Can ethical behavior really exist in business?


Examining contemporary society, it can be with certainty said that business, regardless its scale or field of activity, lies in the heart of our civilization. Since the fifteenth century, it has been the backbone of any market economy and major driving engine of social and economic development. Over time it expanded on all spheres of humans' activity along with the processes of globalization and internalization and became one of the most ubiquitous today's phenomenons.

While talking about business, it is important to understand motivations and aims of those people who work in this sphere. Rational behavior of an individual lies in the core of all decision-making processes and the most important things here are the element of self-interest and search for possible favors. According to Amartya Sen, standard economic theory defines rational behavior in two different ways: "One is to see rationality as internal consistency of choice, and the other is to identify rationality with maximization of self-interest". Sen adds that, "in terms of historical lineage, the self-interest interpretation of rationality goes back a long way, and it has been one of the central features of mainline economic theorizing". Having set self-interest as a first principle and transforming this approach on today's business world, it can be said that an initial aim of any businessman or entrepreneur is receiving profitable returns and achieving his or her personal goals in different spheres (power, influence, fame, etc.).

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Throughout history there have been ethical lapses in business and some businesses that have been shining examples of integrity. But recently we have a paradox. There has been a huge focus on business ethics. Indeed, we have seen the development of a business ethics industry, led by consultants, academics and pundits. Yet the number of corporate scandals across the world seems to have been running at an exceptional rate and has involved very large companies, some of which have gone spectacularly bust partly as a result of ethical failures (e.g. accidents of corruption in case of constant aspiration to the highest profit possible by CEOs and top managers of some companies).

A glimpse look at the morning newspaper or the evening television news seems to confirm it: business people today are behaving very badly. Spectacular lapses in corporate ethics at American companies like Enron and WorldCom, charges of corruption at Siemens in Germany or financial scandals at Lloyd's and Citibank in Britain have led to a crisis in public confidence. According to a five-country study by international market researchers GfK NOP, 55 per cent of Americans and 64 per cent of Germans believe that ethical standards in business have worsened in the past five years.

However, before considering the matter closer it is important to define, what exactly ethics is and how it correlates with widely known standards of business ethics.

According to a common point of view, ethics is an organized system of moral principles and rules of conduct. Majority of those who had ever written on this topic agree that a number of universal values form a basis of ethics and can be found in the teachings of the world's great religions. Business ethics, in its turn, is "the applied ethics discipline that addresses the moral features of commercial activity" and studies moral beliefs of business people. Whether we are talking about ethics in relationship to business, law, medicine or any other professional field, we mean that it relies on a number of universal businessmen's values they try to follow in their professional activities.

However, business ethics is not a mere philosophical concept. It is directly associated and connected with already mentioned decision-making process. Very important is that different business situations often make individuals "between two fires" and one has to choose, for example, between higher salaries for employees or additional bonuses for top management staff, between his or her moral principles and desire to gain higher profits.

Here it should also been mentioned about humans' "egoistic" and "altruistic" motives. Majority of today's businessman are driven with egoistic motives, pursuing only their personal interests that do not always match with the interests of the companies they work for or interests of their colleagues. Professional man who serves the interests of others regardless of his own is a pure altruist that will hardly be able to bring value to the company in case if others are involved in the process of decision-making but do not have real influence on the situation. Obviously, both types of motives base and depend from personal and business ethics of an individual and impact on his or her performance inside the company.

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In order to better understand if ethics and ethical behavior can really exist in business, it is vital to bear in mind that business primarily is the process of receiving profits and survival on the marketplace. In our times, when economical borders between the countries disappear, the level of competition is growing extremely rapidly and performance of the companies directly depends from the actions and interactions between the businessmen, one concentrate only on bringing favor to themselves or the company with all means possible. However, the edge one or another businessman can reach in his pursuit of profit depends from his stage of moral development. Consequently, the stage of moral development of a businessman, entrepreneur, CEO or other people involved in business directly determines if ethical behavior or any ethics at all will be present in a particular case.

The concept of stages of moral development was developed by a Jewish American psychologist Lawrence Kohlberg and explains the development of humans' moral reasoning. He argues that person's views directly influence his or her behavior and moral development of an individual proceeds in a certain sequence, with "six identifiable developmental stages, each more adequate at responding to moral dilemmas than its predecessor", regardless the level of a cultural development of an individual. These six stages might be represented in such way:


View of a person

Social perspective level


No view of persons, only personal interest is recognized

Blind egoism


Understands that others have their goals and preferences but still conforms to or deviates from norms

Instrumental egoism


Recognizes his good or bad intentions

Social relationship perspective


Is able to see abstract normative systems

Social systems perspectives


Recognizes that contracts will allow persons to increase welfare of both

Contractual perspective


Sees how human fallibility and frailty are impacted by communication

Mutual respect as a universal principle

Linking different levels of moral development with a business context, we can describe them as follows:

Stage one: "The right of the strong". Decisions and actions at this first stage of moral development are dictated by physical or material superiority. As a typical example of the first stage, Mafia activities aimed at extortion by physical threats in order to establish reasonable prices for the Mafia can be mentioned.

Stage two: "All means are good ". Actions on this stage are still very self-centered and dictated to materialistic considerations. Entrepreneurs and businessmen in this stage are looking for ways to maximize revenue in a very short period of time, indiscriminately doing all that profitable. At this level facts of production, distribution and selling of drugs and pornography are ubiquitous, counterfeits and bribes to government bureaucrats are extremely widespread. Entrepreneurs and businessmen ignore entirely or almost entirely the interests of other individuals and groups.

Stage three: "More profits for a short term". At the third stage entrepreneurs are more consistent with generally accepted business practice and behavior. They seek to maximize profits without coming into conflict with the law. Businessmen of this type are favored and supported by some leading economists, such as Milton Friedman, who argued that the primary duty of business to society is to get profit for themselves and for their shareholders.

Stage four: "More profits for the long term". Significantly higher level of moral consciousness implies that healthy ethics - is good business, which develops without haste. Entrepreneurs of this type follow the rules, laws and codes of conduct. While shareholders' interests are always considered first, not less care is given to the efforts to do everything legally, which ultimately would be more profitable than other actions that can bring big profits in short terms. A growing number of companies in Western Europe and the United States are adopting codes of ethics that define the patterns of morality and ethics in business with respect to the company's vision.

Stage five: "The concept of concerned individuals". Businessmen who represent this stage base their activities on the premise that receiving profit is not the main purpose of the business. Companies openly proclaim not only their economic but also social mission. They are guided in their conduct by certain universal principles such as justice, rule of law and others. Distribution of profits, implementation of social development projects and philanthropy serve as examples of this stage's businessmen actions. The role of "concerned individuals", in addition to shareholders and owners of the company are: employees, customers, clients, suppliers, banks and other lenders, local and foreign partners and governments.

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Stage six: "Corporate citizenship". Businessmen, who act on this level, seek to achieve, along with financial success, such social goals as caring for the physical and moral health of society, creating new jobs, help people in distress, creating conditions for self-employees. The increasing role of associations and social enterprises demonstrates that social goals can serve as the driving motivation for business activity in the same way as the profit motive.

Having examined the concept of stages of moral development, the question why so many businessmen find themselves on one of the first three stages still remains. Scientists and those who are concerned about the problem of ethical behavior and ethics in business in particular, distinguish several reasons to this.

First, one barrier to ethical behavior in business is a lack of professional standards. It is important to realize that business is not - nor has it ever been - a profession. Practically all professions develop over long periods of time under particular circumstances and "gradually establish a set of control mechanisms and sanctions for those who violate the code". Real professionals, from engineers and accountants to doctors and police, undergo extensive training and earn a license to perform in particular field of activity. This license confirms owner's competency and ability to behave in accordance to established norms. In case if they do not act or behave according to recognized standards, they can be easily expelled from their professional guild, fired from a job or penalized. Although vast majority of today's top managers and CEOs are university-educated or even hold degrees from business schools, this is no guarantee of their ethical behavior. In fact, the opposite could be the case: a study of US and Canadian business schools found that 56 per cent of MBA students admitted to cheating. Here it is important to bear in mind that even if you grow up with a strong ethical sense, the bad behavior of others can easily undermine it, since people tend to "follow the flow". If, for example, one is a very ambitious MBA student and the people around him are cheating on their exams. He may assume that cheating is the price of success, or decide to do it because "everyone actually does it". As a result of well-publicized scandals, many large companies have established compliance codes to regulate ethical behavior. However, Financial Times columnist John Plender argues that "one of the problems with business ethics is that too much of it is being handed over to compliance experts and not enough is being treated as part of individual responsibility".

Second, this problem was caused and actually reflects changes in the structure of the capital markets. Increasingly, people, especially in the English-speaking countries, have been incentivized with equity. CEOs have come under increasing pressure from the capital markets to "hit the numbers" on a very short-term basis. Failure to hit the numbers can mean an early exit for the CEO. This combination of carrot and stick has given managers a very powerful incentive to bump up short-term earnings to ass value to their share options or restricted shares and to protect themselves from job loss. To the extent that equity rewards penetrate down the organization, employees may be tempted to connive in top management's efforts to cook the books.

Obviously, such incentive structures tend to be at odds with ethical behavior and business ethics in general. In the absence of unusually strong leadership at the top, such incentives are undermining ethical cultures in industry and commerce. To a degree, the problem is made even worse by the growth of mergers and acquisitions. When a company is taken over or merges, business leaders have to send very clear signals as to what the values of the enlarged corporation are.

Third, despite the compelling arguments in favor of a conscious and moral conduct in business that are described in the concept of stages of moral development, there are still a lot of people who are skeptical to the issue of ethical behavior and morality in business. Disbelief in the ethical standards in business due to the legacy of four decades of socialist system, as well as distortion of ethical standards are extremely common in business and other spheres of humans' activity. Many of today's entrepreneurs have formed a business environment saturated with corruption and complete absence of competition; consumers were deprived of choice.

However, despite all negative factors described in the analysis above, it might be said that ethical behavior can really exist in business and it actually exists nowadays. Realization of interests other than pursuit of money or power has given many companies like Google, Microsoft of dozens of others huge advantages over their competitors throughout implementation of the social role of these company in contemporary society. Moreover, establishing the rules of conduct, internal code of behavior and major ethical concepts inside the companies, they try not only to gain additional respect from clients or customers (and gain higher profits as a consequence), but also to simply make this world easier for people and make them feel better.