakeholders to influence business activities. Additionally, profit maximization and personal interest are very different aspects and studies show that profit maximization can only be a central focus in business ethics in the presence of other ethical and morally ingredients such as trust and moral commitments between managers and stakeholders.
Anon. Business Ethics. Mumbai: Nirali Prakashan. 2007. Web.
Ferrell, O, C., Fraedrich, John and Ferrell, Linda. Business Ethics: Ethical Decision Making and Cases. OH: Cengage Learning. 2009. Web.
Hodgson, Bernard. The invisible hand and the common good, Volume 2002. NY: Springer. 2004. Web.