Business 101 / BUSINESS ETHICS

By Albert L. Kelley, Esq.

Business ethics — almost an oxymoron, but they do exist. Business ethics is a balancing act of profits and the needs and desires of society. Generally, this is not something that can be easily governed by law. It is more a question of morals.

Often, business people will look to the law as a beginning to ethical questions. If it is legal, it is moral. This is called the positive law theory of business ethics.

Others look to natural law for their ethical standards. This is a belief that standards exists universally and cannot be changed by the law. A classic example was slavery. While it was legal at one point in time, many people refused to own slaves because they felt it was a violation of natural law.

A third view is what is referred to as situational ethics. This is the line of thought that ethical behavior depends on individual circumstances.

A fourth view is the stakeholder theory. This requires businesses to consider what would be in the best interest of all those with an interest in the company. This includes not only shareholders, but also the employees and surrounding community.

Why do we have business ethics? Wouldn’t it be sufficient if each business just did what was best for that business? Isn’t this the true meaning of competition?

The first reason for business ethics is simply a matter of trust. Businesses and customers both need the ability to have trust in whom they are dealing with. They need to know that contracts will be honored and that products will meet the standards they were advertised to have. Employees need to have faith that their employment will be continued each day.

Another reason for business ethics is financial performance. Studies indicate that those companies that have a strong value system tend to perform better than their counterparts. These studies tend to focus on high standards for product quality, employee welfare and customer service.

Behavior will change based upon what theory of ethics a business follows. Consider a business ethics decision that arose several years ago. Cigarette manufacturers developed a character named “Joe Camel” with an eye toward attracting young smokers. Under a positive law theory (at the time), this was a proper decision as it was legal, and thus moral (although this law has since changed). Under a natural law theory, this decision was improper as it attracted teens and young adults to a dangerous and addictive habit. The decision would be questionable under a situational ethics standard, as it could be argued that while it was not appropriate to attract teens to smoking, they were already being attracted to smoking through peer pressure and this was no more than a clever marketing campaign. The decision would be debatable under a stakeholder theory since, while it appeared to be a good financial decision for the shareholders and employees, the business must consider the negative ramifications to its reputation for trying to attract young smokers.

Recognizing a business ethics question is often easy; resolving it is usually not. There are three models for trying to reach a resolution. First is the Blanchard and Peale Three Part Test. This test asks first: Is it Legal? Then: Is it balanced? Then: How does it make me feel? The first question is one of positive law. If the idea is legal, move on. If not, the analysis is over. The second question is one of natural law. Is the action fair? The last question is more situational, allowing the manager to consider how he or she feels in that particular situation.

The second type of test is the “Front of the Newspaper Test.” This simply requires managers to consider how their actions would be described in a critical front page article in a newspaper. This is almost purely a stakeholder theory test.

Third is the Laura Nash model. This is a series of questions: Have you defined your problem accurately? How would you define your problem if you stood on the other side of the fence? How did this situation arise in the first place? What is your intention in making this decision? How does the intention compare with the probable results? Whom could your decision or action injure? Can you discuss your decision with the affected parties? Are you confident that your position will be as valid over a long period of time as it appears now? Could you discuss your decision with your supervisors, coworkers, officers, board of directors, friends and family? This approach reflects part of all the ethical theories and gives the broadest level of evaluation. But the decision is still yours.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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