Business Ethics: Relativism versus Stakeholder Analysis

Abstract

Consciously or unconsciously we engage in some kind of ethical reasoning. We cannot avoid ethical issues in business any more. Many critics say that in business we are living in the time of “the ethical crisis”. Even though unethical behavior may sometimes pay in the short run those who ignore ethical issues are heading for trouble over the long run. The starting point in understanding the ethical context of business is the individual’s own ethical standards. Business organizations should go still further to formalize their ethical standards. In business to improve our ethical reasoning we must analyze it explicitly practice it daily.

Introduction

All persons whether in business, government, a university or any other enterprise are concerned with ethics.1 In Webster’s Ninth New Collegiate Dictionary; ‘Ethics is defined as ‘the discipline dealing with what is good and bad and with moral duty and obligation.’

For many years managers and theorists have talked about an organization’s responsibility to society. Corporate social responsibility focuses on what a business organization does that affects the society in which it exists. The classic statement of corporate social responsibility was presented by Andrew Carnegie in his book “The Gospel of Wealth” wherein the charity principle states that society’s more fortunate members are obligated to help the less fortunate and the stewardship principle states that the rich are the caretakers of wealth. More recently, managers and theorists have broadened their concerns to include basic ethical questionS.2 Ethical dilemmas make for a lively debate. Whether ethics is of any relevance to business is again a matter of debate. Since ethical problems often have no definitive answers and ethical concepts are rather easier to understand but difficult to define, issues of business ethics will remain fertile academic grounds for years to come.

Concept and Debate on Business Ethics

Ethics may be defined as an Individual’s personal beliefs about whether a behavior, action or decision is right or wrong.3 Business ethics is concerned with truth and justice and has a variety of aspects such as the expectations of society, fair competition. Advertising, public relations social responsibilities consumer autonomy and corporate behavior in the home country as well as abroad.4 The intention of this paper is to make the readers and business executives in particular aware of ethical implications of business decisions. Ethics are viewed in the context of individual. Individuals have ethics, organiza­tions do not.

Again individual beliefs about what is right or wrong ‑‑‑ their ethics ‑‑‑‑ vary from person to person. Indeed, environment, family. life experiences, personal values, morals and circumstances shape our ethics. As beauty is in the eve of the beholder ethics also is in the eve of the beholder. But interesting to note that ethical behavior conforms to generally accepted social norms.

Ethical considerations rest on the assumption that business ought to adhere to a socially responsible approach to decision making called the social responsibility approach. According to this approach business organizations have social obligationsthat go beyond maximizing profits. Because, there is no denying of the fact that from societal standpoint profit cannot be the only motto of any business in the modern competitive situations. It is argued that because corporations are financially so powerful, they have an obligation to assume social responsibilities. Of course, any business entity should be managed for the benefit of their stakeholders: their customers, suppliers, employees and local communities, as well as owners  and business managers bear a fiduciary responsibility to all stakeholders.

Milton Friedman of the University of Chicago who is the ardent supporter of ‘profit only’ concept is of the opinion that business’,, sole duty is to make profit. Carnegie and Friedman represent opposing views of social responsibility. According to Miltion Friedman, “Businesses are in the business of maximizing shareholders ‘value’ by a prudent use of scarce organizational resources, as long as the activities of the business am within the letter of law.6 He further argued that it is up to the government to determine what the laws should be. A profitable business benefits society by creating jobs increasing the standard of living of its owners and its employees. Corporations pay the taxes that support government’s social action. Although Friedman is exalted as one of the defenders of capitalism in economics courses, many critics reputed his views when it came to issues relating to ethics. They emphasized that for survival and long run benefit business organization should ensure ethical operations. Ethical issues in business may be viewed from two dimensions ‑ relativism and stakeholder analysis. Relativism examines why we often ignore ethics In our business decision making while stakeholder analysis provides a structure with which to confront ethical decisions in business arena.

Relativism

The proponents of relativism hold that we cannot decide on matters of right and wrong, or good and evil.7 Things are rarely black or white. There are so many shades of gray. Spade is spade situations seldom are found in business decision making. “Relativism proposes that ethics are relative” to the personal, social, and cultural circumstance which one finds himself or herself. Relativists are not torn by ethical dilemmas since they do not believe that truth can be discovered through soul searching. Understanding of relativism is required so that business executives may guard against it.

To understand Relativism, one needs to recognize its four forms:

1. Naive Relativism: Naive Relativism holds that every person has his or her standard that enables him or her to make choices. No one can make a moral judgement about another person’s behavior. So many variables affect behavior that an outsider cannot possibly be privy to all the elements and factors that go into making a decision.
2. Role Relativism: Role relativism distinguishes between our private selves and our public roles. These public roles call for a “special” morality which we separate from the individual making the choices. Any marketing executive of a tobacco marketing company may personally dislike smoking, but as an executive, he must not let his feeling affect the best interest of his company.
3. Social Relativism: Social Relativism is akin to naive relativism. People refer to social norms to render ethical judgments. Unethical behavior is the behavior that does not conform to 2eneral I %accepted social norms.8 Established “business practices” “industry practices.” club rules.” “professional codes of conduct.” and “accepted practice,” are focal points of the social relativist. In the Industry, it is “industry practice to ignore child labor laws and employ small children to work and miss school. In Bangladesh problem relating to child labour in the garments sector drew massive  international criticism and pressure from western lobby subsequently influenced the garments sector to curve this trend.
4. Cultural Relativism: Cultural relativism holds that there is no universal moral code by which to judge another society’s moral and ethical standard”. Ethical issues may differ dramatically from one culture to another. For instances, offering wine in a business dinner in the western context is customary but such practice will be considered offensive in any Islamic State. If a whole culture holds certain beliefs, how can an outsider sit in judgment? This reminds us about the old adage‑ Be a Roman ‑When in Rome. The concept of cultural relativism becomes more important as companies compete globally. Business standards and practices vary a great deal from one country to the next. Bribes and kickbacks are illegal for the U.S. firms but they are standard business practices in many South American countries10 and also the same in some Asian countries. Multi­national corporations often follow, local laws and customs that ma” violate ethical standards in their home countries. Discussions about apartheid revolve around issues of cultural relativism. By adopting cultural relativist philosophy some multinational corporation interfere the politics of the host country in the name of protecting their interest which is not in conformity with ethical business practice.

The relativism concepts provide with an awareness of and a way to guard against inaction on ethical and moral issues. They provide a framework to go beyond currently held beliefs and of behaviors.

Other Ethical Viewpoints

Relativism is not the only philosophical framework with which to approach ethical decisions. There is also natural law, utilitarianism and universalism. Natural law serves as a guide to do things rightfully, which is revealed in nature and therefore natural justice should be ensured in business operations too. Another viewpoint is that we can turn to religion for ethical code of conduct if need be in case of taking ethical business decision. Because all religions have one thing in common, i. e. welfare for humanity. This necessarily does not indicate that business activities should be religion biased but the emphasis here is on the ethical code of conduct as it is set in different religion. Utilitarianism holds that an action is justified if it provides the greatest benefit for the greatest number of people. The utilitarian theory suggests that plans or actions should be evaluated by their consequences.” The theory based on’ rights holds that all people have fundamental rights such as equality, nondiscrimination, freedom of religion, freedom of movement, freedom o thought and speech, freedom of profession and occupation etc. A number of those rights can be found in Bangladesh constitution.12 Late President J. F. Kennedy of the USA announced in his “Consumer Bill of Rights” of 1962 that consumers had the right to satisfy, the right to be informed, the right to choose and the right to be heard. 13 Finally universalism propounds that any action is good, since the results of a person’s actions are so often not in his or her control.

Stakeholder Analysis

Although there is no panacea of solving ethical dilemmas in the complex business world, it is helpful to have a framework with which to organize thoughts regarding ethics in business. Stakeholder analysis may provide the tools for weighing various elements and variables for reaching an ethical business decision. As a first step a list should be made of all potentially concerned stakeholders, then there should be an evaluation of all the harms and benefits that               a particular course of action will have on stakeholders. The next level of analysis ought to determine each of affected parties’ rights and responsibilities.                             Employees, for instance, have the right to a fair wage and safe working conditions. But also have the responsibility to be productive for the company to achieve its business goal. In a typical stakeholder analysis the list of potentially affected parties might look like this:

Stakeholders                                                  Individual Goals

Stockholders                                                                  Profit or dividends

Bondholders                                                                  Interest

Management                                                                  Salaries

Employees                                                                      Wages

Customers                                                                       Quality, low cost products

Suppliers                                                                         Profitable prices

Public                                                                             Total welfare

Government                                                                    Taxes

The organization as an entity is one thing, its members, separately considered, are another. Different stakeholders have different goals, which maybe apparently conflicting in nature. It is not unusual for stakeholder to feel that his personal goal is in conflict with others. Some stockholders believe that if there are to be higher wages, there must be lower profits. Many employees feel that if there are to be higher management salaries, there are must be lower employee wages.

Although there is no economic justification for such feelings, It is the business manager’s task to integrate interest ethically and reconcile conflicts, whether or not these conflicts are real. Many companies have addressed the problem by developing a written code of ethics. formal guidelines for the ethical behavior of individuals in any business, job or profession. An Opinion Research Corporation survey of 241 companies disclosed that 73% has written codes of ethics, half of which even had been developed since the mid 1970s. These codes are only effective if companies I’ve by them. The fact that a company has developed ‘a code of ethics but ignores its presence in the conduct of business may create a question of credibility.15

Obviously, the stakeholder list could be much longer. At the analysis stage the list is narrowed to the significant players, then a situational analysis is performed, and eventually a decision is reached. In order, these are the steps

1. Get the main stakeholders and determine their harms and benefits.
2. Determine their rights and responsibilities and relative power.
3. Consider the short and long term consequences of our decision alternatives.
4. Formulate contingency plans for alternative scenarios.
5. Make a judgment.

Conclusion

Conscientious business activity may face many moral dilemmas. The best thing is to do is often not clear. Because not all business executives have fine moral sensitivity. Ethics in the business world creates a dilemma for people. What makes a practice unethical? An action that is simply shrewd to one manager may be unethical to another. Business executives are facing many situations that require ethical judgments, and often there are no easy answers. Business ethics are the standards ofbehavior that guide Individual business executives in running their business. Although ethics can affect business activity in any number of ways, some important areas of special concern for business organization are discussed above in this paper. Each company must work out a philosophy of socially responsible and ethical behavior. Business entity must look beyond what is legal and allowed and develop standards based on integrity, conscience and long run consumer welfare. A clear and responsible philosophy will help any business organization to deal with the many knotty questions posed during business operations and other human activities. Ethical business operations can riot be ensured only by enacting laws, because the very essence of ethical conduct is much of spirit than that of letter of laws. Todays business firms operate in an environment of interdependence with society and government. Out of this interdependence it has come to the realization that they must pursue their overriding goal of profit within a social and ethical framework. The stakeholder analysis discussed above may work as a framework with which to attack the moral dilemmas of the day.

References

7. Heinz Weihirich & Harold Koontz, Management,(New York: McGraw‑Hill, Inc, 1993) p.70.
8. J A. F. Stoner & R. E. Freeman, Management, 6th ed. (Englewood Cliffs. N. J. Prentice‑Hall. 1996) p. 97‑121.
9. Thomas. M. Garrett and Richard J. Klonoski. Business Ethics, 3rd ed. (EnglewoodCliffs. N. J. : Prentice‑Hall. 1990). for a review of the different meanings of the work ethics.
10. Clarence, D. Walton (ed.), The Ethics of Corporate Conduct,(Englewood cliff, N. J Prentice‑Hall, 1977) p. 6 see also La Rue Tone Hosmer, The Ethics of Management, (Homewood, III Richard D. Irwin. 1987).
11. R. W Griffin. Management, 5th ed. (Houghton Mifflin Company, USA, 1997) p.104
12. J. A. F. Stoner & R. E. Freeman, Management,6th ed. (Englewood Cliffs. N. J.Prcntice‑Hall, 1996) p. 97‑12 1
13. Ibid.
14. R. W. Griffin, Management,5th ed. (Houghton Mifflin Company, USA, 1997) p.104,
15. BGMEA bulletin.
16. Philip Kotler & Gary Armstrong, Principles of Marketing, 7^thed. (Englewood Cliffs, N.J. :Prentice-Hall, 1997)p701
17. Heinz Weihirich & Harold Koontz, Management,(New York: McGraw‑Hill, Inc, 1993) p.71
18. See Bangladesh  Constitution. (GOB: Dhaka, 1972) p. 9‑ 11.
19. David, A. Akar and George S. Day Consumerism,3^rd ed. (London: Collier Macmilian Publishers 1978) p. 3-7.
20. Edwin B. Flippo & Gary M. Munsinger. Management,3^rd (Boston: Allyn and Bacon.Inc. 1975) p. 46.
21. Josheph, T. Straub & Raym and F. Attner, Introduction to Business, 2^nded. (USA: Kent Publishing Company, 1985) p. 632.