Magazine article Phi Kappa Phi Forum

Business Ethics-An Oxymoron?

Magazine article Phi Kappa Phi Forum

Business Ethics-An Oxymoron?

Article excerpt

Enron. Arthur Andersen. WorldCom. Global Crossing. Merrill Lynch. Recently a new business scandal seems to surface each day. The current volatility of the market reflects the apprehension, the sense of betrayal, and the lack of confidence that investors have in many large corporations and their managements. Massive accounting frauds and continuing restatements call into question the accuracy of financial statements of numerous public corporations and the corresponding veracity of stated revenues and profits. Even companies with sterling reputations are now often suspect.


A basic sense of trust and fair play is an essential cornerstone of any economic system, especially a free-market system. In the absence of such trust, chaos reigns. Clearly the ethical bankruptcy of some corporate leaders has caused considerable disruption in the markets. Fortunately, the fundamental soundness of our financial system has withstood the onslaught. The current wave of business scandals involves not only outright criminal activity, but also a grayer area in which companies met the letter of the law, while they breached the ethical expectations of many stakeholders.

The subject of business ethics is one that has a long history of debate in business, academic, and public circles. Views vary on the extent of ethical responsibility that businesses should exercise. The minimalist position, long espoused by Milton Friedman, holds that the only ethical responsibility a business has is to make a profit within the confines of the law. In a free-- market society, this single-minded pursuit of profit making is ultimately in the best interest of society because market forces will maximize the economic well-being of society's members. Furthermore, Friedman argues that corporations are legal, not moral entities, and hence have no ethical obligations.

The opposing, and more prevalent, viewpoint holds that corporations do have a responsibility to act ethically beyond mere legal compliance. The modern world is a society of organizations, according to Peter Drucker. Organizations, especially large corporations, exercise enormous power that shapes the world and affects far more than those in a proximate relationship with the organization, for instance, employees, suppliers, creditors, and investors. Corporations owe an ethical responsibility to all of their stakeholders and have a duty to be good corporate citizens. Essentially, corporations derive their legitimacy from society. When they undermine that legitimacy by acting in ways contrary to the interests of society, they can lose that legitimacy and ultimately the business itself, as exemplified by Arthur Andersen.


Modern businesses operate in a constantly changing and intensely competitive global environment. Furthermore, they face tremendous complexity and diversity in employees, customers, and markets. Given this complexity and diversity, ethical behavior probably will not occur spontaneously. The management of a business thus has a responsibility to foster the climate and conditions that are supportive of ethical behavior. An ethical corporate culture requires commitment, awareness, and oversight.

The commitment of top management is fundamental to the promotion of ethical conduct in an organization. Management must go beyond paying lip service to an official company code of ethics. …

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