2 Stakeholders. The alternative view admits that stockholders are an important constituency of the firm, but that other groups such as employees, customers, suppliers, and the community also have a stake in the activities and success of the firm. Edward Freeman (1984) argues that the firm should be managed in the interest of the broader spectrum of constituents. The manager would necessarily be obligated to account for the interests and concerns of the various constituent groups in arriving at business decisions, the aim being to satisfy them all, or at least the most concerned stakeholders on each issue. The complexity of this kind of decision making can be daunting and slow. In addition, it is not always clear which stakeholder interests are relevant in making specific decisions. Such a definition seems to depend highly on the specific context, which would seem to challenge the ability to achieve equitable treatment of different stakeholder groups. But the important contribution of this view is to suggest a relational view of the firm and to stimulate the manager to consider the diversity of those relationships.
Adding complexity to the question of whose interests one serves is the fact that often one has many allegiances—not only to the firm or client, but also (as a person) faithful to one’s community, family, and so on. Obligations that one has as an employee or professional are only a subset of obligations one has on the whole.
WHAT IS “GOOD”? CONSEQUENCES, DUTIES, VIRTUES
One confronts ethical issues when one must choose among alternatives on the basis of right versus wrong. The ethical choices may be stark where one alternative is truly right and the other truly wrong. But in professional life, the alternatives typically differ more subtly, as in choosing which alternative is more right or less wrong. Ernest Hemingway said that what is moral is what one feels good after and what is immoral is what one feels bad after. Since feelings about an action could vary tremendously from one person to the next, this simplistic test would seem to admit moral relativism as the only course, an ethical “I’m okay, you’re okay” approach. Fortunately, 3,000 years of moral reasoning lend frameworks for greater definition of what is “right” and “wrong.”
“Right” and “Wrong” Defined by Consequences
An easy point of departure is to focus on outcomes. An action might be weighed in terms of its utility9 for society. Who is hurt or helped must be taken into consideration. Utility can be assessed in terms of the pleasure or pain for people. People choose to maximize utility. Therefore, right action is that which produces the greatest good for the greatest number of people.
Utilitarianism has proved to be controversial. Some critics feared that this approach might endorse gross violations of norms that society holds dear including the right to privacy, the sanctity of contracts, and property rights, when weighed in the balance of consequences for all. And the calculation of utility might be subject to special circumstances or open to interpretation, making the assessment rather more situation-specific than some philosophers could accept.
Utilitarianism was the foundation for modern neoclassical economics. Utility has proved to be difficult to measure rigorously and remains a largely theoretical idea. Yet utility-based theories are at the core of welfare economics and underpin analyses of phenomena varying as widely as government policies, consumer preferences, and investor behavior.
“Right” and “Wrong” Defined by Duty or Intentions
Immoral actions are ultimately self-defeating. A practice of writing bad checks, for instance, if practiced universally, would result in a world without check writing and probably very little credit. Therefore, you should act on rules that you would require to be applied universally.10 You should treat a person as an end, never as a means. It is vital to ask whether an action would show respect for other persons and whether that action was something a rational person would do—“If everyone behaved this way, what kind of world would we have?”
Critics of this perspective argue that its universal view is too demanding—indeed, impossible for a businessperson to observe. For instance, the profit motive focuses on the manager’s duty to just one company. But N. E. Bowie responds, “Perhaps focusing on issues other than profits … will actually enhance the bottom line…. Perhaps we should view profits as a consequence of good business practices rather than as the goal of business.”11
“Right” and “Wrong” Defined by Virtues
Finally, a third tradition12 in philosophy argues that the debate over “values” is misplaced: The focus should be on virtues and the qualities of the actor. The attention to consequences or duty is fundamentally a focus on compliance. Instead, one should consider whether it is consistent with being a virtuous person. This view argues that personal happiness flows from being virtuous, and not merely from comfort (utility) or observance (duty). It acknowledges that vices are corrupting. And it focuses on personal pride: “If I take this action would I be proud of what I see in the mirror? If it were reported tomorrow in the newspaper, would I be proud of myself?” A journalist reported that this is the stance of Warren Buffett, CEO of Berkshire Hathaway and one of the most successful investors in modern history:
Every year, Buffett reminds his CEOs how important personal integrity is to him. “He sends out this letter, and the opening paragraph is always the same,” [manager Melvyn] Wolff says. “I’ve seen it enough times by now that I’ve got it memorized: ‘We can afford to lose money. We can afford to lose a lot of money. But we cannot afford to lose one shred of our reputation. Make sure everything you do can be reported on the front page of your local newspaper written by an unfriendly, but intelligent reporter.’ Those comments were written long before the recent corporate scandals.”13
In the gray areas of business ethics, rules can be faulty guides; one might gain clearer guidance from reasoning what a person of character would do.
Critics of virtue-based ethics raise two objections. First, a virtue to one person may be a vice to another. Solomon (1999) points out that Confucius and Friedrich Nietzsche, two other virtue ethicists, held radically different visions of virtue: Confucius extolled virtues such as respect and piety. In contrast, Nietzsche extolled risk taking, war making, and ingenuity. Thus, virtue ethics may be context-specific. Second, virtues can change over time. What may have been regarded as gentlemanly behavior (i.e., formal politeness) in the nineteenth century might have been seen by feminists in the late twentieth century as insincere and manipulative.
Discrete definition of “right” and “wrong” remains a subject of ongoing discourse. But the practical person can abstract from these and other perspectives useful guidelines toward ethical work:
How will my action affect others? What are the consequences?
What are my motives and my duty here? How does this decision affect them?
Does this action serve the best that I can be?
PROMOTING ETHICAL BEHAVIOR
The leadership of a team or organization entails shaping a high-performance culture that is ethical. Lynn Sharpe Paine (1999, 2003) has argued that ethical failure and success have their roots in the culture of an organization. The leader can take a number of steps to shape an ethical culture.
Adopt a Code of Ethics
One dimension of ethical behavior is to acknowledge some code by which one intends to live.