Introduction to Business Ethics

What are the risks, and what are the first steps?

Global AI Ethics Institute is dealing with many aspects of ethics from a multicultural perspective. Business Ethics is one very interesting subsegment, well researched in the last decades, and with a significant impact on businesses. Here is a short introductory article, published first in the Slovenian language in their magazine — Podjetnik (Entrepreneur).

Question of Ethics is getting even more important in the last years, with the rise of AI projects, and risks that go with them. But Business Ethics specifically is a well-researched sub-segment of the general Ethics area. Good practices and scientific researchers are decades old. It is worth noting that like finance and marketing, ethics has become, or at least is becoming an essential business function, in many companies.

Definitions

There are many definitions but let’s say that business ethics refers to the standards for morally right and wrong conduct in business. Law partially defines the conduct, but “legal” and “ethical” aren’t necessarily the same. Business ethics enhances the law by outlining acceptable behaviors beyond government control.

Another definition, similar to the first one could be: “Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.”

We could approach ethics from different perspectives:

1. Business ethics as an essential skill.

2. Business ethics as a driver of employee behavior.

3. Business ethics as a factor influencing the bottom line.

The good summary that goes straight to the point, in my opinion, is: “The ethics of business is the ethics of responsibility. The businessman must promise that he will not harm knowingly. “(Baumhart).

Main Features

Inside the wide area of business ethics, many topics and features are researched and explored. Some authors suggest that there might be eight major features of business ethics:

• Code of Conduct: Business ethics is actually a form of code of conduct. It lets us know what to do and what not to do. Businesses must follow this code of conduct.

• Based on Moral and Social Values: Business ethics is a subject that is based on moral and social values. It offers some moral and social principles (rules) for conducting a business.

• Protection to Social Groups: Business ethics protect various social groups including consumers, employees, small businesspersons, government, shareholders, creditors, etc.

• Offers a Basic Framework: Business ethics is the basic framework for doing business properly. It constructs the social, cultural, legal, economic, and other limits in which a business must operate.

• Voluntary: Business ethics is meant to be voluntary. It should be self-practiced and must not be enforced by law.

• Requires Education & Guidance: Businessmen should get proper education and guidance about business ethics. Trade Associations and Chambers of Commerce should be active enough in this matter.

• Relative Term: Business ethics is a relative term. It changes from one business to another and from one country to another.

• New Concept: Business ethics is a relatively newer concept (20th century). Developed countries have more exposure to business ethics, while poor and developing countries are relatively backward in applying the principles of business ethics.

Number of parties potentially involved

So, if we are talking about numbers, how many entities on the world level could be accountable for having/taking care of business ethics? Some estimate that there are about 80,000 multinational companies and ten times as many subsidiaries in the world now. There are countless small and medium-sized businesses that also deserve to be mentioned, and who should uphold some moral standards. Due to globalization, organizations have now become interdependent and hence accountable for the social, environmental, and political challenges that threaten to affect our shared future. All those business entities have more responsibility for self-regulation to accompany the process of globalization.

Again, there are at least 4 main areas, connecting responsibility for all of those companies:

• Labor Standards

• Human Rights

• Climate Change

• Marketplace Integrity

But that list is not final. As we can see, with the emergence of new technologies, many new questions arise, that are connected with specific technologies. Some of them, are even giving partial answers to some ethical questions, blockchain, and decentralization — for the trust and equality issues for example. Artificial Intelligence, mentioned in the beginning, if it proves to be a so-called General Purpose Technology, will have to answer maybe the deepest and most elaborate questions about ethics and morals, so far. And it will have to deal with those questions and issues, on the global level, respecting and recognizing many multicultural aspects and differences that currently exist.

As a consequence, there are many pressure groups to police the business organizations and their conduct. Some international pressure groups have changed their traditional focus from the government policies to business principles of global companies. Hence, there is pressure to opt for ethical standards from all angles.

Inside Organization

Data from global surveys about ethics, teach us important lessons. One of them is that the level of observed misconducts in the organizations, rise with their increase of organizational change. It goes from 33% in companies with no organizational change to a very high 75% in companies with many organizational changes. This could be used to anticipate on time some risks when CEOs know that changes will be necessary, and prepare for them on time.

Globally more than 20% of employees on average, feel pressure to compromise their organization’s ethical standards, policies, or laws. Interesting is to see the differences between the continents. Africa and the Middle East are at 16% of those employees, Europe and Asia are around median with 23%, North America is higher end with 31% of pressured employees, and the worst situation is observed in South America where 37% of employees feel that unwelcomed pressure.

No surprise that Business Ethics are connected with leadership and the level of their commitment to obtain / or not, high ethical standards. The number of employees that feel pressured to compromise ethical standards, in companies with weak leadership commitment is almost 50%. On the other hand, those who are lucky enough to have a strong leadership commitment to ethical standards, report only 13% of employees in a similar situation.

Conclusion

In practice, there are few good starting points for all companies starting to think about business ethics and create their own set of ethical guidelines. As a first step, you could follow Woodrow Wilson’s rules or general principles of business ethics. These four rules are as follows:

• Rule of publicity: According to this principle, the business must tell the people clearly, what it tends to do.

• Rule of equivalent price: The customer should get proper value for their money. Below standard, outdated and inferior goods should not be sold at high prices.

• Rule of conscience in business: The businesspersons must have conscience while doing business, i.e. a moral sense of judging what is right and what is wrong.

• Rule of the spirit of service: The business must give importance to the service motive.

I am leaving it to the readers to estimate, how many companies that we know are operating today, are following all four of those rules.

“Ethics and equity and the principles of justice do not change with the calendar.”