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State of Business Ethics in Society

Recovering an Ethical Balance in Business

During this election cycle we've heard a lot from Bernie Sanders about the moral failures of large corporations especially in the banking industry. Who could argue this point given the financial disaster that ushered in the financial recession just a few years ago. Greed, self-interest, and a lack of moral awareness motivated deceitful actions that led the public down a road with no return. It's not the first time this has happened. We can go back to the savings and loan debacle of the early 1990s for a parallel, albeit on a smaller level. The question is whether business has learned its lesson?

Business can be an engine for economic opportunity, wealth accumulation, and a vehicle to raise up those in lower and the middle classes to higher levels on the economic prosperity ladder. However, that hardly has been the case since the end of the recession. Salaries have been stagnant; good job opportunities scarce; pay equality for women is still lagging; and a malaise has infected many workers whereby they are more open to a socialist agenda than ever before. This is why Bernie Sanders has a wide appeal especially among young people who are concerned about getting good jobs after college, paying off student debt, and whether their social security benefits will be there when they need them.

One reason businesses still struggle with ethical behavior is they are not attuned to their role as a moral agent in society. A moral agent is anyone capable of making ethical decisions and putting them into action. The idea that an organization has moral agency stems in part from U.S. Supreme Court decisions declaring that a corporation is a person in the eyes of the law. That makes an organization accountable for the predictable results of its actions. In practical terms, this means a business has a responsibility to the public to act ethically.

To me this is an outdated notion. Business ethics may be an oxymoron. How else can we explain ethical failings at companies like Volkswagen? Or, Turing Pharmaceuticals that purchased the right to the prescription drug Darprim this past August and CEO Martin Shkreli decided a price increase of 5500% was needed.

Economist Milton Friedman famously argued that it is the social responsibility of corporations to increase profits thereby putting more people to work and paying more taxes to support programs that benefit the general public. But business ethicists caution against a myopic pursuit toward earnings. The quarterly reporting syndrome that pressures companies to meet earnings expectations promotes temptation that can push some to distort the truth.

But the desire to satisfy shareholders must be balanced with the need to service all corporate constituents — all of whom contribute to a company’s worth. That structure must be reinforced with values that build trust, as well as by more cognizant oversight and notable penalties for egregious acts.

“So, even if you can’t really regulate ethics, the fact that more people are more closely scrutinizing board behavior encourages directors to be more responsible,” says Mary Driscoll, an analyst with Standard & Poor’s. “But, there is no panacea, and I think we will continue to see abuses and excesses — but hopefully fewer.”

Certainly, ethical dilemmas are not always black and white. And the situations that can lead to hard choices can be as complex as the options themselves. Some companies therefore struggle with how to manage and measure ethics and particularly in cases where they have worldwide offices that operate in diverse cultures. Those decisions have a direct bearing on their public identities and will affect their share prices.

My views on business ethics were recently publicized in a release by Cal Poly, San Luis Obispo where I teach students about business and accounting ethics. Here is a link to that story.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on February 4, 2016. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: