Business Ethics

First published Thu Nov 17, 2016

[Editor's Note: The following new entry by Jeffrey Moriarty replaces the former entry on this topic by the previous author.]

A business is a productive organization—an organization whose purpose is to create goods and services for sale, usually at a profit. Business is also an activity. One entity (e.g., a person, an organization) “does business” with another when it exchanges a good or service for valuable consideration. Business ethics can thus be understood as the study of the ethical dimensions of productive organizations and commercial activities. This includes ethical analyses of the production, distribution, marketing, sale, and consumption of goods and services (see also Donaldson & Walsh 2015).

Questions in business ethics are important and relevant to everyone. This is because almost all of us “do business”—i.e., engage in a commercial transaction—almost every day. Moreover, many of us spend a major portion of our lives engaged in, or preparing to engage in, productive activity, on our own or as part of productive organizations. Business activity shapes the world we live in, sometimes for good and sometimes for ill.

Business ethics is a huge field. Philosophers from Aristotle to Rawls have defended positions on topics which can be understood as part of business ethics. At present, there are at least five journals devoted to the field (Business Ethics Quarterly, Business Ethics: A European Review, Business & Society, Business & Society Review, Journal of Business Ethics), and work in business ethics appears in mainstream philosophy and social science journals as well.

This entry summarizes important research on central questions in business ethics, including: In whose interests should firms be managed? Who should manage them? What do firms owe their workers, and what do workers owe their firms? What moral rules should guide firms’ engagement with customers? Should firms try to solve social problems? What responsibility do they have for the behavior of their suppliers? What role should firms play in the political process? Given the vastness of the field, of necessity certain questions in business ethics are not addressed here.

1. Varieties of business ethics

Many people engaged in business activity, including accountants and lawyers, are professionals. As such, they are bound by codes of conduct promulgated by professional societies. Many firms also have detailed codes of conduct, developed and enforced by teams of ethics and compliance personnel. Business ethics can thus be understood as the study of professional practices, i.e., as the study of the content, development, management, and effectiveness of the codes of conduct designed to guide the actions of people engaged in business activity. This entry will not consider this form of business ethics. Instead, it considers business ethics as an academic discipline.

Business ethics as an academic discipline is populated by both social scientists and normative theorists. This is reflected in the attendees of academic conferences in business ethics and the types of articles that are published in business ethics journals. Social scientists—who at this point comprise the largest group within the field—approach the study of business ethics descriptively. They try to answer questions like: Does corporate social performance improve corporate financial performance, i.e., does ethics pay (Margolis & Walsh 2003; Orlitzky, Schmidt, & Rynes 2003)? And: Why do people engage in unethical behavior (Bazerman & Tenbrunsel 2011; Werhane et al. 2013)? I will not consider such questions here. This entry focus on questions in normative business ethics, most of which are variants on the question: What is ethical and unethical in business?

Considered only as a normative enterprise, business ethics—like many areas of applied ethics—draws from a variety of disciplines, including ethics, political philosophy, economics, psychology, law, and public policy. This is because remedies for unethical behavior in business can take various forms, from exhortations directed at private individuals to change their behavior to new laws, policies, and regulations. Doing business ethics well means being familiar with results in these disciplines, or at least being aware of gaps in one’s own knowledge.

Normative business ethicists (hereafter the qualifier ‘normative’ will be assumed) tend to make certain assumptions about economic frameworks. One is that the means of production can be privately owned. A second is that markets—featuring voluntary exchanges between buyers and sellers at mutually determined prices—should play an important role in the allocation of resources. Those who deny these assumptions will see some debates in business ethics (e.g., about firm ownership and control, or about advertising) as misguided.

Some organizations “do business”—in the sense of exchange a good or service for valuable consideration—with the goal of seeking profit, and some do not. Merck and Wal-Mart are examples of the first type organization; Princeton University and the Metropolitan Museum of Art are examples of the second. Business ethicists sometimes concern themselves with the activities of non-profit organizations, but more commonly focus on for-profit organizations. Indeed, most people probably understand businesses as for-profit organizations.

2. Corporate moral agency

One way to think about business ethics is in terms of the moral obligations of agents engaged in business activity. Who is a moral agent? Individual persons, obviously. What about firms? This question is typically described as a question of “corporate moral agency” or “corporate moral responsibility”. Here ‘corporate’ does not refer to the corporation as a legal entity, but to a collective or group of individuals. To be precise, the question is whether firms are moral agents and morally responsible considered as (qua) firms, not considered as aggregates of individual members of firms.

In the business ethics literature, French is a seminal thinker on this topic. In early work (1979, 1984), he argued that firms are morally responsible for what they do, and hence should be seen as “full-fledged” moral persons. He bases this conclusion on his claim that firms have internal decision-making structures, through which they (1) cause events to happen, and (2) act intentionally. Some early responses to French’s work accepted the claim that firms are moral agents, but denied that firms are moral persons. Donaldson (1982) claims that firms cannot be persons because they lack important human capacities, such as the ability to pursue their own happiness (see also Werhane 1985). Other responses denied that firms are moral agents (also). Velasquez (1983) argues that firms lack a necessary condition of agency, viz., the ability to act (see also his 2003). In later work, French (1995) recanted his claim that firms are moral persons, though not his claim that they are moral agents.

Discussions of corporate moral agency and moral responsibility have largely faded from the business ethics literature (as of 2016). But they continue to receive attention in the mainstream philosophical literature, where they are treated with a high degree of sophistication. Here the focus is on collectives more generally, with the business firm playing a role as an example of a collective. As in the business ethics literature, in the mainstream philosophical literature a key question is: What are the conditions for moral agency and responsibility, such that collectives qua collectives, including firms, do or do not satisfy them? A number of writers, including Copp (2006), Hess (2014), and List & Pettit (2011), believe that firms can be moral agents. This view has strong intuitive appeal. We routinely say things like: “Costco treats its employees well” or “BP polluted the Gulf of Mexico”, and in doing so we appear to assign agency and responsibility to firms themselves. On the other side are writers who deny that firms can be moral agents, such as Gilbert (1989), S. Miller (2006), and Rönnegard (2015). A claim advanced on this side is that agency requires intention, and firms are not the kinds of things that can have intentions (S. Miller 2006). The common way of speaking about the agency and responsibility of firms may be metaphorical, or a shorthand way of referring to the agency and responsibility of individuals within firms. (For discussions of these issues, see the entries on collective responsibility, collective intentionality, and shared agency.)

While the question of whether firms themselves are moral agents is of theoretical interest, its practical import is uncertain. Perhaps BP itself was morally responsible for polluting the Gulf of Mexico. Perhaps certain individuals who work at BP were. What hangs on this? According to Hasnas (2012), very little. Firms such as BP can be legally required to pay restitution for harms they cause even if they are not morally responsible for them. What ascribing agency and responsibility to firms enables us to do, according to Hasnas, is blame and punish them. But, he argues, we should not engage in this practice. Phillips (1995), by contrast, argues that in some cases no individual employee in a firm is responsible for the harm a firm causes. To the extent that it makes sense—and it often does, he believes—to assign responsibility for the harm, it must be assigned to the firm itself. On Phillips’s view, corporate moral agency makes blaming behavior possible where it would otherwise not be. Because corporate reputation can be a significant asset or liability (Roberts & Dowling 2002), this provides an incentive for firms to exercise due care in their operations (see also Rönnegard 2015).

3. The ends and means of corporate governance

There is significant debate about the ends and means of corporate governance, i.e., about who firms should be managed for, and who should (ultimately) manage them. Much of this debate is carried on with the large publicly-traded corporation in view.

3.1 Ends: shareholder primacy or stakeholder balance?

There are two main views about the proper ends of corporate governance. According to one view, firms should be managed in the best interests of shareholders. It is typically assumed that managing firms in shareholders’ best interests requires maximizing their wealth. This view is often called “shareholder primacy” (Stout 2002) or—in order to contrast it more directly with its main rival (to be discussed below) “shareholder theory”. (Confusingly, the label ‘shareholder primacy’ is sometimes used—e.g., by Bainbridge [2008]—to refer to the view that shareholders should have ultimate control over the firm.) Shareholder primacy is the dominant view about the ends of corporate governance among financial professionals and in business schools.

A few writers argue for shareholder primacy on deontological grounds. On this argument, shareholders own the firm, and hire managers to run it for them on the condition that the firm is managed in their interests. Shareholder primacy is thus based on a promise that managers make to shareholders (Friedman 1970; Hasnas 1998). In response, some argue that shareholders do not own the firm. They own stock, a type of corporate security (Bainbridge 2008; Stout 2002); the firm itself may be unowned (Strudler forthcoming). Others argue that managers do not make, explicitly or implicitly, any promises to shareholders to manage the firm in a certain way (Boatright 1994). More writers argue for shareholder primacy on consequentialist grounds. On this argument, managing firms in the interests of shareholders is more efficient than managing them in any other way (Hansmann & Kraakman 2001; Jensen 2002). In support of this, some argue that, if managers are not given a single objective that is clear and measurable—viz., maximizing shareholder value—then they will have an enhanced opportunity for self-dealing (Stout 2002). Consequentialist arguments for shareholder primacy run into problems that afflict many versions of consequentialism: in requiring all firms to be managed in a certain way, it does not allow sufficient scope for personal choice (Hussain 2012). Most think that people should be able to pursue projects, including economic projects, that matter to them, even if those projects do not maximize welfare.

The second main view about the proper ends of corporate governance is given by stakeholder theory. This theory was first put forward by Freeman in the 1980s (Freeman 1984; Freeman & Reed 1983), and then refined by Freeman and various collaborators over the next 30 years (see, e.g., Freeman et al. 2010; Jones, Wicks, & Freeman 2002). According to stakeholder theory—or at least, early formulations of the theory—instead of managing the firm in the best interests of shareholders only, managers should seek to “balance” the interests of all stakeholders, where a stakeholder is anyone who has a “stake”, or interest (including a financial interest), in the firm.

To its critics, stakeholder theory has seemed both insufficiently articulated and weakly defended. With respect to articulation, one question that has been pressed is: Who are the stakeholders (Orts & Strudler 2002, 2009)? The groups most commonly identified are shareholders, employees, the community, suppliers, and customers. But other groups have stakes in the firm, including creditors, the government, and competitors. It makes a great deal of difference where the line is drawn, but stakeholder theorists have not provided a clear rationale for drawing a line in one place rather than another. Another question is: What does it mean to “balance” the interests of all stakeholders—other than not always giving precedence to shareholders’ interests (Orts & Strudler 2009)? With respect to defense, critics have wondered what the rationale for managing firms in the interests of all stakeholders is. In one place, Freeman (1984) offers an instrumental argument for his view, claiming that balancing stakeholders’ interests is better for the firm strategically than maximizing shareholder wealth. (This is precisely what defenders of shareholder primacy say about that view.) In another, he gives an argument that appeals to Rawls’s justice as fairness (Evan & Freeman 1988; cf. Child & Marcoux 1999).

In recent years, questions have been raised about whether stakeholder theory is appropriately seen as a genuine competitor to shareholder primacy, or is even appropriately called a “theory”. In one article, Freeman and collaborators say that stakeholder theory is simply “the body of research … in which the idea of ‘stakeholders’ plays a crucial role” (Jones et al. 2002). In another, Freeman describes stakeholder theory as “a genre of stories about how we could live” (1994: 413). It may be, as Norman (2013) says, that stakeholder is now best regarded as “mindset”, i.e., a way of looking at the firm that emphasizes its embeddedness in a network of relationships.

It is important to realize that a resolution of the debate between shareholder and stakeholder theorists (however we conceive of the latter) will not resolve all or even most of the ethical questions in business. This is because this is a debate about the ends of corporate governance; it cannot answer all of the questions about the moral constraints that must be observed in pursuit of those ends (Goodpaster 1991; Norman 2013). Neither shareholder primacy nor stakeholder theory is plausibly interpreted as the view that corporate managers should do whatever is possible to maximize shareholder wealth and balance all stakeholders’ interests, respectively. Rather, these views should be interpreted as views that managers should do whatever is morally permissible to achieve these ends. A large part of business ethics is trying to determine what morality permits in this domain.

3.2 Means: control by shareholders or others too?

Answers to questions about the means of corporate governance often mirror answers to question about the ends of corporate governance. Often the best way to ensure that a firm is managed in the interests of a certain party P is to give P control over it. Conversely, justifications for why the firm should be managed in the interests of P sometimes appeal P’s rights to control it.

Thus Friedman (1970) thinks that shareholders’ ownership of the firm gives them a right to control the firm (which they can use to ensure that the firm is run in their interests). We might see control rights for shareholders as following analytically from the concept of ownership. To own a thing is to have a bundle of rights with respect to that thing. One of the standard “incidents” of ownership is control.

As noted, in recent years the idea that the firm is something that can be owned has been challenged (Bainbridge 2008; Strudler forthcoming). But contractarian arguments for shareholder control of firms have been constructed which do not rely on the assumption of firm ownership. All that is assumed in these arguments is that some people own capital, and others own labor. Capital can “hire” labor (and other inputs of production), on terms that it draws up, or labor can “hire” capital, on terms that it draws up, with society setting limits on what the terms may be. It just so happens that, in most cases, capital hires labor. These points are emphasized especially by those who regard the firm as a “nexus of contracts” among various parties (Easterbrook & Fischel 1996; Jensen & Meckling 1976).

Many writers find this result troubling. Even if the governance structure in most firms is in some sense agreed to, they say that it is unjust in other ways. Anderson (2015) characterizes standard corporate governance regimes as oppressive and unaccountable private dictatorships. To address this injustice, these writers call for various forms of worker participation in managerial decision-making, including the ability by workers to reject arbitrary directives by managers (Hsieh 2005), worker co-determination of firms’ policies and practices (Brenkert 1992a; McCall 2001; McMahon 1994), and exclusive control of productive enterprises by workers (Dahl 1985).

Arguments for these governance structures take various forms. One type of argument appeals to the value of protecting workers’ interests (Brenkert 1992a; Hsieh 2005). A second type of argument appeals to the value of autonomy, or a right to freely determine one’s actions, including one’s actions at work (McCall 2001). A third type of argument for worker participation in managerial decision-making is the “parallel case” argument. According to it, if states should be governed democratically, then so should firms, because firms are like states in the relevant respects (Dahl 1985; Walzer 1983). A fourth argument for worker participation in firm decision-making sees it as valuable or even necessary training for participation in political processes in the broader society (Cohen 1989).

Space considerations prevent a detailed examination of these arguments. But criticisms generally fall into two categories. The first insists on the normative priority of agreements, of the sort described above. There are few legal restrictions on the types of governance structures that firms can have. And some firms are in fact controlled by workers (Dow 2003; Hansmann 1996). To insist that other firms should be governed this way is to say, according to this argument, that people should not be allowed to arrange their economic lives as they see fit. Another criticism of worker participation appeals to efficiency. Allowing workers to participate in managerial decision-making may decrease the pace of decision-making, since it requires giving many workers a chance to make their voices heard (Hansmann 1996). It may also raise the cost of capital for firms, as investors may demand more favorable terms if they are not given control of the enterprise in return (McMahon 1994). Both sources of inefficiency may put the firm at a significant disadvantage in a competitive market. And it may not be just a matter of competitive disadvantage. If it were, the problem could be solved by making all firms worker-controlled. The problem may be one of diminished productivity more generally.

4. Popular frameworks for business ethics

Business ethicists seek to understand the ethical contours of, and devise principles of right action for, business activity. One way of advancing this project is by choosing a normative framework and teasing out its implications for a range of issues in business.

One influential approach to business ethics draws on virtue ethics (see, e.g., Alzola 2012; Sison & Fontrodona 2012). Moore, in a number of articles (Beadle & Moore 2006; G. Moore 2005), develops and applies MacIntyre’s (1984) virtue ethics to business. For MacIntyre, there are certain goods internal to practices, and certain virtues are necessary to achieve those goods. Building on MacIntyre, Moore develops the idea that business is a practice, and thus has certain goods internal to it, the attainment of which requires the cultivation of business virtues. Scholars have also been inspired by the Aristotelian idea that the good life is achieved in a community. They have considered how business communities must be structured to help their members flourish (Hartman 2015; Solomon 1993).

Another important approach to the study of business ethics comes from Kantian moral theory (D.G. Arnold & Bowie 2003; Bowie 1999). Kant’s claim that humanity should be treated always as an end, and never as a means only, has proved especially fruitful for analyzing the human interactions at the core of commercial transactions. In a competitive market, people may be tempted to deceive, cheat, or manipulate others to gain an edge. Kantian moral theory singles out these actions out as violations of human dignity (Smith & Dubbink 2011).

Ethical theory, including virtue theory and Kantian deontology, is useful for thinking about how individuals should relate to each other in the context of business (cf. Rorty 2006). But business ethics also comprehends the laws and regulations that structure markets and organizations. And here political theory seems more relevant (see and cf. Moriarty 2005b; Phillips & Margolis 1999). A number of business ethicists have sought to identify the implications of Rawls’s (1971) justice as fairness—the dominant theory of justice in the English-speaking world—for business. This is not an easy task, since while Rawls makes some suggestive remarks about markets and organizations, he does not articulate specific conclusions or develop detailed arguments for them. But scholars have argued that justice as fairness: (1) is incompatible with significant inequalities of power and authority within businesses (S. Arnold 2012); (2) requires people to have an opportunity to perform meaningful work (Moriarty 2009; cf. Hasan 2015); and requires alternative forms of (3) corporate governance (Norman 2015; cf. Singer 2015) and (4) corporate ownership (M. O’Neill & Williamson 2012).

A fourth approach to business ethics is called the “market failures approach” (MFA). A version of this view can be found in McMahon (1981), but it has been developed in most detail and is now most closely associated with Heath (2014). According to Heath, the reason we have a market-based economy, as opposed to a command economy, is because markets are more efficient. But markets fail, due to imperfect information, externalities, transaction costs, and more. The state corrects for many market failures through regulation. We set limits on pollution and require truth in advertising, among other things. But we would not want, and we cannot write, regulations to address every market failure. This is where business ethics comes in, according to the MFA. Businesspeople have a moral obligation not to exploit the market failures that the law allows them to exploit. Put another way, the moral obligations of businesspeople are identified by the ideal regulatory regime—the one we would have if regulations were costless and written and administered by a godlike figure.

Selecting a normative framework and applying it to a range of issues is an important way of doing business ethics. But it is not the only way. Indeed, the more common approach is to identify a business activity and then analyze it using intuitions and principles common to many moral and political theories. Below I consider ethical issues that arise at the nexus of firms’ engagement with three important groups: consumers, employees, and society.

5. Firms and consumers

The main way that firms interact with consumers is by selling, or attempting to sell, products and services to them. Many ethical issues attend this interaction.

5.1 What should be for sale?

A number of writers have argued that some things should not be for sale (Anderson 1993; MacDonald & Gavura 2016; Sandel 2012; Satz 2010). Among the things commonly said to be inappropriate for sale are sexual services, surrogacy services, and human organs. Some writers object to markets in these items for consequentialist reasons. They argue that markets in commodities like sex and kidneys will lead to the exploitation of vulnerable people (Satz 2010). Others object to the attitudes or values expressed in such markets. They claim that markets in surrogacy services express the attitude that women are mere vessels for the incubation of children (Anderson 1993); markets in kidneys suggest that human life can be bought and sold (Sandel 2012); and so on.

Other writers have criticized these arguments, and in general, the attempt to “wall-off” certain goods and services from markets. Brennan and Jaworksi (2016) object to “expressive” arguments against markets in contested commodities. Whether selling a particular thing for money expresses disrespect, they note, is culturally contingent. They and others also argue that the bad effects of markets in contested commodities can be eliminated or at least ameliorated through appropriate regulation, and that anyway, the good effects of such markets (e.g., a decrease in the number of people who die because they are waiting for a kidney) outweigh the bad (see also Taylor 2005).

5.2 Product safety and liability

Some things that firms may wish to sell, and that people may wish to buy, pose a significant risk of harm, to the user and others. When is a product too unsafe to be sold? This question is often answered by government agencies. In the U.S., a number of government agencies, including the Consumer Product Safety Commission (CPSC), the National Highway Traffic Safety Administration (NHTSA), and the Food and Drug Administration (FDA), are responsible for assessing the safety of products for the consumer market. In some cases these standards are mandatory (e.g., medicines and medical devices); in other cases they are voluntary (e.g., trampolines and tents). The state identifies minimum standards and individual businesses can choose to adopt higher ones.

Questions about product safety are a matter of significant debate among economists, legal scholars, and public policy experts. Legal scholars have also devoted considerable attention to tort law, the area of law that deals with cases of (non-contractual, non-criminal) harm. But business ethicists have paid scant attention to these questions. Existing treatments often combine discussions of safety with discussions of liability—the question of who should pay for harms that products cause—and tend to be found in business ethics textbooks. One of the most detailed treatments is Velasquez’s (2012). He distinguishes three (compatible) views: (1) the “contract view”, according to which the manufacturer’s duty is to accurately disclose all risks associated with the product; (2) the “due care view”, according to which the manufacturer should exercise due care to prevent buyers from being injured by the product; and (3) the “social costs view”, according to which the manufacturer should pay for any injuries the product causes, even if the manufacturer has exercised due care to prevent injury and has accurately disclosed all risks associated with the product (see also Boatright 2009a).

There is much room for exploration of these issues. One area that merits attention is the definitions of key terms, such as “safety” and “risk”. Drop side cribs pose risks to consumers; so do chainsaws. On what basis should the former be prohibited but the latter not be (Hasnas 2010)? On the question of liability, an important issue is whether it is fair to hold manufacturers responsible for harms that their products cause, when the manufacturers are not morally at fault for those harms (Piker 1998).

5.3 Advertising

Most advertising contains both an informational component and a persuasive component. Advertisements tell us something about a product, and try to persuade us to buy it. Both of these components can be subject to ethical evaluation.

Emphasizing its informational component, some writers stress the positive value of advertising. Markets function efficiently only when certain conditions are met. One of these conditions is perfect information: minimally, consumers have to understand the features of the products for sale. While this condition will never be fully met in reality, advertising can help to ensure that it is met to a greater degree (Heath 2014). Another value that can be promoted through advertising is autonomy. People have certain needs and desires—e.g., to eat healthy food, to drive a safe car—which their choices as consumers help them to satisfy. Their choices are more likely to satisfy their needs and desires if they have information about what is for sale, which advertising can provide (Goldman 1984).

These good effects depend, of course, on advertisements producing true beliefs, or at least not producing false beliefs, in consumers. Writers treat this as the issue of “deception” in advertising. The issue here is not whether deceptive advertising is wrong—most believe it is (cf. Child 1994)—but what counts as deceptive advertising, and what makes it wrong.

In the 1980s, Beech-Nut advertised as “100% apple juice” a drink that contained no juice of any kind. Its advertisements were deceptive, and therefore wrong, because they appeared to make a true claim, but in fact made a false claim. But many advertisements that do not seem deceptive make false or unverifiable claims. Consider Calvin Klein’s slogan, “between love and madness lies obsession” or Gillette’s slogan, “the best a man can get”. It is common to say of these types of claims that they are not warranted as true, and so cannot deceive (Carson 2010). Yet these claims may in fact deceive some people. A person may believe Gillette’s claim that its products are the best a man can get, and purchase them on that basis. Regulators address this complication by employing a “reasonable person” standard (Attas 1999). Advertisements are deemed deceptive when a reasonable person, not any person at all, is deceived. This makes deception in advertising a matter of results in consumers, not intentions in advertisers.

Many reasons have been offered for why deceptive advertising is wrong. One is the Kantian claim that deceiving others is disrespectful to them, a use of them as a mere means. Deceptive advertising may also lead to harm, to consumers (who purchase suboptimal products, given their desires) and competitors (who lose out on sales). A final criticism of deceptive advertising is that it erodes trust in society (Attas 1999). When people do not trust each other, they will either not engage in economic transactions, or engage in them only with costly legal protections.

The persuasive component of advertising is also a fruitful subject of ethical inquiry. Galbraith (1958), an early critic, thinks that advertising, in general, does not inform people how to acquire what they want, but instead gives them new wants. He calls this the “dependence effect”: our desires depend on what is produced, not vice versa. Moreover, since we are inundated with advertising for consumer goods, we want too many of those goods and not enough public goods. Hayek (1961) rejects this claim, arguing that few if any of our desires are independent of our environment, and that anyway, desires produced in us through advertising are no less significant than desires produced in us in other ways.

Galbraith is concerned about the persuasive effects of advertisements. In contrast, recent writers focus on persuasive techniques that advertisers use. Some of these are alleged to cross the line into manipulation. It is difficult to define manipulation precisely, though many attempts have been made (see, e.g., Coons & Weber 2012). For our purposes, manipulative advertising can be understood as advertising that attempts to persuade consumers, often (but not necessarily) using non-rational means, to make irrational or suboptimal choices, given their own needs and desires (see and cf. Beauchamp, Hare, & Biederman 1984; Brenkert 2008).

Associative advertising is often held up as an example of manipulative advertising. In associative advertising, the advertiser tries to associate a product with a positive belief, feeling, attitude, or activity which usually has little to do with the product itself. Thus many television commercials for trucks in the U.S. associate trucks with manliness. Commercials for body fragrances associate those products with sex between beautiful people. The suggestion is that if you are a certain sort of person (e.g., a manly one), then you will have a certain sort of product (e.g., a truck). Crisp (1987) argues that this sort of advertising attempts to create desires in people by circumventing their faculty of conscious choice, and in so doing subverts their autonomy (cf. Arrington 1982; Phillips 1994). Lippke (1989) argues that it makes people desire the wrong things, encouraging us to try to satisfy our non-market desires (e.g., to be more manly) through market means (e.g., buying a truck). How seriously we take these criticisms may depend on how effective we think associative and other forms of persuasive advertising are. To the extent that we think that advertisers are unsuccessful at “going around” our faculty of conscious choice, we may be less worried and more amused by their attempts to do so (Bishop 2000; Goldman 1984).

Our judgments on this issue may be context-sensitive. While most people may be able to see through advertisers’ attempts to persuade them, some may not be (at least some of the time). Paine (Paine et al. 1984) argues that advertising is justified because it helps consumers make wise decisions in the marketplace. But children, she argues, do not have the capacity for making wise consumer choices (see also E.S. Moore 2004). Thus advertising directed at children—as opposed to advertising of products for children directed at adults—constitutes a form of objectionable exploitation. Other populations who may be similarly vulnerable are the senile, the ignorant, and the bereaved. Ethics may require not a total ban on marketing to them but special care in how they are marketed to (Brenkert 2008).

5.4 Sales and negotiation

Sales are central to business. Perhaps surprisingly, business ethicists have said little directly about sales. But much of what is said about advertising also applies to sales. Salespeople are, in a sense, the final advertisers of products to consumers. They provide benefits to consumers in much the same way as advertisers and have the same ability to deceive or manipulate consumers.

Carson (2010) works out a detailed theory of ethics for salespeople. According to him, salespeople have at least the following four pro tanto duties: (1) provide customers with safety warnings and precautions; (2) refrain from lying and deception; (3) fully answer customers’ questions about items; and (4) do not steer customers toward purchases that are unsuitable for them, given their stated needs and desires. Carson justifies (1)—(4) by appealing to the golden rule: treat others as you want to be treated. He identifies two other duties that salespeople might have (he is agnostic): (5) do not sell customers products that you (the salesperson) think are unsuitable for them, given their needs and desires, without telling customers why you think this; and (6) do not sell customers poor quality or defective products, without telling them why you think this. For the most part, (1)—(4) ask the salesperson not to harm the customer; (5) and (6) ask the salesperson to help the customer, in particular, help her not to make foolish mistakes. Whether salespeople should help customers in this way may depend on how adversarial their relationship should be.

The broader issue here is one of disclosure. Holley (1998) argues that salespeople are required to disclose to customers what a “reasonable person would want to know” about a product before they purchase it. Ebejer and Morden (1988) claim that salespeople should disclose all information that is “relevant” to a buyer’s purchase. But there is no consensus on what information is relevant to a purchasing decision, or what reasonable people want to know.

For many products bought and sold in markets, sellers offer an item at a certain price, and buyers take or leave that price. But in some cases there is negotiation over price (and other aspects of the transaction). We see this in the sale of “big ticket” items such as cars and houses, and in salaries for jobs. While there are many ethical issues that arise in negotiation, one issue that has received special attention is “bluffing”, or deliberately misstating one’s bargaining position. The locus classicus for this debate is Carr (1968). According to him, bluffing in negotiations is permissible because business has its own special set of rules and bluffing is permissible according to these rules. In Carr’s view, everyone who enters the business arena accepts bluffing as permissible, just like everyone who enters a boxing ring accepts punching people as permissible. Carson (2010) agrees that bluffing is permissible in business, though in a more limited range of cases than Carr. Carson’s defense of bluffing appeals to self-defense. If you have good reason to believe that your adversary in a negotiation is misstating her bargaining position, then you are permitted to misstate yours. A requirement to tell the truth in these circumstances would put you at a significant disadvantage relative to your adversary, which you are not required to suffer. An implication of Carson’s view is that you are not permitted to misstate your bargaining position if you do not have good reason to believe that your adversary is misstating hers.

5.5 Pricing

In simplified models of the market, individual buyers and sellers are “price-takers”, not “price-makers”. That is, the prices of goods and services are set by the aggregate forces of supply and demand; no individual is able to buy or sell a good for anything other than the market price. In reality, things are different. Sellers of goods have some flexibility about how to price goods.

Most business ethicists would accept that, in most cases, the prices at which products should be sold is a matter for private individuals to decide. This view has been defended on grounds of property rights. Some claim that if I have a right to X, then I am free to transfer it to you on whatever terms that I propose and you accept (Boatright 2010). It has also been defended on grounds of welfare. Prices set by the voluntary exchanges of individuals reveal valuable information about the relative demand for and supply of goods, allowing resources to flow to their most productive uses (Hayek 1945). Despite this, most business ethicists recognize some limits on prices.

One issue that has received attention recently is price discrimination. By this I do not mean discrimination in pricing on the basis of a person’s membership in traditionally protected classes such as race and sex. (This is widely regarded as wrong.) “Price discrimination” refers to discrimination in pricing on the basis of people’s willingness to pay: charging more to people who are willing to pay more and charging less to people who are willing to pay less. Economists tend to think that price discrimination is valuable insofar as it enables firms to increase output. But the moral status of it is less clear. When it was revealed that Staples and other online retailers were charging consumers in different zip codes different prices for the same products at the same time, consumers were outraged. But some writers argue that this practice is no worse than movie theaters giving discounts to children (Elegido 2011; Marcoux 2006). The problem may be that Staples and others engaged in this practice without disclosing it. In doing so, they were taking advantage of consumers’ ignorance.

Another issue of pricing ethics is price gouging. Price gouging can be understood as a sharp increase in the price of a necessary good in the wake of an emergency which renders that good scarce. In the immediate aftermath of Hurricane Katrina in New Orleans in 2005, for example, many retailers charged very high prices for water and gasoline. Many jurisdictions have laws against price gouging, and it is widely regarded as unethical (Snyder 2009). The reason is that it is a classic case of exploitation: A extracts an excessive fee out of B in circumstances in which B cannot reasonably refuse A’s offer (Valdman 2009). But some theorists defend price gouging. While granting that sales of items in circumstances like these are exploitative, they note that they are mutually beneficial. Both the seller and buyer prefer to engage in the transaction rather than not engage in it. Moreover, when items are sold at inflated prices, this attracts more sellers into the market. Permitting price gouging may thus be the fastest way of eliminating it (Zwolinski 2008). (For further discussion, see the entry on exploitation.)

Most contemporary scholars believe that sellers have wide, though not unlimited, discretion in how much they charge for goods and services. But there is an older tradition in business ethics, found in Aquinas and other medieval scholars, according to which there is one price that sellers should charge: the “just price”. There is debate about what exactly medieval scholars meant by “just price” (see Reiff 2013). According to a historically common interpretation, the just price is determined by the seller’s cost of production, i.e., the price that compensates the seller for the value of her labor and expenses. More recent interpretations understand the medieval just price at something closer to the market price, which may be more or less than the cost of production (Koehn & Wilbratte 2012). In a contemporary treatment, Reiff resurrects and rehabilitates the concept of just price, distinguishing it from the market price, and specifying it as the “average total social cost of the good at issue” (2013: 109). A view like Reiff’s must contend with the arguments sketched above—based on rights and welfare—for allowing prices to be determined by the voluntary choices of buyers and sellers.

6. Firms and workers

Business ethicists have written much about the relationship between employers and employees. Most of this writing has inquired into the obligations that employers owe to employees. This may be because employers usually have more power than employees, and so have greater discretion in how they treat employees, than employees have in how they treat employers. Below I identify four issues at the employer/employee interface: (1) hiring and firing, (2) pay, (3) meaningful work, and (4) whistleblowing. Another important topic in this area is privacy. For space reasons this topic will not be discussed, but see the entries on privacy and privacy and information technology.

6.1 Hiring and firing

Ethical issues in hiring and firing tend to focus on the question: What criteria should employers use, or not use, in employment decisions? The question of what criteria employers should not use is addressed in discussions of discrimination.

While there is some debate about whether discrimination in employment should be legally prohibited (see Epstein 1992), almost everyone agrees that it is morally wrong (Hellman 2008; Lippert-Rasmussen 2014). Discussion has focused on two questions. First, when does the use of a certain criterion in an employment decision count as discriminatory? It seems wrong for Wal-Mart to exclude white applicants for a job in their marketing department, but not wrong for the Hovey Players (a theater troupe) to exclude white applicants for a production of A Raisin in the Sun. We might say that whether a hiring practice is discriminatory depends on whether the criterion used is job-relevant. But this may not go far enough, as the case of “reaction qualifications” reveals. Suppose that white diners prefer to be served by white waiters rather than black waiters. In this case race seems job-relevant, but it also seems wrong for employers to take race into account (Mason forthcoming). Another question that has received considerable attention is: What makes discrimination wrong? Some argue that discrimination is wrong because of its effects on those who are discriminated against (Lippert-Rasmussen 2014); others think that it is wrong because of what it expresses to them (Hellman 2008). (For further discussion, see the entry on discrimination.)

Some writers believe that employers’ obligations are not satisfied simply when they avoid using certain criteria in hiring decisions. According to them, employers have a duty to hire the most qualified applicant. Some justify this duty by appealing to considerations of desert (D. Miller 1999); others justify it by appealing to equal opportunity (Mason 2006). The standard challenge to this view appeals to property rights (Kershnar 2004). A job offer typically implies a promise to pay the job-taker a sum of your money for performing certain tasks. While we might think that excluding some ways you can dispose of your property (e.g., rules against discrimination in hiring) can be justified, we might think that excluding all ways but one (viz., a requirement to hire the most qualified applicant) is unjustified. In support of this, we might think that a small business owner does nothing wrong when she hires her daughter for a part-time job as opposed to a more qualified stranger.

Many of the same ethical issues that attend hiring also attend firing. There has been a robust discussion of the ethics of firing in the business ethics literature. There are two main camps: those who think that employment should be “at will”, so that an employer can terminate an employee for any reason (Epstein 1984; Maitland 1989), and those who think that employers should be able to terminate employees only for “just cause” (e.g., poor performance or a business downturn) (McCall & Werhane 2010). In fact, few writers hold the “pure” version of the “at will” view. Most would say that it is wrong for an employer to terminate an employee for some reasons, e.g., a discovery that he is Muslim or his refusal to commit a crime for the employer. Thus the debate is between those who think that employers should be able to terminate employees for any reason with some exceptions, and those who think that employers should be able to terminate employees only for certain reasons. In the U.S., most employees are at will, while in Europe, most employees are covered, after a probationary period, by something analogous to just cause. Arguments for just cause appeal to the effects that termination has on individual employees, especially those who have worked for an employer for many years (McCall & Werhane 2010). Arguments for at will employment appeal to freedom or macroeconomic effects. It is claimed, in the former case, that just cause is an unwarranted restriction on employers’ and employees’ freedom (Epstein 1984), and in the latter case, that it raises the unemployment rate (Maitland 1989).

6.2 Pay

Business organizations generate revenue, and some of this revenue is distributed to their employees in the form of pay. Since the demand for pay typically exceeds the supply, the question of how pay should be distributed is naturally analyzed as a problem of justice.

Two general theories of justice in pay have attracted attention. One may be called the “agreement view”. According to this view, the just wage is whatever wage the employer and the employee agree to without force or fraud (Boatright 2010; Machan & Chesher 2002). This view is sometimes justified in terms of property rights. Employees own their labor, and employers own their capital, and they are free, within broad limits, to dispose of it as they please (Boatright 2010). A second view of wages may be called the “contribution view”. According to it, the just wage for a worker is the wage that reflects her contribution to the firm. This view comes in two versions. On the absolute version, workers should receive an amount of pay that equals the value of their contributions to the firm (D. Miller 1999). On the comparative version, workers should receive an amount of pay that reflects the relative value of their contributions to the firm, given what others in the firm contribute and are paid (Sternberg 2000). The contribution view strikes some as normatively basic, a view for which no further argument can be given (D. Miller 1999). An analogy may be drawn with punishment: just as it seems intuitively right for the severity of a criminal’s punishment to reflect the seriousness of her crime, so it may seem intuitively right for the value of a worker’s pay to reflect the value of her work.

The pay of any employee in a firm can be evaluated from a moral point of view, using the two theories sketched above. But business ethicists have paid particular attention to the pay of certain groups of employees, viz., CEOs and sweatshop workers.

There has been a robust debate about whether CEOs are paid too much (Moriarty 2005a), with scholars falling roughly into two camps. Those in the “managerial power” camp believe that CEOs wield power over boards of directors, and use this power to extract above-market rents from their firms (Bebchuk & Fried 2004). Those in the “efficient contracting” camp believe that pay negotiations between CEOs and boards are usually carried out at arm’s-length, and that CEOs’ large compensation packages reflect their rare and valuable skills (cf. Reiff 2013).

There has also been a robust debate about whether workers in sweatshops are paid too little. Some say ‘no’ (Powell & Zwolinski 2012; Zwolinski 2007). They say that sweatshops wages, while low by our standards, are not low by the standards of the countries in which the sweatshops are located. This explains why people choose to work in a sweatshop: it is the best offer they have. Efforts to increase artificially the wages of sweatshop workers, according to these writers, is misguided on two counts. First, it is an interference with the autonomous choices of employers and workers. Second, it is likely to make workers worse off, since employers will respond by either moving operations to a new location or employing fewer workers in that location. Other writers challenge these claims. While granting that workers choose to work in sweatshops, they deny that their choices are voluntary (D.G. Arnold & Bowie 2003). Given their very low wages, this suggests that sweatshop workers are exploited. Moreover, some argue, appealing to a Kantian duty of beneficence, that firms can and should do more for sweatshop workers (Snyder 2010). In response to the claim that firms put themselves at a competitive disadvantage if they do, writers have pointed to actual cases where firms have been able to secure better treatment for sweatshop workers without suffering serious financial penalties (Hartman, Arnold, & Wokutch 2003).

6.3 Meaningful work

Smith (1776 [1976]) famously observed that a detailed division of labor greatly increases the productivity of manufacturing processes. To use his example: if one worker performs all of the tasks required to make a pin himself, he can make just a few pins per day. However, if the worker specializes in one or two of these tasks, and combines his efforts with other workers who specialize in one or two of the other tasks, then together they can make thousands of pins per day. But there is human cost, according to Smith, to the detailed division of labor. Performing one or two simple tasks all day is likely to make a worker “as stupid and ignorant as it is possible for a human creature to become” (Smith 1776 [1976]: V.1.178).

Calls for “meaningful work” are a response to this problem. As this implies, a call for meaningful work is not a call for work to be more “important”, i.e., to contribute to the production of a good or service that is objectively valuable, or that workers believe is valuable. Instead, it is a call for labor processes to be arranged so that work is interesting, requires skill, and gives workers substantial decision-making power (Arneson 1987; Michaelson et al. 2014).

Smith’s insight that labor processes are more efficient when they are divided into meaningless segments leads some writers to believe that, in a competitive economy, firms will not provide as much meaningful work as workers want (Werhane 1985). In response, it has been argued that there is a market for labor, and if workers wanted meaningful work, then employers would have an incentive to provide it (Maitland 1989; Nozick 1974). According to this argument, insofar as we see “too little” meaningful work on offer, this is because workers prefer not to have it—or more precisely, because workers are willing to trade more meaningfulness for other benefits, such as higher wages. This argument assumes, of course, that workers have the financial ability to trade wages for meaningfulness.

The above argument treats meaningful work as a matter of preference: as a job amenity that employers can decline to offer or that workers can trade away. Others resist this understanding. According to Schwartz (1982), employers are required to offer employees meaningful work, and employees are required to perform it, out of respect for autonomy. The thought is: the autonomous persons makes choices for herself; she does not mindlessly follow others' directions. A difficulty for this argument is that respect for autonomy does not seem to require that we make all choices for ourselves. A person might, it seems, autonomously choose to allow important decisions to be made for her in certain spheres of her life, e.g., by a coach, a family member, or a military commander.

A potential problem for this response brings us back to Smith, and to “formative” arguments for meaningful work. The problem, according to some writers, is that if most of a person’s day is given over to meaningless tasks, then her capacity for autonomous choice, and perhaps her other intellectual faculties, may deteriorate. A call for meaningful work may thus be understood as a call for workplaces to be arranged so that this deterioration does not occur (Arneson 2009; S. Arnold 2012). In addition to Smith, Marx (1844 [2000]) was clearly concerned about the effects of work on human flourishing. Formative arguments face two difficulties. One is establishing the connection between meaningless work and autonomous choice (or another intellectual faculty). Second, and perhaps more importantly, formative arguments make certain assumptions about the nature of the good and the public’s role in promoting it. They assume that it is better for people to have fully developed faculties of autonomous choice (etc.) and that the public should help to develop them. Both assumptions may be challenged. Neutralists in political philosophy think that the state should not promote the good, at least when there is reasonable disagreement about what is good (see, e.g., Rawls 1993).

6.4 Whistleblowing

Suppose you discover that your firm is paying bribes to government officials to win contracts. To stop this, one thing you might do is “blow the whistle” by disclosing this information to a journalist. While different theorists give different definitions of whistleblowing (see, e.g., Brenkert 2010; Davis 2003; DeGeorge 2009), the following elements are usually present: (1) insider status, (2) non-public information, (3) illegal or immoral activity, (4) avoidance of the usual chain of command in the firm, (5) intention to solve the problem. In the above example, you would be a whistleblower because you are (1) an employee (2) who discloses non-public information (3) about illegal activity in a firm (4) to people outside of it (5) in an effort to stop that activity.

Debate about whistleblowing tends to focus on the question of when whistleblowing is justified—in the sense of when it is permissible, or when it is required. This debate assumes that whistleblowing requires justification, or is wrong, other things equal. Many business ethicists make this assumption on the grounds that employees have a pro tanto duty of loyalty to their firms (see, e.g., Boatright 2009a). Against this, some argue that the relationship between the firm and the employee is purely transactional—an exchange of money for labor (Duska 2000)—and so is not normatively robust enough to ground a duty of loyalty. (For a discussion of this issue, see the entry on loyalty.)

One prominent justification of whistleblowing is due to DeGeorge (2009). According to him, it is permissible for an employee to blow the whistle when his doing so will prevent harm to society. (In a similar account, Brenkert [2010] says that the duty to blow the whistle derives from a duty to prevent wrongdoing.) The duty to prevent harm has more weight than the duty of loyalty. To determine whether whistleblowing is not simply permissible but required, DeGeorge says, we must take into account the likely success of the whistleblowing and its effects on the whistleblower himself. Humans are tribal creatures, and whistleblowers are often treated badly by their colleagues. So if whistleblowing is unlikely to succeed, then it need not be attempted. The lack of a moral requirement to blow the whistle in these cases can be seen as a specific instance of the rule that individuals need not make huge personal sacrifices to promote others’ interests, even when those interests are important.

Another account of whistleblowing is given by Davis (2003). Like Brenkert (and unlike DeGeorge), Davis focuses on the wrongdoing that the firm engages in (not the harm it causes). According to Davis, however, the point of whistleblowing is not so much to prevent the wrongdoing but to avoid one’s own complicity in it. He says that an employee is required to blow the whistle on her firm when she believes that it is engaged in seriously wrongful behavior, and her work for the firm “will contribute … to the wrong if … [she] [does] not publicly reveal what [she knows]” (2003: 550). An unusual feature of Davis’s account is that it limits whistleblowers to people who are currently firm insiders. You cannot “blow the whistle” on a firm after you have left it.

Whistleblowing picks out a real and important phenomenon. But it does not seem morally distinctive, in the sense that the values and duties involved in it are familiar. Loyalty to an individual (or group) may require that we give preference to her (or their) interests, to an extent. And yet, in general, we should avoid complicity in immoral behavior, and should also make an effort to prevent harm and wrongdoing, especially when our efforts are likely to succeed and are not personally very costly. On the accounts given above, whistleblowing is simply the attempt to act in accordance with these values, and discharge these duties, in the context of the workplace.

7. The firm in society

Businesses as a whole command enormous resources, and as a result can have an enormous impact on society. One way that businesses impact society, of course, is by producing goods and services and by providing jobs. But businesses can also impact society by trying to solve social problems and by using their resources to influence states’ laws and regulations.

7.1 Corporate social responsibility

“Corporate social responsibility”, or CSR, is typically understood as actions by businesses that are (i) not legally required, and (ii) intended to benefit parties other than the corporation (where benefits to the corporation are understood in terms of return on equity, return on assets, or some other measure of financial performance). The parties who benefit may be more or less closely associated with the firm itself; they may be the firm’s own employees or people in distant lands.

A famous example of CSR involves the pharmaceutical company Merck. In the late 1970s, Merck was developing a drug to treat parasites in livestock, and it was discovered that a version of the drug might be used treat River Blindness, a disease that causes debilitating itching, pain, and eventually blindness. The problem was that the drug would cost millions of dollars to develop, and would generate little or no revenue for Merck, since the people afflicted with River Blindness—millions of sub-Saharan Africans—were too poor to afford it. In the end, Merck decided to develop the drug. As expected, it was effective in treating River Blindness, but Merck made no money from it. As of this writing in 2016, Merck, now in concert with several nongovernmental organizations, continues to manufacture and distribute the drug for free throughout the developing world.

Corporate social responsibility, or CSR, is not the only term that business ethicists use to describe actions like Merck’s. They might also be described as an example of “corporate citizenship” or “corporate sustainability” (Crane, Matten, & Moon 2008; cf. Néron & Norman 2008). It is doubtful that anything important hangs on one’s choice of labels.

The scholarly literature on CSR is dominated by social scientists. Their question is typically whether, when, and how socially responsible actions benefit firms financially. The conventional wisdom seems to be that there is a slight positive correlation between corporate social performance and corporate financial performance, but it is unclear which way the causality goes (Margolis & Walsh 2003; Orlitzky et al. 2003; Vogel 2005). That is, it is not clear whether prosocial behavior by firms causes them to be rewarded financially (e.g., by consumers who value their behavior), or whether financial success causes firms to engage in more prosocial behaviors (e.g., by freeing up resources that would otherwise be spent on core business functions). Since our concern is with normative questions, we will focus on moral reasons for and against CSR.

Some writers connect the debate about CSR with the debate about the ends of corporate governance. Thus Friedman (1970) objects to CSR, saying that managers should be maximizing shareholder wealth instead. Stakeholder theory is thought to be more accommodating of prosocial activity by firms, since it permits firms to do things other than increase shareholder wealth. But we do not need to see the debate about CSR as arguments about the proper ends of corporate governance. We can see it as a debate about the means to those ends, with some arguing, and others denying, that certain acts of prosocial behavior are required no matter what ends a firm pursues.

Many writers give broadly consequentialist reasons for CSR. The arguments tend to go as follows: (1) there are serious problems in the world, such as poverty, conflict, environmental degradation, and so on; (2) any agent with the resources and knowledge necessary to ameliorate these problems has a moral responsibility to do so, assuming the costs they incur on themselves are not great; (3) firms have the resources and knowledge necessary to ameliorate these problems without incurring great costs; therefore, (4) firms should ameliorate these problems. The view that someone should do something about the world’s problems seems clearly true to many people. Not only is there an opportunity to increase social welfare by alleviating suffering, suffering people may also have a right to assistance. The controversial issue is who should do something to help, and how much they should do. Thus defenders of the above argument focus most of their attention on establishing that firms have these duties, against those who say that these duties are properly assigned to states or individuals. O. O’Neill (2001) and Wettstein (2009) argue that firms are “agents of justice”, much like states and individuals, and have duties to aid the needy. Strudler (forthcoming) legitimates altruistic behavior by firms by undermining the claim that shareholders own them, and so are owed their surplus wealth. Hsieh (2004) says that, even if we concede that firms do not have social obligations, individuals have them, and the best way for many individuals to discharge them is through the activities of their firms (see also McMahon 2013).

Debates about CSR are not just debates about whether specific social ills should be addressed by specific corporations. They are also debates about what sort of society we want to live in. While acknowledging that firms benefit society through CSR, Brenkert (1992b) thinks it is a mistake for people to encourage firms to engage in CSR as a practice. When we do so, he says, we cede a portion of the public sphere to private actors. Instead of deciding together how we want to ameliorate social ills affecting our fellow community members, we leave it up to private organizations to decide what to do. Instead of sharpening our skills of democracy through deliberation, and reaffirming social bonds through mutual aid, we allow our skills and bonds to atrophy through disuse.

7.2 Firms, governments, and political CSR

Many businesses are active participants in the political arena. They support candidates for election, defend positions on issues in public debate, lobby government officials, and more (see Stark 2010). What does business ethics say about these activities?

Social scientists have produced a substantial literature on corporate political activity (CPA) (for a review, see Hillman, Keim, & Schuler 2004). This research focuses on such questions as: What forms does CPA take? What are the antecedents of CPA? What are its consequences? CPA raises many normative questions as well.

One question is whether firms are the right type of entities to engage in political activity. In large states, citizens often find it useful to join associations of like-minded others, the purpose of which is to represent their views in political decision-making. But while organizations like the Republican Party and the Sierra Club are suitable participants in the political arena, it is not clear that organizations like Merck or Wal-Mart are. This is because they have no recognized role in the political process, and citizens do not join or leave them based on political considerations (Hussain & Moriarty forthcoming; Tucker 2010). Some have criticized the U.S. Supreme Court’s majority decision in Citizens United—which affirmed and enhanced firms’ rights to participate in political discourse—on this basis. Alternatively, we might see firms as legitimate speakers on behalf of certain points of view (Stark 2010).

Scholars have also raised questions about the goals of CPA. One thing a firm might do when it engages in CPA is provide valuable information to government officials. Society has an interest in knowing how proposed economic policies will affect firms; firms themselves are a good source of information on these questions. But some worry that firms more often engage in CPA in order to advance their own interests at the expense of their competitors’. This activity is sometimes described, and condemned, as “rent-seeking” (Tullock 1989). Questions have been raised about the nature and permissibility of rent-seeking. According to standard definitions, rent-seeking is socially wasteful economic activity intended to secure benefits from the state rather than from the market. But there is disagreement about what counts as waste. Lobbying for agricultural subsidies is often described as a rent-seeking activity, but it can be important to secure a nation’s food supply (Boatright 2009b; Hindmoor 1999). A related issue is whether firms are permitted to engage in rent-seeking behavior. The structure of the problem appears to be that of a prisoner’s dilemma: individual firms often do better if they engage in rent-seeking, but the economy as a whole does worse if all firms engage in it (DeBow 1992–1993).

The forms of CPA identified above—participating in public discourse and lobbying government officials—go “through” the formal political process. But firms are increasingly engaging in what appears to be political activity that goes “around” or “outside” of this process, especially in circumstances in which the state is weak, corrupt, or incompetent. In the world today, firms are providing public goods such as healthcare and education (Ruggie 2004), protecting people’s citizenship rights (Matten & Crane 2005), and helping to create and enforce systems of private regulation or “soft law” (Vogel 2010). For example, when the Rana Plaza collapsed in Bangladesh in 2013, killing more than 1000 garment industry workers, new building codes and systems of enforcement were put into place. But they were put into place by the multinational corporations that are supplied by factories in Bangladesh, not by the government of Bangladesh. Writers characterize these activities as political because they are the kinds of actions that states normally perform, or should perform (Matten & Crane 2005; Scherer & Palazzo 2007, 2011). These new forms of CPA—called “political CSR”—have raised questions about the legitimacy of firms’ actions in democratically governed states.

Scherer and Palazzo (2007, 2011) are major contributors to this debate. In their view, if firms behave like states, then they must be governed like states (see also Matten & Crane 2005). The form of governance that Scherer and Palazzo have in mind is Habermasian in character, involving deliberative dialog among all stakeholders who are affected by a firm’s actions. They give as examples of this type of governance arrangement multi-stakeholder initiatives (MSIs) that bring together firms, non-governmental organizations, and members of local communities to deliberate and decide on policy matters, such as the Forest Stewardship Council (FSC), the Roundtable on Sustainable Palm Oil (RSPO), and the Extractive Industries Transparency Initiative (EITI). Against this, critics have charged that multi-stakeholder initiatives, while effective in producing dialog among stakeholders, are ineffective at holding firms to account (Moog, Spicer, & Böhm 2015). There is little doubt that firms can benefit society through political CSR. The building codes put into place by Western multinationals may well save the lives of many Bangladeshi garment workers. Unless new forms of corporate governance can be devised, however, these benefits may come at a cost to democratic self-rule.

A still more subtle way that firms can engage in political activity is through the exercise of their property rights (Christiano 2010). A firm might move out of a state in response to the passage of a law it does not favor, or it may threaten to move out of a state if such a law is passed. This may cause the state’s citizens to revise or edit their political decisions. As with certain cases of political CSR, we may applaud the results of this kind of political activity. Many applauded when the state of Indiana revised its law permitting discrimination against members of the LGBT community (on grounds of religious liberty) in response to claims by powerful firms, such as Salesforce.com and Angie’s List, that they would scale back their economic activity in the state. But it is unclear whether such behavior by firms should be encouraged. We may wish to draw a distinction between private individuals influencing political decision-making by exercising their property rights and firms doing the same thing.

7.3 International business

Many businesses operate across societal, including national, boundaries. These are typically called “multinational” or “transnational” firms (MNCs or TNCs). Operating internationally heightens the salience of a number of the ethical issues discussed above, such as CSR, but it also raises new issues, such as relativism and divestment. (Two issues often discussed in connection with international business are not treated in this section. One is wages and working conditions in overseas factories, often called sweatshops. This literature is briefly discussed in section 6.2. The second issue is corruption. For discussion of this issue, see the entry on corruption.)

Whether and to what extent firms have a duty to perform socially responsible actions is a question that can and has been asked about firms in a domestic context. But this question has seemed especially pressing in international contexts, and many of the most famous examples of CSR—including the case of Merck and River Blindness discussed in section 7.1—take place in the developing world. There are two reasons for this. One is that social problems, including poverty and environmental degradation, are often worse in the developing world than in the developed world. The second is that firms are relatively more powerful actors in the developing world than in the developed world.

A number of business ethicists have developed ethical codes for MNCs, including DeGeorge (1993) and Donaldson (1989). International agencies have also created codes of ethics for business. Perhaps the most famous of these is the United Nations Global Compact, membership in which requires organizations to adhere to a variety of rules in the areas of human rights, labor, environment, and anti-corruption. In his important work for that body, Ruggie (2004, 2013) developed a “protect, respect, and remedy” framework for MNCs and human rights, which assigns the state the primary duty to protect human rights and remedy abuses of them, and firms the duty to respect human rights (cf. Wettstein 2009). A striking fact about much of this research is that, while it is focused on international business, and sometimes promulgated by international agencies, the conclusions reached do not apply specifically to firms doing business across national boundaries. The duty to, e.g., respect human rights applies to firms doing business within national boundaries too. It is simply that the international context is the one in which this duty seems most important to discharge, and in which firms are one of the few agents who can do so.

There are issues, however, that arise specifically for firms doing business internationally. Every introductory ethics student learns that different cultures have different moral codes. This is typically an invitation to think about whether or not morality is relative to culture. For the businessperson, it presents a more immediate challenge: How should cultural differences in moral codes be managed? In particular, when operating in a “host” country, should the businessperson adopt host country standards, or should she apply her “home” country standards?

Donaldson is a leading voice on this question, in work done independently (1989, 1996) and with Dunfee (1999). Donaldson and Dunfee argue that there are certain “moral minima” that must be met in all contexts. These are given to us by “hypernorms”, or universal moral values and rules, which are themselves justified by a “convergence of religious, philosophical, and cultural” belief systems (1999: 57). Within the boundaries set by hypernorms, Donaldson and Dunfee say, firms have “free space” to select moral standards. They do not have the liberty to select any standards they want; rather, their choices must be guided by the host country’s traditions and its current level of economic development.

Donaldson and Dunfee’s approach has attracted a great deal of attention, and many critics. Much of this criticism has focused on the nature of hypernorms. Some writers argue that Donaldson and Dunfee’s criteria for hypernorms are ad hoc (Scherer 2015); others claim that some of the norms that they claim are hypernorms (e.g., a prohibition on gender discrimination) do not meet their stated criteria (Mayer & Cava 1995). Other writers focus on the application of Donaldson and Dunfee’s theory, arguing that it does not give managers the specific guidance it claims to (Soule 2002).

A complication for the debate about whether to apply home country standards in host countries is that multinational corporations engage in business across national boundaries in different ways. Some MNCs directly employ workers in multiple countries, while others contract with suppliers in multiple countries. Nike, for example, does not directly employ workers to make shoes. Rather, Nike designs shoes, and hires firms in other countries to make them. Our views about whether an MNC should apply home country standards in a host country may depend on whether the MNC is applying them to its own workers or to those of other firms. The same goes for accountability. MNCs, especially in consumer-facing industries, are often held responsible for poor working conditions in their suppliers’ factories. Nike was subject to sharp criticism for the labor practices of its suppliers in the 1990s (Hartman et al. 2003). Our views about the extent of the MNC’s responsibility may depend on whether the problematic practices exist in the MNC’s own factories or in those of its suppliers.

A businessperson may find that a host country’s standards are not just different than her home country’s standards, but morally intolerable. She may decide that the right course of action is to not do business in the country at all, and if she is invested in the country, to divest from it. The issue of divestment received substantial attention in the 1980s and 1990s as MNCs were deciding whether or not to divest from South Africa under its Apartheid regime. It may attract renewed attention in the coming years as firms and other organizations contemplate divestment from the fossil fuel industry. Common reasons to divest from a morally problematic society or industry are to avoid complicity in immoral practices, and to put pressure on the society or industry to change its practices. Critics of divestment worry about the effects of divestment on innocent third parties (Donaldson 1989) and about the efficacy of divestment in forcing social change (Teoh, Welch, & Wazzan 1999). Some believe that it is better for firms to stay engaged with the society or industry and try to bring about change from within.

8. The status of business ethics

The field of business ethics, in its current form, grew out of research that moral and political philosophers did in the 1970s and 1980s. It is not hard to see why moral and political philosophers might be interested in business. Business activity raises a host of interesting philosophical issues: of agency, truth, manipulation, exploitation, justice, and more. After a surge of activity 30 years ago, however, philosophers seem to be retreating from the field. There are hardly any philosophy Ph.D. programs that have faculty specializing in business ethics and, as a result, few new Ph.D.’s are produced in this area. Those who work in the area are typically “converts” from mainstream ethical theory and political philosophy. This is a missed opportunity. Many businesspeople care about business ethics: they see themselves as good people who want to do the right thing at work. And many accrediting agencies, such as the Association to Advance Collegiate Schools of Business (AACSB), require business schools to teach ethics. As philosophers have retreated from the field, business schools have turned to management scholars to fill the void. Given their training in the social sciences, management scholars treat ethics largely as a descriptive enterprise, i.e., as the study of the causes and effects of allegedly ethical or prosocial behavior. This is an important enterprise, to be sure, but it is no substitute for normative reflection on what is ethical in business. I hope this entry helps to inform philosophers about the richness and value of business ethics, and in doing so, excite greater interest in the field.

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Other Internet Resources

Acknowledgments

For help determining what areas of business ethics to cover in this entry, I thank Dorothea Baur, George Brenkert, Jason Brennan, David Dick, Edwin Hartman, Laura Hartman, Woon Hyuk Jay Jang, Chris MacDonald, Emilio Marti, Dominic Martin, Eric Orts, Sareh Pouryousefi, Abraham Singer, Alejo José G. Sison, and Chris Surprenant. Thanks also to David Jacobs and (especially) an anonymous reviewer for the Stanford Encyclopedia for detailed and thoughtful comments on a draft of the entry.

Copyright © 2016 by
Jeffrey Moriarty <jmoriarty@bentley.edu>

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