Business Ethics

Contemporary Issues and Cases

Richard A. Spinello

• Verlag: SAGE Publications, Inc
• Jahr: 2019
• ISBN:
  9781506368030
• Auflage: 1
• Thema: Business
• Thema: Business Ethics

The future of the free market depends on fair, honest business practices. Business Ethics: Contemporary Issues and Cases aims to deepen students’ knowledge of ethical principles, corporate social responsibility, and decision-making in all aspects of business. The text presents an innovative approach to ethical reasoning grounded in moral philosophy. Focusing on corporate purpose—creating economic value, complying with laws and regulations, and observing ethical standards—a decision-making framework is presented based upon Duties-Rights-Justice. Over 40 real-world case studies allow students to grapple with a wide range of moral issues related to personal integrity, corporate values, and global capitalism. Richard A. Spinello delves into the most pressing issues confronting businesses today including sexual harassment in the workplace, cybersecurity, privacy, and environmental justice.

Part I Theories and Principles

• Chapter 1. Why Capitalism?
• Chapter 2. Corporate Moral Agency, Purpose, and Responsibilities
• Chapter 3. Ethics and Corporate Social Responsibility

1 Why Capitalism?

Though my heart may be left of center, I have always known that the only economic system that works is a market economy. This is the only natural economy, the only kind that makes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself. The essence of life is infinitely and mysteriously multiform, and therefore it cannot be contained or planned for, in its fullness and variability, by any central intelligence.

—Vaclav Havel¹

Socialism is the name of our desire.

—Irving Howe²

Learning Objectives

Upon completion of this chapter, you should be able to:

• 1.1 Discuss the broad economic ecology within which corporations and managers operate.
• 1.2 Recognize capitalism’s requirement for an institutional framework and a supportive moral culture.
• 1.3 Explain the critical role of managers in sustaining free-market capitalism.

Thanks to recurring waves of corporate scandals, modern corporations have been subject to withering criticism in recent years for a lack of integrity. Corporations are frequently accused of moral turpitude and indifference. Some say that the corporation is ruled by Darwinian principles in its pursuit of profit and economic progress. Journalists once referred to the titans of American business as “robber barons.” Hollywood movies like Deepwater Horizon, Elysium, Wall Street, and The Constant Gardener consistently portray inhumane, callous executives. According to Hollywood, corporate America is full of these moral villains who will stop at nothing to achieve success.

This reproach of the modern corporation is often linked with strident critiques of the present structure of capitalism. Artificial barriers to competition contribute to unprecedented rent-seeking as companies pile up unreasonably high profits. Many for-profit corporations clamor for preferential treatment from government regulators along with government subsidies when they fail. This crony capitalism, with its Wall Street bailouts, rigged regulations, and excessive lobbying, seems to have displaced the more authentic entrepreneurial capitalism that Adam Smith envisioned when he wrote The Wealth of Nations. While some call for reforms and a retrieval of this “true” version of capitalism, others are convinced that the only way to overcome corporate malfeasance is to radically transform the whole corrupt system. Missing from the scene today are thinkers like Ayn Rand and Milton Friedman who tend to valorize capitalism for its bountiful efficiencies.

Those who impugn capitalism contend that it disproportionately benefits the wealthy and powerful and exacerbates economic inequality. Some economists base their arguments on the fact that while there have been gains from the spread of global capitalism, those gains have not been evenly distributed. The income divide has deepened in China and Latin America in the wake of economic liberalization. This growing inequality has alienated those on the bottom of the pay scale and reinforced populist perceptions that globalization benefits only the elite. Capitalism’s critics underscore these inequities along with the world’s persistent poverty as a sign of capitalism’s ongoing malaise. Perhaps a more socialistic economy can create the social justice and equality that we “desire” and dream about.³

Rhetoric aside, there is certainly some merit to these observations. An increase in income inequality undermines some of capitalism’s ideological appeal as a fair system that compensates for hard work and innovative solutions. Modern capitalism unfortunately promotes inefficient cronyism and special access to regulators. When this happens, there is a misallocation of corporate resources from innovation and wealth creation to political bureaucracy. Moreover, while capitalism surely has the capacity to innovate and create wealth, it is too often prone to excess. Those excesses put the whole economy at risk by causing the financial collapse of 2008. Quite simply, capitalism has a difficult time moderating itself in a relentless quest for surplus profits and material rewards.

Even Bill Gates, billionaire and founder of the capitalist icon Microsoft, now claims that he is impatient with capitalism and its inability to help resolve broad social problems. He is especially concerned that new advances in technology, health care, and education tend to help only the middle class and to bypass the poor. He joins other critics like Naomi Klein who contend that the structures of capitalism impede the resolution of society’s most severe social problems, such as environmental degradation and global warming. As the 2016 U.S. presidential campaign revealed, there is a groundswell of popular sentiment for socialism or at least for radical changes to the capitalist system. There are frequent demands for more government regulation and income redistribution. Economist Thomas Piketty, for example, has proposed a plan to “save” capitalism by imposing taxes on capital and wealth in order to create a more egalitarian society.⁴

Yet while concerns about capitalism are warranted, what economic system can take its place? The problems with abandoning the market price system or free trade have been made abundantly clear by the failure of collectivist economies like Mao’s China, where the state was the principal employer of labor. Few countries would want to emulate the socialist economies of Cuba and Venezuela or the isolationism of North Korea. The resources of land, labor, and capital are guided to their best use by the constant feedback of the marketplace. Moreover, an egalitarian distribution of goods, coerced by government’s heavy hand, typically holds economic freedom and property rights hostage to an unworkable utopian vision. As Friedrich Hayek has pointed out, the pursuit of equality at any cost soon becomes the well-trodden “road to serfdom.”

Is there a way to achieve capitalism’s high economic performance without the heavy social costs? Can capitalism coexist with noble moral sentiments as Bill Gates suggests? And, is a more humanistic vision of a free-market economy possible? The creation of such an economy actually begins with fidelity to the values embedded in capitalism itself. Liberal capitalism is predicated on a web of values that includes economic liberty, private property rights, open and fair markets, and free-market clarity. Markets can work properly only if consumers are autonomous and well informed enough to make sound economic choices. Free markets depend on consumer sovereignty to direct society’s resources to their most efficient use. Consumers must be able to judge the intrinsic value of the goods they seek to purchase or they will end up wasting their money. When this happens, scarce resources are not allocated efficiently or prudently. Markets also greatly depend on trust and cooperation, and trust is achieved primarily through transparency and candor. Lying, fraud, cheating, and deception subvert free markets and cause them to fail. The moral logic of capitalism, therefore, is severely strained when there is opportunistic behavior or selfish instrumentalism that undermines free, fair, and open competition.⁵

The endurance of competitive markets is also contingent on strong institutional foundations to support those free-market values. The proper institutional and legal frameworks are essential to enforce contracts, protect valid property rights, and ensure respect for fiduciary duties. Without well-defined property rights, enforced by law, the voluntary exchange that is the essence of a market economy is impossible. In addition, capital formation depends on strong fiduciary duties safeguarded by the law. Those duties constrain the self-interest of executives who are required to be loyal to the corporation and its shareholders and avoid seeking personal gains at the corporation’s expense. In addition, direct government intervention in competitive markets is sometimes necessary when there are market failures such as externalities or information deficiencies.⁶

However, these institutional foundations that enforce the rule of law and preserve key market values do not go far enough. There is also a need for a stronger ethical commitment by managers and market participants. Respect for moral duties and basic human rights serves as an additional and welcome counterweight to the calculus of economic efficiency. Paying unfair, rock-bottom wages in Bangladesh may be efficient (and legal), but such a policy is inconsistent with the rights of workers for fair wages and benefits. Hence, a humane free-market economy depends on the support of a strong moral culture that encourages sensitivity to basic human rights and the demands of justice. Through its social and educational institutions, this culture can foster in its managers those virtues needed for markets to achieve their objectives with minimal social cost. It can also provide the moderating influences necessary to temper market excesses, and thereby inspire a confidence in capitalism that goes beyond the economic elite. Economic activity, therefore, should ideally take place within a free polity under the rule of law and within a culture that emphasizes the benefits and burdens of personal and corporate moral responsibility.⁷

These issues may seem overly theoretical and irrelevant for a book on business ethics, but that is not so. First, some scrutiny of the capitalist system allows us to see the corporation and the issue of corporate social responsibility in a broader context. Students should certainly learn how to think critically about the economic system they will inherit. They must appreciate the complex ecology within which firms compete and workers make their living. Along these lines, it is instructive to consider different types of capitalism and evaluate which ones have the capacity to stimulate innovation and preserve economic liberty. Second, managers have a definite role to play in sustaining free-market capitalism. Above all, they must not destabilize the delicate moral and legal underpinnings of that system with an unprincipled focus on their own private interests. Managers should not exploit information asymmetries, violate fiduciary duties, or erect artificial barriers to competitive markets. Engaging in these activities not only damages the market ideals of transparency and fairness; it also potentially disrupts the free market in ways that might eventually lead to its demise.⁸

The case for capitalism is certainly strong, but we cannot overlook the precariousness of the capitalist achievement. The long-term success of the free-market system depends on containing its immoderation and reducing the enormous drag of transaction costs on the economy. Managers and corporations must be morally conscientious in order to ensure a more benevolent capitalist free-enterprise system that puts Adam Smith’s goal of “universal opulence” in reach of wider segments of the global population.⁹

With all this in mind, the pages ahead will concentrate on the nature of capitalism and include a review of the basic archetypes of capitalism. We then give voice to the critics of capitalism along with some of their proposals to rectify the injustice of excessive wealth accumulation. We consider the institutional foundation of capitalism along with the role of those institutions in resolving market failures. After some treatment of the need for a strong moral culture, we briefly discuss the responsibility of managers to sustain free-market capitalism through “principled entrepreneurship”: creating value while acting with integrity.¹⁰

What Is Capitalism?

There are two main pillars of capitalism: property rights and a free and open market.

Property Rights

At the system’s core, we find strong and extensive property rights. Individuals cannot trade goods or engage in market exchanges unless the law defines private-property rights. Each person needs to know what she owns and what she can sell or transfer to others. Experience has shown that taking responsibility for one’s own property enhances the common good and leads to greater prosperity. As Aristotle observed, “property should be as a general rule, private; for, when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because everyone will be attending to his own business.”¹¹

The right of ownership is actually a bundle of rights that are usually differentiated and defined in mature legal systems. That bundle of rights includes (but is not limited to) the right to possess (through exclusive physical control or the right to exclude others from use), the right to use, the right to manage, the right to income, the right to alienate (to sell or otherwise dispose of the property), and the right to security (that is, immunity from expropriation). In summary, property rights are best understood as full proprietary control over tangible or intangible things. Like most rights, property rights can be reasonably restricted and limited by the state for the sake of the common good.¹²

Capitalist systems typically support this extensive spectrum of rights for each individual property owner. But l...