The business of ethics

Is the nature of business prone to unethical behaviour?

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Are widespread business malfeasances a reflection that the business case always trumps ethics?

The Volkswagen emissions scandal, price gauging by the pharmaceutical industry, the LIBOR scandal, the sub-prime crisis, the Enron and Arthur Anderson scandal, Milken and junk bonds, the TESCO accounting and horsemeatscandal, the China milk scandal, the Rana Plaza fire, the exploitation of workers, all add to an endless litany of unethical business practises. These unethical behaviours appears to be widespread traversing many industries in developed and developing economies across small and large firms involving individuals at all levels of authority.

What is driving this malfeasance?

One way to analyse this complex issue is by framing it as the choice firms make in maximising profits and the consideration they have for societal welfare (e.g. valuing the workers, consumers, families, communities, and the environment) in their pursuit of profits. Stated simply, do businesses prioritise the business case over ethics.

There has been an increased focus on business ethics. A contentious subject, it is broadly explained as the philosophy that scrutinises the ‘rights’ and ‘wrongs’ of business behaviour. Many-a-theory and ideas contribute to modern business ethics but the utilitarian theory appears to dominate. In the utilitarian conception, business ethics is one that optimises pleasure and minimises pain while considering the preferences of those affected by the decisions businesses made (making the most number of people happy).

But in reality whose ‘pleasure’, whose ‘pain’, and whose ‘preference’ is considered?

Revisiting the Volkswagen (VW) case, the complexity becomes apparent.

There is no doubt that VW was involved in unethical behaviour and was practising bad business ethics. It actively pursued deception to penetrate the US auto market. It had an elaborate scheme that involved external partners (Bosch) to design a sophisticated cheat device.

But why a world leading company, from a country known for its precision engineering and industrial prowess, in an economic union known for high regulatory standards, selling a sophisticated product and service, in the world’s most sophisticated market, would resort to such behaviour remains puzzling?

Several hypotheses have emerged to explain this puzzle. They range from firm specific factors such as the governance and corporate culture and style of its CEOand corporate amnesia; to external factors such as low consumer buy-in for green technology; business schools that produce graduates who have little conception of ethics or are ‘blind’ to ethics; the failure of regulatory systems or to a widespread culture of gaming the system across all industries.

The inability to come to a consensus on the primary factor demonstrates the complexity of the issue but also why business ethics remains a contentious subject.

Returning to the trade-off between the business case and ethics may provide a parsimonious explanation. Corporate profits and shareholder value are tangible while ethics may not be so. Certainly the hit that VW has taken makes ethics tangible now to the firm. But if those hits (the pain) do not outweigh the gains (pleasure) that VW and its key stakeholders (the board, senior management, partners such as representatives from the state of Lower Saxony and Bosch) derived from 2009-2015, then it may be that the preference for the business case over ethics was the rational choice.

What do you think?

Sumesh Nair is a senior lecturer in marketing at Murdoch University (Singapore campus) and Greg Lopez is research fellow at Murdoch University Executive Education Centre.

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This article first appeared in Pulse