Business Ethics

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In today’s world, anyone in business who doesn’t live in a cave knows that “business” and “ethics” just don’t seem like two terms that go together. It just does not seem as if you can read the Wall Street Journal — or the Peoria Journal Star for that matter — and not see a story of three about some violation of business morality and ethics. Sad but true, it is a statement of our times and of greed gone amuck.

Perhaps that makes it even more appropriate that we discuss that subject in some moderate depth to discover what it is supposed to be, what it used to be, and even more important, what it is today.


There are as many definitions as there are companies that ignore them, but sometimes simple is better. Business ethics is the use of moral, legal, and social responsibility, principles, and values in relation to business practices and decision-making. This may lead us to a definition of that sticky word, “moral,” again, a word with the potential of many meanings (Messick, 2009).

According to Webster’s II, New College Dictionary, (Houghton Mifflin, 1996, p. 447): “of or pertaining to the principles of right and wrong” might be an appropriate statement for our discussion of the word “moral” as it applies to ethics in business. I think it appropriate because the word itself does not say, “of or pertaining to the right principles,” but rather, in my mind, leaves the choice to us. “Moral” and “ethical” may mean positive or negative — and that’s exactly the point. Those who choose to be unethical also choose to be immoral, and thus violate the right, correct, and proper values that should dominate the business world. And the only way for that to happen is if those proper values dominate our own, personal belief systems.

Brief History of Ethics in Business

We’ll go back to the 1960s because that’s when it became necessary for the term “business ethics” to emerge into commonality in the United States. And emerge it did with the rise of the “military-industrial complex” during the Viet Nam War — that ominous, omnibus conglomerate that President Eisenhower warned us about. The “complex” got its share of scrutiny during that time, and more than its share of criticism (DeGeorge, 2005).

This was the beginnings of real, constant public examination of business, and corporations in particular. These corporations were expanding to enormous sizes never contemplated before. As a result, environmental problems were arising never dealt with before — and damage never imagined before. “Social responsibility” was the watchword of these multi-national conglomerates in response to the critical comments. Large amounts of money were expended to pay for internal programs and public ads that told their story of how much good they were all doing for society. And colleges and universities developed courses based around this new thing called “social responsibility” — which, we might mention, had no firm definition of what it really meant. It seemed rather superfluous, and vague (Woodrow Wilson International Center for Scholars, 2006).

Out of attempts to define those two words came two more words that were initially part of an attempted definition of social responsibility. Those two terms were “business” and “ethics.”

That phrase seemed more manageable and definable. Philosophy departments everywhere grabbed onto it and brought ethical theory and philosophical analysis together — and the field of business ethics came into being. Some can even pinpoint a date for the beginning of business ethics as November, 1974, with the first conference on the subject held at the University of Kansas (DeGeorge, 2005). During the late 1970s and 1980s, books and scholarly articles appeared — as did the first inklings of unethical or immoral business management. The downhill slide began.

Anyone in business today or in the past couple decades should be familiar with the phrases “code of ethics” or “code of conduct,” and, if employed by any business of medium to large size, have probably been requested to sign one on the dotted line (Crane & Matten, 2007 ). They are the corporate world’s response, once again, to an unprecedented amount of public scrutiny. Totally deserved scrutiny, one might add.

Enron, WorldCom, Arthur Andersen, AOL-Time Warner, Halliburton, Qwest, Reliant Energy, and Tyco and many more, have been involved in enormous corporate scandals of one sort or another adding up well into the billions of dollars. And should we add General Motors and Chrysler to the list? Is not total lack of vision and practicality, and the expenditure of millions of dollars on frivolity and abhorrent executive bonuses, resulting in the loss of millions of jobs, reason to label their management decisions immoral and/or unethical — lacking the right principles and values? We need only look around today at the state of the economy and our financial institutions to see the results, at least in part, of unnecessary greed and lack of ethics that dominate our society today.

All of these companies, I would be 90% certain, had explicit, well-drafted, thoroughly reviewed, and 100% distributed and signed, codes of ethics!

But, in many companies, these codes of ethics have become the focus of both management and employees as they attempt to bring some integrity back to business. They are important statements of what values the company holds close and practices on a .

Crane and Matten (2007), set out four types of ethical codes that are used: organizational or corporate, professional, industry, and program or group. They are all the same content but apply to different groups, (i.e. companies, professional organizations, industries).

Do codes of ethics work? It depends on how sincere the company is in developing them, applying them, and taking them to heart — management and employees. It’s not so much the content of the codes, but the intent in writing them and the thoroughness in applying them. In the list above of scandalous companies, it wouldn’t matter because someone was intent on breaking the law and, in doing so, dishonoring any code of ethics the corporation had. Unless a company has in place the level of management with the right principles and beliefs, no code of ethics is going to make them do what is right. But legislation might.

The Sarbanes-Oxley Act and the White-Collar Crime Penalty Enhancement Act of 2002

In 2002, the Sarbanes-Oxley Act, including the White-Collar Crime Penalty Enhancement Act of 2002 (WCCPA) was a response to the frustration Americans were feeling over the daily corporate corruption and scandal stories they were reading and hearing about. Enough is enough became the main driver behind enacting laws that might actually control some of the unethical and illegal practices. One could say that the catastrophic collapses of Enron and most of the U.S.

companies listed above were a major reason for Sarbanes too.

Both Acts were aimed at preventing more corporation collapses from fraud, and the WCCPA focused primarily on harsher sentencing for white-collar crimes. The only gliche is that neither Sarbanes-Oxley or WCCPA really do anything constructive to avoid fraud or to increase sentences (Harvard Law Review, 2009).

The problem seems to be that judges are not willing to impose the higher sentences set up by the WCCPA on a consistent basis. Therefore, instead of really stopping the unethical conduct, the deterrent effect of the laws is minimized, and it leads to uneven application of the law between jurisdictions. The sentencing guidelines had been increased, yes, but with no bottom floor. In other words, the range of sentences and the leeway given judges made any standardization almost impossible. And the fact that the high end of the sentences were quadrupled from before the two Acts were passed make it almost assured that judges will not consistently enforce them.

Why won’t judges enforce the higher end of the sentences. Two reasons are supposed but not provable. First, judges are unwilling to impose sentences for white-collar crime that parallel those sentences they impose for crimes like murder. Second, they may feel that the punishment does not fit the crime.

The point is that these two Acts have only created more chaos in the judicial system, and have not proven a real deterrent to white-collar crime. What is needed, according to the experts, is enactment of more reasonable sentences with guidelines for the court to assess the penalties. Another suggestion is to increase the financial culpability of the white-collar criminal to more than just the amount stolen. Imposition of in addition would tell the potential criminal that, because greed is driving his crime, the law will respond by taking everything he has (Harvard Law Review, 2009).

Other Business Ethics Violations

We have a tendency, as we have done here so far, to associate the big corporate failures and major fraud with violations of business ethics, but a discussion of business ethics must cover the board and discuss the following:

There are areas in any business that we may define as discretionary and others that would be non-discretionary. Those discretionary areas include sales and negotiating. These are open to flexibility, argument, discussion — all within boundaries. The boundaries that fence them in are the non-discretionary functions of the business, those areas where the lines must not be crossed.

The non-discretionary areas have very firm guidelines, rules, and even laws and regulations that guide what can and cannot be done. It is when we violate those guidelines, that we cross ethical and/or moral standards whether or not we actually violate the law. There is no compromise in the non-discretionary areas. Business ethics can be a very personal function rather than organizational (Cagle, Glasgo, & Holmes, 2008).

As an example, safety is non-discretionary. Safety procedures must be enforced and employees have to follow them. There is no negotiation or flexibility. If the company does not establish proper safety standards but no one gets hurt, is it a violation of business ethics? Of course. If the employee fails to follow the rules established, but doesn’t get hurt, is it a violation of business ethics? Yes, it is. Ethics gets personal.

You may have heard some of the following comments in your work: “it’s not my job,” “who’s gonna know?” “nobody will care,” “I’ve seen the boss do it,” and the granddaddy of them all, “everyone else does it.” All of those phrases indicate an attitude of knowing you are doing something wrong but doing it anyway. They lead directly to a violation of your personal business ethics, and, eventually, to acts that could bring trouble for your employer and yourself.

And, therein lies the major problem. Ethics can be like marijuana! Just take a small puff, and you’re hooked. Stealing a dollar from the petty cash to buy a soda was easy, and “it’s no big deal.” And when it all slides downhill and that same employee is discovered embezzling thousands of dollars, that single “puff” has become a fire. So, I hiked the price of gas at my service station two cents higher than I should — “so sue me.” Business ethics begin and end with every employee, every decision, and every action (Snyder, 2009).

Bernie Madoff’s $50 Billion, 20-year Ponzi scheme began with one investor. Are those minor violations of some minute corporate rule as big as Bernie Madoff’s scheme to bilk his friends, family and relatives out of all their money? Yes.


One of the significant steps we can take to improve the business ethics in this country is to teach it more effectively and thoroughly in our college classrooms. The thing that is lacking today, it seems, is experiential learning — the practical application of business ethics in “real” situations. To teach it effectively is necessary, both on an institutional and personal level.

On the other end, proper enforcement of ethics violations and appropriate judicial application of reasonable and practicable laws and sentencing guidelines is essential.


Cagle, J., Glasgo, P., & Holmes, V. (2008). Using ethics vignettes in introductory finance classes: Impact on ethical perceptions of undergraduate business students. Journal of education for business (peer-reviewed) (AN35201100), 76-83, Vol. 84, Issue 2.

Crane, A., & Matten, D. (2007). Business ethics: managing corporate citizenship and sustainability in the age of globalization – (peer-reviewed). Oxford, England: Oxford University Press.

DeGeorge, R.T. (2005, February). A history of business ethics. Retrieved June 15, 2009, from Santa Clara University:

Harvard Law Review. (2009). Go directly to jail: White collar sentencing after the Sarbanes-Oxley act. Harvard Law Review (peer-reviewed), 1728 (21) (GALE Doc. #A198185467).

Messick, D. (2009). What can psychology tell us about business ethics? Journal of Business Ethics (peer-reviewed), 73-80.

Snyder, J. (2009). What’s the matter with price gouging? Business Ethics Quarterly (peer-reviewed) (AN37353308), 275-293, Volume 19, Issue 2.

Woodrow Wilson International Center for Scholars. (2006, Winter). Business the beneficient (AN19462470). Wilson Quarterly (peer-reviewed), pp. 70-72, Vol. 30, Issue 1.