Business Ethics Unit 1: Introduction to Business Ethics PDF

*Ethics distinguishes itself from law and etiquette by going deeper into the essence of our social existence. It distinguishes itself from religion by seeking reasons, rather than authority, to justify its principles. The central purpose of ethics is to secure valid principles of conduct and values...

*Ethics distinguishes itself from law and etiquette by going deeper into the essence of our social existence. It distinguishes itself from religion by seeking reasons, rather than authority, to justify its principles. The central purpose of ethics is to secure valid principles of conduct and values that can be instrumental in guiding human actions and producing good character As such it is the most important activity known to humans, for it has to do with how we are to live. Louis P. Pojman* *\ *We need each other. We are dependent on each other to survive and thrive. Good choices or bad choices, our collective existence requires us to continuously make choices about "what we ought to do" in regard to others. Like it or not, we are by definition moral creatures. Ethics is primarily a communal, collective enterprise, not a solitary one. It is the study of our web-work of relationships with others. As a communal exercise, ethics is the attempt to work out the rights we have and share with others. Defining ethics is not difficult. Doing it, living it, on the other hand, is. Why? Because ethics requires us to be concerned about the rights and well-being of others. It requires us to stop thinking of ourselves as the sole center of the universe. It requires us to transcend the simplistic equation of "me, myself, and I." It requires us to be just, reasonable, and objective. Perhaps it requires us to do something we either "cannot" or "do not" want to do---be our best rational selves in regard to others. We believe that the central problem of ethics today is not a lack or moral reasoning or moral imagination, but, rather, a lack of moral engagement. That is, the willingness to take on ethical issues and questions. The willingness to extend ourselves. The willingness to put ourselves in "harm's way" because we are concerned about the well-being of others. We have forgotten a fundamental Socratic lesson:\ The goal of life is not to escape death, suffering, or inconvenience. The goal is to escape doing wrong, and living well with others. Publicly, we may live lives that are economically and electronically interconnected and interdependent; but privately, we are both emotionally and ethically withdrawn, unappreciative, and unempathetic to the wants, needs, and desires of others. Too many of us live our lives hopelessly absorbed with self. If we care about anyone else at all, it is only after we have first taken care of our own self-centered wants and needs. Søren Kierkegaard said that "subjectivity is the starting point of ethics." But subjectivity is neither the end point nor the only point of ethics. Starting from the self, ethics proceeds with the recognition of others. Ethics is always about self in the context of others. Ethics must be open to the "voice of others." For feminist and ethicist Carol Gilligan, caring for others, being responsive to others, being ethical, begins with standing outside of the needs of self and "talking and listening to others. For Jean-Paul Sartre, we are by definition moral creatures because we are "condemned" by the fact of our collective existence to continuously make choices about "what we ought to do" in regard to others. When Robinson Crusoe found himself marooned and alone on a tiny Pacific atoll, all things were possible. But when Friday came along and they discovered pirates burying treasure and each other on the beach, Crusoe was then involved in a universe of others, an ethical universe. As a communal exercise, ethics is the attempt to work out the rights and obligations we have and share with others. What is mine? What do I owe you? An act is not wrong (unethical) simply because it advances the well-being of an individual, but an act is wrong if it is unfair and inconsiderate in regard to the rights and just claims of others. According to the influential political philosopher John Rawls, given the presence of others and that we need others; ethics is elementally the pursuit of justice, fair play, and equity. For Rawls, the study of ethics has to do with developing standards for judging the conduct of one party whose behavior impacts on another. Minimally, "good behavior" intends no harm and respects the rights of all affected, and "bad behavior" is willfully or negligently trampling on the rights and interests of others. Ethics, then, tries to find a way to protect one person's individual rights and needs against and alongside the rights and needs of others. Of course, the paradox and central tension of ethics lies in the fact that while we are by nature communal and in need of others, at the same time we are by disposition more or less egocentric and self-serving. John Dewey argued that at the pre-critical, pre-rational, pre-autonomous stage of our lives, morality starts as a set of culturally defined rules which are external to the individual and are imposed or inculcated as habits. But real ethical thinking, said Dewey, begins at the evaluative period of our lives, when as independent agents we freely decide to accept, embrace, modify, or deny these rules. Dewey maintained that every serious ethical system rejects the notion that one's standard of conduct should simply and uncritically be an acceptance of the rules of the culture we happen to live in. Even if it is the case that custom, habit, convention, public opinion, or law are correct in their mandates, to embrace them without critical reflection does not constitute a complete and formal ethical act and might be better labeled "ethical happenstance" or "ethics by virtue of circumstantial accident." For Dewey, ethics is essentially "reflective conduct," and he believed that the distinction between custom and reflective morality is clearly marked. The former places the standard and rules of conduct solely on habit; the latter appeals to reason and choice. The distinction is as important as it is definite, for it shifts the center of gravity in morality. For Dewey, ethics is a two-part process. It is never simply enough to do the right thing. We must do the right thing for the right reason, on purpose. In other words, true ethical acts necessitate the unity of theory and action, or, the integration of self in a deliberately chosen act. (***Al Gini and Alexei M. Marcoux)*** **DEFINING MORALITYAND ETHICS** Some of the controversy regarding business ethics is no doubt due to different understandings of what constitutes morality or ethics in the first place. Before we continue then, it is important for us to sort out some of the terminology we are using. In common usage, the terms 'ethics' and 'morality' are often used interchangeably. This probably does not pose many real problems for most of us in terms of communicating and understanding things about business ethics. However, in order to clarify certain arguments, many academic writers have proposed clear differences between the two terms (e.g. Crane 2000; Parker 1998b). Unfortunately, though, different writers have sometimes offered somewhat different distinctions, thereby serving more to confuse us than clarify our understanding.' Nonetheless, we do agree that there are certain advantages in making a distinction between 'ethics' and 'morality', and following the most common way of distinguishing them, we offer the following definitions: **MORALITY** ***Morality*** is concerned with the norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community. Another definition is that morality is the standards that an individual or group has about what is right and wrong, good and evil. ***Moral standards*** include the norms we have about the kinds of actions we believe are morally right and wrong as well as the values we place on the kinds of objects we believe are morally good and morally bad. *Moral norms can usually be expressed as general rules or statements, such as "Always tell the truth," "It is wrong to kill innocent people,"* or "*Actions are right to the extent that they produce happiness.*" Moral values can usually be expressed as statements describing objects or features of objects that have worth, such as "Honesty is good" and "Injustice is bad."\ Where do these standards come from? Typically, a person's moral standards are first absorbed as a child from family, friends, and various societal influences such as church, school, television, magazines, music, and associations. Later, as the person grows up, experience, learning, and intellectual development may lead the maturing person to revise these standards. Some are discarded, and new ones may be adopted to replace them. Through this maturing process, the person may develop standards that are more intellectually adequate and so more suited for dealing with the moral dilemmas of adult life. Moral standards can be contrasted with standards we hold about things that are not moral. Examples of ***nonmoral standards*** include the standards of etiquette by which we judge manners as good or bad, the standards we call *the law* by which we judge legal right and wrong, the standards of language by which we judge what is grammatically right and wrong, the standards of aesthetics by which we judge good and bad art, and the athletic standards by which we judge how well a game of football or basketball is being played. In fact, whenever we make judgments about the right or wrong way to do things, or judgments about what things are good or bad, our judgments are based on standards of some kind. **CHARACTERISTICS OF MORAL STANDARDS** What are the characteristics that distinguish moral standards from standards that are not moral? This is not an easy question to answer. However, ethicists have suggested five characteristics that help pin down the nature of moral standards. *First, moral standards deal with matters that we think can seriously injure or seriously benefit human beings.* For example, most people in American society hold moral standards against theft, rape, enslavement, murder, child abuse, assault, slander, fraud, lawbreaking, and so on. All of these plainly deal with matters that people feel are quite serious forms of injury. *Second, moral standards are not established or changed by the decisions of particular authoritative bodies.* Laws and legal standards are established by the authority of a legislature or the decisions of voters. Moral standards, however, are not established by authority nor does their validity rest on voting procedures. Instead, the validity of moral standards rests on the adequacy of the reasons that are taken to support and justify them; so long as these reasons are adequate, the standards remain valid. *Third, and perhaps most striking, we feel that moral standards should be preferred to other values including (especially?) self-interest.* That is, if a person has a moral obligation to do something, then he or she is supposed to do it even if this conflicts with other, nonmoral values or self-interest. *Fourth, and generally, moral standards are based on impartial considerations.* The fact that you will benefit from a lie and that I will be harmed is irrelevant to whether lying is morally wrong. Recent philosophers have expressed this point by saying that moral standards are based on "the moral point of view"---that is, a point of view that does not evaluate standards according to whether they advance the interests of a particular individual or group, but one that goes beyond personal interests to a "universal" standpoint in which everyone's interests are impartially counted as equal. Other philosophers have made the same point by saying that moral standards are based on the kinds of impartial reasons that an "ideal observer" or an "impartial spectator" would accept, or that in deciding moral matters "each counts for one and none for more than one." As we see in the next chapter, however, although impartiality is a characteristic of moral standards, it must be balanced with certain kinds of partiality, in particular, with the partiality that arises from legitimate caring and preference for those individuals with whom we have a special relationship, such as family members and friends. Although morality says that we should be impartial in those contexts where justice is called for, such as assigning salaries in a public company, it also identifies certain contexts, such as taking care of family members, where preferential caring for individuals may be morally legitimate and perhaps even morally required. *Last, moral standards are associated with special emotions and a special vocabulary.* For example, if I act contrary to a moral standard, I will normally feel guilty, ashamed, or remorseful; I will characterize my behavior as "immoral" or "wrong" and I will feel bad about myself and experience a loss of self-esteem. Moral standards, then, are standards that deal with matters that we think are of serious consequence, are based on good reasons and not on authority, override self- interest, are based on impartial considerations, and that are associated with feelings of guilt and shame and with a special moral vocabulary. We absorb these standards as children from a variety of influences and revise them as we mature. **ETHICS** What then is ethics? ***Ethics*** is the study of morality and that a person begins to do ethics when he or she turns to look at the moral standards that have been absorbed from family, church, friends, and society and begins asking whether these standards are reasonable or unreasonable and what these standards imply for situations and issues. Another definition is that ***Ethics*** is also concerned with the study of morality and the application of reason to clarify specific rules and principles that determine right and wrong for a given situation. These rules and principles are called ethical theories. The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold---standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices that fill our lives. Therefore, a person starts to do ethics when he or she takes the moral standards absorbed from family, church, and friends and asks: What do these standards imply for the situations in which I find myself? Do these standards really make sense? What are the reasons for or against these standards? Why should I continue to believe in them? What can be said in their favor and what can be said against them? Are they really reasonable for me to hold? Are their implications in this or that particular situation reasonable? Although ethics is a normative study of ethics, the social sciences engage in a descriptive study of ethics. **A *normative study*** is an investigation that attempts to reach normative conclusions--- that is, conclusions about what things are good or bad or about what actions are right or wrong. In short, a normative study aims to discover what should be. As we have seen, ethics is the study of moral standards whose explicit purpose is to determine as far as possible which standards are correct or supported by the best reasons, and so it attempts to reach conclusions about moral right and wrong and moral good and evil. A ***descriptive study*** is one that does not try to reach any conclusions about what things are truly good or bad or right or wrong. Instead, a descriptive study attempts to describe or explain the world without reaching any conclusions about whether the world is as it should be. Anthropologists and sociologists, for example, may study the moral standards that a particular village or culture holds. In doing so, they attempt to develop accurate descriptions of the moral standards of that culture and perhaps even to formulate an explanatory theory about their structure. As anthropologists or sociologists, however, it is not their aim to determine whether these moral standards are correct or incorrect. Ethics, in contrast, is a study of moral standards whose explicit purpose is to determine as far as possible whether a given moral standard (or moral judgment based on that standard) is more or less correct. The sociologist asks, "Do Americans believe that bribery is wrong?" whereas the ethicist asks, "Is bribery wrong?" The ethicist, then, is concerned with developing reasonable normative claims and theories, whereas an anthropological or sociological study of morality aims at providing descriptive characterizations of people's beliefs. **FOUNDATION OF ETHICAL THEORY/ TYPES OF ETHICS** ***Descriptive/Comparative Ethics*** Descriptive ethics, also known as comparative ethics, is the study of people\'s beliefs about morality. The reason why descriptive ethics is sometimes referred to as comparative ethics is because so much activity can involve comparing ethical systems: comparing the ethics of the past to the present, comparing the ethics of one society to another and comparing the ethics which people claim to follow with the actual rules of conduct which do describe their actions. The category of descriptive ethics is the easiest to understand - it simply involves **describing** how people behave and/or what sorts of moral standards they claim to follow. Descriptive ethics is a form of ***empirical research*** (information gained by means of observation or experiments) into the attitudes of individuals or groups of people. Those working on descriptive ethics aim to uncover people\'s beliefs about such things as values, which actions are right and wrong, and which characteristics of moral agents are virtuous. Research into descriptive ethics may also investigate people\'s ethical ideals or what actions societies condemn or punish in law or politics. Because descriptive ethics involves empirical investigation, it is an area that is usually investigated by those working in the fields of anthropology, psychology, sociology and history as part of the process of understanding what people do or have believed about moral norms. Anthropologists and sociologists can provide us with all sorts of information about how societies past and present have structured moral standards and how they have expected people to behave. Psychologists can study how a person\'s conscience develops and how that person goes about actually making moral choices in real or hypothetical situations. Descriptive ethics also studies the codes of conduct created by professional organizations to regulate the conduct of members. Strictly speaking, then, descriptive ethics is not entirely a field within philosophy - rather, it is more a specialty which involves many different fields within the social sciences. It is not designed to provide guidance to people in making moral decisions, nor is it designed to evaluate the reasonableness of moral norms. Nevertheless, actual work in moral philosophy cannot proceed very far without the knowledge gained from descriptive ethics. Here are some examples of statements from Descriptive Ethics: (1) Most Americans think that racism is wrong. (2) Among certain cultures, there is no stigma attached to homosexuality. **LAWRENCE KOHLBERG: AN EXAMPLE OF DESCRIPTIVE ETHICS** Lawrence Kohlberg is one example of a psychologist working on descriptive ethics. In one study, for example, Kohlberg questioned a group of boys about what would be a right or wrong action for a man facing a moral dilemma: should he steal a drug to save his wife, or refrain from theft even though that would lead to his wife\'s death? Kohlberg\'s concern was not which choice the boys made, but the moral reasoning that was behind their decisions. After carrying out a number of related studies, Kohlberg devised a theory about the development of human moral reasoning that was intended to reflect the moral reasoning actually carried out by the participants in his research. Kohlberg\'s research can be classed as descriptive ethics to the extent that he describes human beings\' actual moral development. If, in contrast, he had aimed to describe how humans ought to develop morally, his theory would have involved prescriptive ethics. Kohlberg\'s classification can be outlined in the following manner: **LEVEL ONE: PRECONVENTIONAL STAGES** At these first two stages, the child is able to respond to rules and social expectations and can apply the labels good, bad, right, and wrong. These rules, however, are seen as something externally imposed on the self. Right and wrong are interpreted in terms of the pleasant or painful consequences of actions or in terms of the physical power of those who set the rules. If one were to ask a 5-year-old, for example, whether stealing is wrong, she or he will say it is; if one then asks the child why it is wrong, the answer will be something like, "Because Mommy will punish me if I steal." The child can see situations only from his or her own point of view; because the child does not yet have the ability to identify with others to any great extent, the primary motivation is self-centered. **Stage 1: *Punishment and Obedience Orientation*** In the first stage of this level, people behave according to socially acceptable norms because they are told to do so by some authority figure (e.g., parent or teacher). This obedience is compelled by the threat or application of punishment. There is little awareness that others have needs and desires similar to one's own. **Stage 2: *Instrumental and Relative Orientation*** At this stage, right actions become those that can serve as instruments for satisfying the child's own needs or the needs of those for whom the child cares. The child is now aware that others have needs and desires similar to his or her own and begins to defer to them to get them to do what he or she wants. **\ ** **LEVEL TWO: CONVENTIONAL STAGES** Maintaining the expectations of one's own family, peer group, or nation is now seen as valuable in its own right, regardless of the consequences. The person at this level of development does not merely conform to expectations but exhibits loyalty to the group and its norms. If one were to ask an adolescent at this level about why something is wrong or why it is right, for example, the adolescent would probably answer in terms of "what my friends think," "what my family has taught me," "what we Americans hold," or even "what our laws say." The adolescent at this stage is now able to see situations from the point of view of others, but the only perspectives the adolescent can take up are the familiar viewpoints of the people who belong to the adolescent's own social groups, such as family, peers, organizations, nation, and social class, and the adolescent assumes that everyone is like them. The person is motivated to conform to the group's norms and subordinates the needs of the individual to those of the group. **Stage 3: *Interpersonal Concordance Orientation*** Good behavior at this early conventional stage is living to the expectations of those for whom one feels loyalty, affection, and trust, such as family and friends. Right action is conformity to what is generally expected in one's role as a good son, daughter, brother, friend, and so on. Doing what is right is motivated by the need to be seen as a good performer in one's own eyes and in the eyes of others. In its simplest form it is characterized by an attitude which seeks to do what will gain the approval of others. **\ ** **Stage 4:** Law and Order Orientation Right and wrong at this more mature conventional stage now come to be determined by loyalty to one's own larger nation or surrounding society. Laws are to be upheld except where they conflict with other fixed social duties. The person is now able to see other people as parts of a larger social system that defines individual roles and obligations, and he or she can separate the norms generated by this system from interpersonal relationships and motives. (abiding by the law and responding to the obligations of duty) **LEVEL THREE: POSTCONVENTIONAL, AUTONOMOUS OR PRINCIPLED STAGES** At these stages, the person no longer simply accepts the values and norms of the groups to which he or she belongs. Instead, the person now tries to see situations from a point of view that impartially takes everyone's interests into account. The person questions the laws and values that society has adopted and redefines them in terms of self-chosen moral principles that can be justified in rational terms. If an adult at this stage is asked why something is wrong, the person will respond in terms of what has been decided through processes that are "fair to everyone" or in terms of "justice," "human rights," or "society's overall welfare" The proper laws and values are those that conform to principles to which any reasonable person would be motivated to commit. **Stage 5: *Social Contract Orientation*** At this first post-conventional stage, the person becomes aware that people hold a variety of conflicting personal views and opinions and emphasizes fair ways of reaching consensus by agreement, contract, and due process. The person believes that all values and norms are relative and that, apart from this democratic consensus, all should be tolerated. **Stage 6: *Universal Ethical Principles Orientation*** At this final stage, right action comes to be defined in terms of moral principles chosen because of their logical comprehensiveness, universality, and consistency. These ethical principles are not concrete, like the Ten Commandments, but abstract general principles dealing with justice, society's welfare, the equality of human rights, respect for the dignity of individual human beings, and the idea that persons are ends in themselves and must be treated as such. The person's reasons for doing what is right are based on a commitment to these moral principles, and the person sees them as the criteria for evaluating all other moral rules and arrangements, including democratic consensus. Kohlberg believed that individuals could only progress through these stages one stage at a time. That is, they could not \"jump\" stages. They could not, for example, move from an orientation of selfishness to the law and order stage without passing through the good boy/girl stage. They could only come to a comprehension of a moral rationale one stage above their own. Thus, according to Kohlberg, it was important to present them with moral dilemmas for discussion which would help them to see the reasonableness of a \"higher stage\" morality and encourage their development in that direction. The last comment refers to Kohlberg\'s moral discussion approach. He saw this as one of the ways in which moral development can be promoted through formal education. Note that Kohlberg believed, as did Piaget, that most moral development occurs through social interaction. ***\ *** ***Meta/Analytical Ethics*** Meta/Analytical ethics is the most abstract area of moral philosophy. It doesn't ask what acts, or what kind of acts are good or bad, right or wrong; rather, ***it asks about the nature of goodness and badness, what it is to be morally right or wrong. It addresses the 'motive' behind the actions instead of just being satisfied with a description of the actions.*** Another definition of this type of ethics is that it uses the facts if the ethical situation to try and understand or analyze the action of the decision makers as related to the ethical issue. ***Normative Ethics*** The category of normative ethics involves creating or evaluating moral standards. Thus, it is an attempt to figure out what people should do or whether their current moral behavior is reasonable. Normative ethics involves arriving at moral standards that regulate right and wrong conduct. In a sense, it is a search for an ideal test of proper behavior, or ***it is the prescribe course of action that is recommended to avoid unethical behaviour in the future***. The Golden Rule is a classic example of a normative principle: We should do to others what we would want others to do to us. Since I do not want my neighbour to steal my car, then it is wrong for me to steal his car. Since I would want people to feed me if I was starving, then I should help feed starving people. Using this same reasoning, I can theoretically determine whether any possible action is right or wrong. So, based on the Golden Rule, it would also be wrong for me to lie to, harass, victimize, assault, or kill others. The Golden Rule is an example of a normative theory that establishes a single principle against which we judge all actions. ***Applied Ethics*** According to Brenda Almond, co-founder of the Society for Applied Philosophy, \"applied ethics is the philosophical examination, from a moral standpoint, of particular issues in private and public life that are matters of moral judgment\". It is thus a term used to describe ***attempts to use philosophical methods to identify the morally correct course of action in various fields of human life.*** Another definition of this field of ethics is ***the attempt to take insights from the work of philosophers and theologians and apply them to real-world situations***. For example, bioethics is an important and growing aspect of applied ethics which involves people working out the most moral decisions regarding issues like organ transplants, genetic engineering, cloning, etc. **BUSINESS ETHICS** Business ethics, it has been claimed, is an oxymoron (Collins 1994). By an oxymoron, we mean the bringing together of two apparently contradictory concepts, such as in 'a cheerful pessimist' or 'a deafening silence'. To say that business ethics is an oxymoron suggests that there are not, or cannot be, ethics in business: that business is in some way unethical (i.e. that business is inherently bad), or that it is, at best, amoral (i.e. outside of our normal moral considerations). For example, in the latter case, Albert Carr (1968) notoriously argued in his article 'Is Business Bluffing Ethical' that the 'game' of business was not subject to the same moral standards as the rest of society, but should be regarded as analogous to a game of poker, where deception and lying were perfectly permissible. To some extent, it is not surprising that some people think this way. Various scandals concerning undesirable business activities, such as the polluting of rivers with industrial chemicals, the exploitation of sweatshop workers, the payment of bribes to government officials, and the deception of unwary consumers, have highlighted the unethical way in which some firms have gone about their business. However, just because such malpractices take place does not mean that there are not some kinds of values or principles driving such decisions. After all, even what we might think of as 'bad' ethics are still ethics of a sort. And clearly it makes sense to try and understand why those decisions get made in the first place, and indeed to try and discover whether more acceptable business decisions and approaches can be developed. Revelations of corporate malpractice should not therefore be interpreted to mean that thinking about ethics in business situations is entirely redundant. After all, as various writers have shown, many everyday business activities require the maintenance of basic ethical standards, such as honesty, trustworthiness, and co-operation (Collins 1994; Watson 1994). Business activity would be impossible if corporate directors always lied; if buyers and sellers never trusted each other; or if employees refused to ever help each other. Similarly, it would be wrong to infer that scandals involving corporate wrongdoing mean that the subject of business ethics was in some way naïve or idealistic. Indeed, on the contrary, it can be argued that the subject of business ethics primarily exists in order to provide us with some answers as to why certain decisions should be evaluated as ethical or unethical, or right or wrong. Without systematic study, how are we able to offer anything more than vague opinions or hunches about whether particular business activities are acceptable? So, in a nutshell, here is what we regard the subject of business ethics as: ***Business ethics*** *is the study of business situations, activities, and decisions where issues of right and wrong are addressed.* Moreover, by 'business' ethics, we do not mean only commercial businesses, but also government organizations, pressure groups, not-for-profit businesses, charities, and other organizations. Another definition of ***business ethics*** is that it is a specialized study of moral right and wrong. It concentrates on moral standards as they apply to business institutions, organizations, and behavior. A brief description of the nature of business institutions should clarify this. A society consists of people who have common ends and whose activities are organized by a system of institutions designed to achieve these ends. That men, women, and children have common ends is obvious. There is the common end of establishing, nurturing, and protecting family life; producing and distributing the materials on which human life depends; restraining and regularizing the use of force; organizing the means for making collective decisions; and creating and preserving cultural values such as art, knowledge, technology, and religion. The members of a society achieve these ends by establishing the relatively fixed patterns of activity that we call institutions: familial, economic, legal, political, and educational. The most influential institutions within contemporary societies may be their economic institutions. These are designed to achieve two ends: (a) production of the goods and services the members of society want and need, and (b) distribution of these goods and services to the various members of society. Thus, economic institutions determine who will carry out the work of production, how that work will be organized, what resources that work will consume, and how its products and benefits will be distributed among society's members. Business organizations are the primary economic institutions through which people in modern societies carry on the tasks of producing and distributing goods and services. They provide the fundamental structures within which the members of society combine their scarce resources---land, labor, capital, and technology---into usable goods, and they provide the channels through which these goods are distributed in the form of consumer products, employee salaries, investors' return, and government taxes. Mining, manufacturing, retailing, banking, marketing, transporting, insuring, constructing, and advertising are all different facets of the productive and distributive processes of our modern business institutions. The most significant kinds of modern business organizations are corporations: organizations that the law endows with special legal rights and powers. Today, large corporate organizations dominate our economies. The business corporation in its present form is a relatively new kind of institution (as institutions go). Although it developed from the 16th-century "joint stock company," most of its current characteristics were acquired during the 19th century. Modern corporations are organizations that the law treats as immortal fictitious "persons," who have the right to sue and be sued, own and sell property; and enter into contracts, all in their own name. As an organization, the modern corporation consists of (a) stockholders who contribute capital and who own the corporation but whose liability for the acts of the corporation is limited to the money they contributed, (b) directors and officers who administer the corporation's assets and who run the corporation through various levels of "middle managers," and (c) employees who provide labor and who do the basic work related directly to the production of goods and services. To cope with their complex coordination and control problems, the officers and managers of large corporations adopt formal bureaucratic systems of rules that link together the activities of the individual members of the organization so as to achieve certain outcomes or objectives. So long as the individual follows these rules, the outcome can be achieved even if the individual does not know what it is and does not care about it. Business ethics is a study of moral standards and how these apply to the social systems and organizations through which modern societies produce and distribute goods and services and to the behaviors of the people who work within these organizations. Business ethics, in other words, is a form of applied ethics. It not only includes the analysis of moral norms and moral values but also attempts to apply the conclusions of this analysis to that assortment of institutions, organizations, activities, and pursuits that we call business. There are ***three different kinds of issues that business ethics investigates***: systemic, corporate, and individual. ***Systemic issues*** in business ethics are ethical questions raised about the economic, political, legal, and other social systems or institutions within which businesses operate. These include questions about the morality of capitalism or of the laws, regulations, industrial structures, and social practices within which American businesses operate. ***Corporate issues*** in business ethics are ethical questions raised about a particular organization. These include questions about the morality of the activities, policies, practices, or organizational structure of an individual company taken as a whole. Finally, ***individual issues*** in business ethics are ethical questions raised about a particular individual or particular individuals within a company and their behaviors and decisions. These include questions about the morality of the decisions, actions, or character of an individual. It is helpful when analyzing the ethical issues raised by a particular decision or case to sort out the issues in terms of whether they are systemic, corporate, or individual issues. Often the world presents us with decisions that involve a large number of extremely complicated interrelated kinds of issues that can cause confusion unless the different kinds of issues are first carefully sorted out and distinguished from each other. Moreover, the kinds of solutions that are appropriate for dealing with systemic or corporate issues are not the same as the kinds of solutions that are appropriate for dealing with individual issues. If a company is trying to deal with a systemic issue--- such as a government culture that permits bribery---then the issue must be dealt with on a systemic level; that is, it must be dealt with through the coordinated actions of many different social groups. On the other hand, corporate ethical issues can be solved only through corporate or company solutions. If a company has a culture that encourages moral wrongdoing, for example, then changing that culture requires the cooperation of the many different people that constitute the company. Finally, individual ethical issues need to be solved through individual decisions and, perhaps, individual reform. **ARGUMENTS FOR AND AGAINST BUSINESS ETHICS** We have described business ethics as the process of rationally evaluating our moral standards and applying them to business situations. However, many people have raised objections to the very idea of applying moral standards to business activities. **Three Objections to Bringing Ethics into Business\ ** Occasionally people object to the view that ethical standards should be applied to the behaviour of people in business organizations. Persons involved in business, they claim, should single mindedly pursue the financial interests of their firm and not sidetrack their energies or their firm's resources into "doing good works." Three different kinds of arguments are advanced in support of this view. ***First**, some have argued that in perfectly competitive free markets, the pursuit of profit will by itself ensure that the members of society are served in the most socially beneficial ways.* To be profitable, each firm has to produce only what the members of society want and has to do this by the most efficient means available. The members of society will benefit most, then, if managers do not impose their own values on a business, but instead devote themselves to the single-minded pursuit of profit and thereby to producing efficiently what the members of society value. Arguments of this sort conceal a number of ***assumptions*** that require a much lengthier discussion. Here we only note some of the more questionable assumptions on which the argument rests. First, most industrial markets are not "perfectly competitive" as the argument assumes, and to the extent\ that firms do not have to compete they can maximize profits despite inefficient production. Second, the argument assumes that any steps taken to increase profits will necessarily be socially beneficial, when in fact several ways of increasing profits actually injure society: allowing harmful pollution to go uncontrolled, deceptive advertising, concealing product hazards, fraud, bribery, tax evasion, price fixing, and so on. Third, the argument assumes that, by producing whatever the buying public wants (or values), firms are producing what all the members of society want, when in fact the\ wants of large segments of society (the poor and disadvantaged) are not necessarily met because they cannot participate fully in the marketplace. Fourth, the argument is essentially making a normative judgment ("managers should devote themselves to the single-minded pursuit of profits") on the basis of some assumed but unproved moral standards ("people should do whatever will benefit those who participate in markets"). Thus, although the argument tries to show that ethics does not matter, it can do this only by assuming an unproved moral standard that at least appears mistaken. A ***second*** ***kind of argument*** sometimes advanced to show that *business managers should single-mindedly pursue the interests of their firms and should ignore ethical considerations* is embodied in what Alex C. Michales called the "loyal agent's argument." The argument can be paraphrased as follows: As a loyal agent of his or her employer, the manager has a duty to serve the employer as the employer would want to be served (if the employer had the agent's expertise). An employer would want to be served in whatever ways will advance his or her self-interests. Therefore, as a loyal agent of the employer, the manager has a duty to serve the employer in whatever ways will advance the employer's self-interests. The argument can be, and often has been, used to justify a manager's unethical or illegal conduct. For example, the officer of a corporation may plead that, although he engaged in certain illegal or unethical conduct (e.g., price fixing), he should be excused because he did it not for himself, but to protect the best interests of his company, its shareholders, or its workers. The loyal agent's argument underlies this kind of excuse. More generally, if we replace employer with government and manager with officer, we get the kind of argument that Nazi officers used after World War II to defend their involvement in Hitler's morally corrupt government. The loyal agent's argument relies on several ***questionable assumptions***. First, the argument tries to show, again, that ethics does not matter by assuming an unproved moral standard ("the manager should serve the employer in whatever way the employer wants to be served"). But there is no reason to assume that this moral standard is acceptable as it stands and some reason to think that it would be acceptable only if it were suitably qualified (e.g., "the manager should serve the employer in whatever moral way the employer wants to be served"). Second, the loyal agent's argument assumes that there are no limits to the manager's duties to serve the employer when in fact such limits are an express part of the legal and social institutions from which these duties arise. An agent's duties are defined by what is called the law of agency (i.e., the law that specifies the duties of persons (agents) who agree to act on behalf of another party and who are authorized by the agreement so to act). Lawyers, managers, engineers, stockbrokers, and so on all act as agents for their employers in this sense. By freely entering an agreement to act as someone's agent, then, a person accepts a legal (and moral) duty to serve the client loyally, obediently, and in a confidential manner as specified in the law of agency. Yet the law of agency states that "in determining whether or not the orders of the (client) to the agent are reasonable... business or professional ethics are to be considered," and "in no event would it be implied that an agent has a duty to perform acts which are illegal or unethical." The manager's duties to serve the employer, then, are limited by the constraints of morality, because it is with this understanding that the duties as a loyal agent are defined. Third, the loyal agent's argument assumes that if a manager agrees to serve a firm, then this agreement automatically justifies whatever the manager does on behalf of the firm. However, this assumption is false: Agreements to serve other people do not automatically justify doing wrong on their behalf. For example, it is clearly wrong for me to kill an innocent person to advance my own interests. Suppose that one day I enter an agreement to serve your interests and that later it turns out that your interests require that I kill an innocent person for you. Does the agreement now justify my killing the innocent person? Obviously, it does not because agreements do not change the moral character of wrongful acts. If it is morally wrong, then, for a manager to do something out of self-interest, it is also morally wrong for the manager to do it in the interests of the company even though the manager has agreed to serve the company. The assumptions of the loyal agent's argument, then, are mistaken. A ***third kind of objection*** is sometimes made against bringing ethics into business. *This is the objection that to be ethical it is enough for businesspeople merely to obey the law*: Business ethics is essentially obeying the law. For example, when an accountant was asked to prepare a business ethics report for the board of directors of 7-Eleven Stores, his report excluded allegations that a store manager was trying to bribe New York tax officials. When asked why the alleged bribery attempt was excluded from the report, he replied that he did not feel the incident was unethical because it was not illegal, implying that unethical and illegal are the same. It is wrong, however, to see law and ethics as identical. It is true that some laws require behavior that is the same as the behavior required by our moral standards. Examples of these are laws that prohibit murder rape, theft, fraud, and so on. In such cases, law and morality coincide, and the obligation to obey such laws is the same as the obligation to be moral. However, law and morality do not always coincide. Some laws have nothing to do with morality because they do not involve serious matters. These include parking laws, dress codes, and other laws covering similar matters. Other laws may even violate our moral standards so that they are actually contrary to morality. Our own pre-Civil War slavery laws, for example, required us to treat slaves like property; and the laws of Nazi Germany required anti-Semitic behavior. The laws of Saudi Arabia today require that businesses discriminate against women and Jews in ways that most people would say are clearly immoral. Thus, it is clear that ethics is not simply following the law. This does not mean, of course, that ethics has nothing to do with following the law. Our moral standards are sometimes incorporated into the law when enough of us feel that a moral standard should be enforced by the pressures of a legal system. In contrast, laws are sometimes criticized and eliminated when it becomes clear that they blatantly violate our moral standards. Our moral standards against bribery in business, for example, were incorporated into the Foreign Corrupt Practices Act, and only a few decades ago it became clear that laws permitting job discrimination---like earlier laws permitting slavery---were blatantly unjust and had to be eliminated. Morality, therefore, has shaped and influenced many of the laws we have. Moreover, most ethicists agree that all citizens have a moral obligation to obey the law so long as the law does not require clearly unjust behavior. This means that, in most cases, it is immoral to break the law. Tragically, the obligation to obey the law can create terrible conflicts when the law requires something that the businessperson believes is immoral. In such cases, a person will be faced with a conflict between the obligation to obey the law and the obligation to obey his or her conscience. **The Case for Ethics in Business** We have looked at several arguments attempting to establish that ethics should not be brought into business and we found them all wanting. Is there anything to be said for the opposite claim---that ethics should be brought into business? *One way to argue that ethics should be brought into business is simply by pointing out that, because ethics should govern all voluntary human activities and because business is a voluntary human activity; ethics should also govern business.* In short, there is nothing about business that would prevent us from applying the same standards of ethics to business activities that should be applied to all voluntary human activities. ***Another argument*** *for the view that ethics should be part of business points out that business activities, like any other human activities, cannot exist unless the people involved in the business and its surrounding community adhere to some minimal standards of ethics.* Business is a cooperative activity whose very existence requires ethical behavior. First, any individual business will collapse if all of its managers, employees, and customers come to think that it is morally permissible to steal from, lie to, or break their agreements with the company. Because no business can exist entirely without ethics, the pursuit of business requires at least a minimal adherence to ethics on the part of those involved in business. Second, all businesses require a stable society in which to carry on their business dealings. Yet the stability of any society requires that its members adhere to some minimal standards of ethics. In a society without ethics, as the philosopher Hobbes once wrote, distrust and unrestrained self- interest would create "a war of every man against every man," and in such a situation life would become "nasty, brutish, and short." The impossibility of conducting business in such a society---one in which lying, theft, cheating, distrust, and unrestrained self-interested conflict became the norm---is shown by the way in which business activities break down in societies torn by strife, conflict, distrust, and civil war. Because businesses cannot survive without ethics, then, it is in the best interests of business to promote ethical behavior both among its own members as well as within its larger society. ***Another persuasive*** *way to argue that ethics should be brought into business is by showing that ethical considerations are consistent with business pursuits, in particular with the pursuit of profit.* That ethics is consistent with the pursuit of profit can be shown by simply finding examples of companies where a history of good ethics has existed side by side with a history of profitable operations. Companies that have combined a good history of profit with exemplary ethical climates include Intel, Timberland, Hewlett-Packard, Cisco Systems, Levi Strauss, Southwest Airlines, Patagonia, Procter & Gamble, and Starbucks Coffee. Yet pointing to individual companies in which the pursuit of ethics has existed side by side with the pursuit of profit does not fully demonstrate that ethics is consistent with the pursuit of profits. Many chance factors affect profitability (overcapacity in a particular industry, recessions, weather patterns, interest rates, changing consumer tastes, etc.). Consequently, these companies may be nothing more than the few companies in which ethics by chance happened to coincide with profits for a period of time. Is there any evidence that ethics in business is systematically correlated with profitability? Are ethical companies more profitable than other companies? There are many difficulties involved in trying to study whether ethical companies are more profitable than unethical ones. There are many different ways of defining ethical, many different ways of measuring profit, many different ways of deciding whose actions count as the actions of the company, many different factors that can affect a company's profits, and many different dimensions along which companies can be compared. Despite these difficulties, several studies have examined whether profitability is correlated with ethical behavior. The results have been mixed. Although several studies have found a positive relationship between socially responsible behavior and profitability; some have found no such relationship. No studies, however, have found a negative correlation, which would have indicated that ethics is a drag on profits. Other studies have looked at how socially responsible firms perform on the stock market and have concluded that ethical companies provide higher returns than other companies. Together, all these studies suggest that, by and large, ethics does not detract from profit and seems to contribute to profits. Are there any other reasons to think that ethics should be brought into business? ***Consider an argument based on the prisoner's dilemma.*** A prisoner's dilemma is a situation in which two parties are each faced with a choice between two options: Either cooperate with the other party or do not cooperate. If both parties cooperate, they will both gain some benefit. If both choose not to cooperate, neither gets the benefit. If one cooperates while the other chooses not to cooperate, the one who cooperates suffers a loss and the one who chooses not to cooperate gains a benefit. The story that gives the prisoner's dilemma its name is a good illustration of this kind of dilemma. Two men who are arrested for robbing a store secretly agree that neither will confess that they committed the crime. The police commissioner separates the two men and tells each prisoner the same thing. If neither admits that the two of them robbed the store, they will both be kept in jail for a year. If both prisoners confess to robbing the store, each will get 2 years in jail. If one of them keeps quiet and the other confesses, the one who keeps quiet will get 3 years in jail and the one who confesses will go free. From the joint standpoint of the parties involved, the best outcome in a prisoners dilemma is for both parties to cooperate in their agreement. Mutual cooperation will leave them each better off (only 1 year in jail) than if both do not cooperate (2 years in jail). However, if the parties to a single prisoner's dilemma are rational and self-interested, they will inevitably choose not to cooperate. A rational self-interested party will reason like this: "The other party has only two choices: to cooperate or not cooperate. Suppose he chooses to cooperate. Then I will be better off if I do not cooperate. Suppose-he chooses not to cooperate. Then again it is clearly better for me not to cooperate. So in either case, it is better for me not to cooperate than to cooperate." Because both parties will reason this way, both parties will end up not cooperating (and both will go to jail for 2 years). In short, when people must choose between cooperating or not cooperating in rules or agreements, and when each has more to gain by not cooperating, then rational self-interest suggests that people should not cooperate in keeping the rules or agreements. If you take a moment to think about it, it becomes clear that we encounter prisoner's dilemmas in every part of our lives. In fact, wherever there are agreements or mutual expectations, competitions or games, rules or norms, there are prisoner's dilemmas. Our lives are filled with situations in which we can cooperate with others by sticking to an agreement or a rule, or we can choose not to cooperate and instead try to take advantage of the other party by breaking the agreement or rule. In such cases, rational self-interest seems to tell us that we can gain an advantage by not cooperating and that, consequently, noncooperation is better than cooperation. Much of ethics, of course, consists of rules that each of us can choose to follow or not to follow and so ethics, too, creates a prisoner's dilemma. If everyone cooperates in following the rules of ethics---do not steal, do not lie, do not injure, keep your promises, do not cheat---we will each be better off. Because a person can often gain an advantage over others by breaking the rules of ethics (e.g., by stealing or cheating), it seems that it is more rational to not cooperate in the rules of ethics than to cooperate. The prisoner's dilemma, then, seems to show that the rational self-interested person should be unethical in business when there is something to be gained through unethical behavior. However, this conclusion is based on a false assumption. We have assumed so far that prisoner's dilemma situations are isolated interactions between people who never interact again. In real life, individuals have to deal with each other repeatedly or have ongoing relationships with each other. When individuals have to deal with each other in repeated prisoner's dilemma situations and one individual takes advantage of the other in one interaction, the victim can retaliate by doing the same in the next interaction. This threat of future retaliation makes it more rational for the parties in a series of repeated exchanges to cooperate than to try to take advantage of each other. Through cooperation, the parties will gain the advantages conferred by mutually beneficial activities, whereas noncooperation will lead to a deteriorating series of costly clashes. The most important lesson of the prisoner's dilemma, then, is that when people deal with each other repeatedly, so that each can later retaliate against or reward the other party; cooperation is more advantageous than continuously trying to take advantage of the other party. The prisoner's dilemma analysis of ethics has significant implications for ethics in business. Business interactions with employees, customers, suppliers, and creditors are repetitive and ongoing. If a business tries to take advantage of employees, customers, suppliers, or creditors through unethical behavior today, then the latter will likely find a way to retaliate against the business when they meet again tomorrow. The retaliation may take a simple form, such as refusing to buy from, refusing to work for, or refusing to do business with the unethical party. Or retaliation may be more complex, such as sabotage, getting others to boycott the unethical party, or getting even by inflicting other kinds of costs on the business. A business can sometimes, even often, get away with unethical behavior. In the long run, however, if interactions are repeated and retaliation is a real threat, unethical behavior tends to impose costs on the business, whereas ethical behavior can set the stage for mutually advantageous interactions with cooperative parties. The prisoners dilemma argument, then, implies that, over the long run and for the most part, it is better to be ethical in business than to be unethical. Although being unethical toward another party in business may sometimes pay off, over the long run unethical behavior in business tends to be a losing proposition because it undermines the long-term cooperative relationships with customers, employees, and community members on which business success ultimately depends. We should note that the prisoner's dilemma argument is sometimes criticized because it assumes that people are isolated individuals motivated only by self-interest. This criticism is correct, but it misses the point of the prisoner's dilemma argument. The prisoner's dilemma argument tries to show that even if people were individualistically motivated only by self-interest, they would still have a good reason to be ethical in business. In reality, of course, most people seem to be social and so are also motivated by a concern for the welfare of others. To the extent that people are motivated by a concern for others, they will probably behave ethically. However, it is not clear how far concern for others extends nor is it clear that everyone is motivated by a concern for the welfare of others. What the prisoner's dilemma argument shows is that even those who have no concern for the welfare of others---even self-interested individualists--- still have a good reason to bring ethics into their business dealings. ***Finally***, *we should note that there is also a good deal of evidence that most people so value ethical behavior that they will punish those whom they perceive to be behaving unethically and reward those who are perceived to be ethical.* In particular, a large body of research in social psychology has concluded that people in all kinds of social situations respond to perceived injustices with distress and will attempt to eliminate their distress by restoring justice, whereas they will be attracted to just organizations and will reward the just organization with loyalty and commitment. Customers will turn against a company if they perceive a gross injustice in the way it conducts its business and will lower their willingness to buy its products. Employees who feel their company's decision-making processes are unjust will exhibit higher absenteeism, higher turnover, lower productivity; and demand higher wages. In contrast, when employees feel that an organization's decision-making processes are just, they exhibit lower levels of turnover and absenteeism, show higher levels of trust and commitment to the organization and its management, and demand lower wages. When employees believe an organization is just, they are more willing to follow the organization's managers, do what managers say, and see managers' leadership as legitimate. In short, ethics is a key component of effective management. There are, then, a number of strong arguments supporting the view that ethics should be brought into business. Taken together, the arguments---some philosophical and some more empirical---suggest that businesses are shortsighted when they fail to take the ethical aspects of their activities into consideration. **THE IMPORTANCE OF ETHICAL PRINCIPLES IN BUSINESS** We have seen successful businesses fail, we have witnessed profitably running businesses suffer from a downfall and some seemingly effective corporates receive a great fall in their profits and popularity. One of the main reasons behind these surprising failures was the lack of business ethics. A true understanding of the right and the wrong and the ability to distinguish between them is ethics. Ethics is an important part of life and running a successful business is no exception to this. To become successful, a business needs to be driven by strong ethical values. The mindset of a businessman creates a mindset for his/her company, which in turn sets the work culture of the business organization. For a business to prosper and maintain its wealth, it ought to be founded on certain ethical principles. A business that is based on ethics can run successfully for long years. Moneymakers who do not heed to ethical values can only earn a short-lived success. To last long in the market, business ethics is essential.\ \ For a business to achieve long-term profits, customer relationship is of utmost importance. To gain a long-term relationship with customers and achieve customer return for the business, the business needs to be based on ethics. The trustworthiness of a business, its customer service, its customer care, its way of dealing with customers and its urge to retain their old customers, is a part of the business ethics. Business ethics leave a long-lasting impression on the customers and the impression on their minds builds trust, fetching a business more customers while retaining the older ones.\ \ Most of us are concerned about making money for our business and we cater to the legalities in business. But we seldom bother to base our business on ethics. At times, ethical duties of businessmen and project managers could be more abiding than even the business laws. Ethics is a far-reaching concept and goes beyond the idea of making money legally. Ethical values are way ahead of earning money. Ethics is more about earning long-lasting relationships in business.\ \ People who seek motivation behind being ethical should understand that they are ethical by definition. Ethics is an integral part of running a business and hence ethical values accompany business by default. Without following certain ideals in business, one cannot become successful. Success that is attained without a foundation of strong ethics is bound to be short-lived. A business cannot continue to prosper without an ethical base. A few successes can be coincidences or flukes but persistent success can only be a result of a strong foundation of ethics.\ \ The benefits given by the business organization should not be used in an unfair manner. The use of company resources for personal benefits and taking an undue advantage of business resources is completely unethical. Using the wealth of the business for personal reasons is not ethical. Using company funds for personal reasons is unethical. A thoughtful and a careful utilization of company resources is a part of business ethics. A vigilant and a prudent use of resources is an essential component of ethics in business.\ \ Accepting bribes, pleasing the so-called \'important\' clients, favoring a part of the customers while being unfair towards the others is against business ethics. The primary aim of business is not just to maximize profits. It is rather to cater to the needs of society and work towards benefiting the masses.\ \ Experts in business management and researchers have endorsed the need for businessmen and company professionals to study ethics. They have asserted the importance of founding business on ethical values and following them. They have urged management professionals to adhere to ethics and accept it as a part of business. Ethics remain being important in business and strong ethical values shall take the business a long way! () **GLOBALIZATION, MULTINATIONALS, AND BUSINESS ETHICS\ ** Many of the most pressing issues in business ethics today are related to the phenomenon of globalization. **Globalization** is the worldwide process by which the economic and social systems of nations have become connected together so that goods, services, capital, knowledge, and cultural artifacts are traded and moved across national borders at an increasing rate. This process has several components, including the lowering of trade barriers and the rise of worldwide open markets, the creation of global communication and transportation systems such as the Internet and global shipping, the development of international trade organizations such as the World Trade Organization, the establishment of international financial institutions such as the World Bank and the International Monetary Fund that have facilitated the international flow of capital, and the spread of multinational corporations. For centuries, of course people have moved and traded goods across national boundaries. Merchants were carrying goods over the trading routes of Europe, Asia, and the Americas almost since civilization dawned in each of these places. But the volume of goods that are traded across national boundaries has grown almost exponentially since World War II ended, and it has transformed the face of our world to an extent that was never before possible. Globalization has resulted in a phenomenon that is familiar to anyone who travels outside their country: The same products, music, foods, clothes, inventions, books, magazines, movies, brand names, stores, cars, and companies that we are familiar with at home are available and enjoyed everywhere in the world. McDonald's hamburgers and Kentucky Fried Chicken can be eaten on the sidewalks of Moscow, London, Beijing, Paris, Tokyo, Jerusalem, or Bangkok; Britain's Harry Potter novels are read by children and adults in India, Japan, China, Italy, and Germany; the youth of every nation are familiar with the same bands, the same songs, the same singers, the same actors, and the same movies that entertain young Americans; the goods and technologies that Japanese consumers first see in their department stores are available a few months later in American and European stores. On the outskirts of every city are factories and office buildings with the same company names--- General Motors, Mitsubishi, Nokia, Toyota, Philips, Nestlé, Thomson. Multinational corporations are at the heart of the process of globalization and are responsible for the enormous volume of international transactions that take place today. A multinational corporation is a company that maintains manufacturing, marketing, service, or administrative operations in many different host countries. Multinational corporations draw capital, raw materials, and human labor from wherever in the world they are cheap and available. They assemble and market their products in whatever nations offer manufacturing advantages and open markets. Globalization has brought the world significant economic benefits. As multinationals like Nike, Motorola, and Ford build factories and establish assembly operations in countries with low labor costs, they bring jobs, skills, income, and technology to regions of the world that were formerly underdeveloped, raising the standard of living in these areas and providing consumers everywhere with lower-priced goods. Globalization has enabled nations to specialize in producing and exporting those goods and services that they can produce most efficiently and to trade for goods that they are not so skilled at producing. India has specialized in software production; France and Italy in fashion and footwear design; Germany in chemical production; the United States in computer hardware design; Mexico in television assembly; and many developing regions such as Central America and Southeast Asia have specialized in apparel, shoe, and other low-skill assembly operations. Such specialization has increased the world's overall productivity, which in turn has made all participating nations better off than they would be if each nation tried to produce everything on its own. Many studies have shown that growth is correlated with openness to globalization. The more willing a nation is to lower its trade barriers and to allow free trade with other nations, the higher its economic growth rate. On the other hand, nations that close themselves off from trade with other nations tend to have economies that grow more slowly. But globalization is also accused of inflicting significant harms on the world. While globalization has been especially beneficial for developed nations that have high-value products to sell (such as high-tech products), critics argue, many poorer nations in Africa and the former Soviet Union have been left behind because they have only cheap primary commodities to trade. Moreover, the World Bank reports, as globalization has spread, inequality has increased both between nations and within nations. Globalization is also accused of giving multinationals too free a hand. Multinationals are now free to shift their operations from one country to another that offers cheaper labor, less stringent laws, or lower taxes. This ability to shift operations from nation to nation, critics claim, enables the multinational to play one country off against another and to escape whatever social controls any one nation might try to impose on the multinational. If a multinational does not like one nation's environmental or labor laws, for example, it can move or threaten to move to a country without such laws. The result is a "race to the bottom": a global decline in labor, environmental, and wage standards. Critics argue that companies that have established assembly operations in developing nations, for example, have introduced sweatshop working conditions and exploitive wages. Moreover, as these companies move their manufacturing operations to other nations in search of cheaper labor and looser standards, they have closed down factories in their home countries, leaving thousands of workers there without jobs. Many multinationals, for example, have moved their operations out of the United States with its stringent environmental, labor, and tax laws and established operations in southern China, where environmental standards are low, where labor rights are poorly enforced, and where tax breaks are common. Thus globalization has posed important ethical questions for multinationals: What are their obligations to displaced workers in their home countries? Do multinationals have an obligation to try to improve the labor, environmental, and wage standards of the various countries in which they locate? Do they have any obligation to refrain from exploiting workers in other countries, or should they simply look toward lowering their labor costs by whatever means? Critics also claim that multinationals sometimes transfer technologies or products into developing nations that are not ready to assimilate them. Some chemical companies, for example, have marketed toxic pesticides in developing nations whose farm workers are neither knowledgeable about nor able to protect themselves against the injuries the chemicals will inflict on their health. The advertising campaigns of certain food companies have convinced new mothers in poor nations that they should spend their meager food budgets on infant formula powder. Yet in developing nations that do not have sanitary water supplies, new mothers are forced to mix the powdered infant formulas with unsanitary water that then leads to diarrhea and death for their newborn. Other advertisers have been accused of heavily marketing their cigarettes in developing nations whose populations do not have a good understanding of the long- range health costs of smoking. Do multinationals have any obligations to ensure that foreign users of their technologies can protect themselves against the risks these and other technologies pose? Finally, because the multinational operates in nations that have different cultures and standards, multinationals sometimes, critics claim, covertly engage in practices that violate the norms and standards that we should respect. How should multinationals behave when operating in different cultures? Should multinationals go along with the norms of whatever country they happen to be in? Are there any universal moral standards that all multinationals should follow no matter where they operate, such as universal human rights? This final ethical issue---the issue of dealing with different moral standards in other parts of the world---is an especially difficult one for companies operating in a globalizing world. It is an issue that deserves special discussion. **Business Ethics and Cultural Differences** When faced with the fact that different cultures have different moral standards, the managers of some multinationals have adopted the theory of ethical relativism. ***Ethical relativism*** is the theory that, because different societies have different ethical beliefs, there is no rational way of determining whether an action is morally right or wrong other than by asking whether the people of this or that society believe it is morally right or wrong. To put it another way: Ethical relativism is the view that there are no ethical standards that are absolutely true and that apply or should be applied to the companies and people of all societies. Instead, relativism holds that something is right for the people or companies in one particular society if it accords with their moral standards and wrong for them if it violates their moral standards. The people of certain Arab societies, for example, hold that business bribery is morally acceptable, although Americans believe it is immoral. The ethical relativist will conclude that, although it is wrong for an American multinational to bribe in America, it is not wrong for Arabs or their companies to bribe in their own society The multinational company or businessperson who operates in several different countries, then, and who encounters societies with many different moral standards is advised by the theory of ethical relativism in this way: In one's moral reasoning, one should always follow the moral standards prevalent in whatever society one finds oneself. After all, because moral standards differ and since there are no other criteria of right and wrong, the best a company can do is follow the old adage, "When in Rome, do as the Romans However, is this view---ethical relativism---a reasonable view to hold? Clearly, there are numerous practices that are judged immoral by some societies that other societies have deemed morally acceptable, including polygamy, abortion, infanticide, slavery, homosexuality racial and sexual discrimination, genocide, patricide, and the torture of animals. Yet critics of ethical relativism have pointed Out that it does not follow that there are no moral standards that are binding on people everywhere. Critics of ethical relativism have argued, in fact, that there are certain moral standards that the members of any society must accept if that society is to survive and if its members are to interact with each other effectively. Thus, all societies have norms against injuring or killing other members of the society, norms about using language truthfully when communicating with members of one's society, and norms against taking the personal goods of other members of one's society.