The Importance of Codes of Ethics

MA-Thesis / Master von Anna Mika

Introduction:

During my time of studying business and economy, I have been fascinated by the fact that nearly everything in our world is influenced by the global economy. Every simple trade transaction or exchange of services involves a lot of people and impacts several countries nowadays. The constant rise of the globalisation produced multinational enterprises with a lot of power and control over big parts of the world’s resources. The decay of human moral understanding and the recent scandals due to unethical business practices promoted my interest of multicultural and ethical business. The change in the business ethos and the grey zones emerged due to country differences supported unethical business behaviour. Ethics and moral as defined thousands of years ago by the first philosophers need to be taken seriously again. Especially, by institutions, which have an influence on many people and our environment, as businesses have nowadays. My goal is to illustrate this importance of business ethics and their main instrument, the codes of ethics.

Is there really a need for business ethics? If everybody would act morally, why is then everybody talking about ethics in the business context?

Following the thoughts of Aristotle’s virtue ethics and Kant’s categorical imperative, there would be no need of business ethics since everybody would be trustworthy and respect the society and the nature. Recent scandals on the other hand illustrated that ethics and moral are not well-known in enterprises with its main goal of profit maximization and that managers tend to live against the categorical imperative. The debate about the connection between business and ethics started with the birth of modern capitalism and intensified with the industrialisation and globalisation. Capitalistic thoughts, increase of corporations and individualization of humans created opportunistic behaviour, which is incompatible with the moral of values according to Aristotle. The globalization and impact of growing number of stakeholders aggravate the situation of the society’s moral understanding. Through NGOs and media pressure and a change in customer’s attitudes towards corporate responsibilities the awareness of a missing moral occurred. Multinational enterprises have to face various dilemmas caused by differences in cultures and national laws. These diversities and gaps on the global level provoke grey zones, which corporations can take and some already took advantage of. To face the challenges of uncontrolled managerial misbehaviour, codes of ethics as moral guiding principles can be very useful and some manager started to realize the advantages. The voluntary codes of ethics can be a guideline for managers, employees and even suppliers. Also, it gives the company an encouragement of the corporate identity and vision, which leads to motivation and cooperation. In this paper, the importance of ethics in business and codes of ethics will be shown in the context of the changing economic world and the codes’ positive impacts on Corporate Governance, if the ethical guidelines are implemented and lived in the right manner.

The paper starts with a description of ethics and moral in a philosophical context and then passes on to the growing awareness of ethics in business. The history of business ethics gives a first overview about the significant change in the economy and the increasing need for moral in business patterns. This part of the paper also covers the corporate challenges occurring due to the globalisation and their impact on business ethics. The next section defines business ethics and its fellows, such as codes of ethics, Corporate Social Responsibility, Corporate Governance, Corporate Responsibility, Corporate Citizenship and Corporate Compliance. These fundamentals are the foundation for the two hypotheses.

The next chapter examines the two hypotheses of this thesis. The first hypothesis deals with the need for business ethics and the second hypothesis tries to evolve the importance of codes of ethics. The hypothesis about the need for business ethics is debated by several different aspects. Through falling back on the philosophy, the need is discussed with the help of Aristotle and Kant. Afterwards, the assumption, if ethics is necessary in the economy, is explored by the history of modern capitalism and Adam Smith’s theories. The debate about corporate social and ethical responsibilities exists since the birth of modern capitalism and the changes due to the industrialisation. In this time, the first problems of opportunistic behaviour occurred because of the separation of ownership and control. Companies started to grow and to enlarge their business relations and practices on a global level. This fact brought along various multicultural stakeholders and a variation of interests. The differences in cultures and national laws disclosed several moral dilemmas for business people. This point of the exploration of the first hypothesis illustrates very briefly, a need for an ethical consideration in business practices. The next aim deals with the influence of consumer power on businesses and the customers’ changing attitude towards more responsible enterprises. Several other sources of pressure to covering the moral idea of business practices exist. After exploring the critique, the economic gain of ethical behaviour will be illustrated and the way of measuring this. The first hypothesis will be ended by concluding the findings.

The second hypothesis examines the importance of codes of ethics and their influences on Corporate Governance. This part of the thesis begins with a definition of codes and evaluates the path of developing codes. The differences in codes of ethics will be explained and some examples will be named. Furthermore, the right implementation of codes will be illustrated in detail as that is the prerequisite of a code to be effective. The proper implementation and the effectiveness of codes of ethics are then assumed to assess the influence of codes and their economical gain. After naming some critics and a future outlook, the second hypothesis will be concluded.

At the end of the paper, in the fourth chapter, the findings will be completed and the importance of ethics in business and codes of ethics will be illustrated.

The thesis is based on secondary literature published between the 1970s and 2010.

Table of Contents:

Text Sample:

Chapter III.1, Hypothesis I: There is a need for business ethics:

III.1.1, Evidence in reference to philosophy:

There are several ways to proof the need of business ethics in modern economic times. Historically, Aristotle once started the discussion about the morality of economical relations. He claimed that economic transactions harm the moral and soul of a human being. People should live according to the nature. Aristotle was against the business interactions between men because he thought that people who see money as its ends and not just as the means to buy products to fulfil the basic needs cannot have a moral meaning. Immanuel Kant also saw the human happiness not in the existence of money or profit, but in the nature of people’s social relationships. He argued in his categorical imperative that everybody’s moral understanding and behaviour should lead in maxims, which could represent a law.

According to the Kantian view, all human beings should act in a morally right manner, respect the other individuals and the nature and would never harm anybody or anything to increase its own welfare. But in today’s reality, there are other situations to observe, also in the world of business. Kant argued that such kind of unreasonable and insensible behaviour could be prevented, if organisations and their activities are created in such a way that the categorical imperative is not harmed. Are these corporate scandals and the damaging of the environment by corporations in the last decades due to unethical behaviour a lack of morality in today’s business? When did some business people start to live against the categorical imperative? Is this amoral behaviour based on the impacts of modern capitalism or does the moral structure of our society break up into itself?

If we assume that business is a respectable profession and that the people doing business follow the Kantian view, there would be no need for ethics in business. Though, there is an increase in the attention of business ethics and a creation of new terminology and even new professions surrounding the ethical impact in business practices. This fact illustrates that there is a lack of morality in business and that some people do not behave in the right and legal manner. According to the neo-Aristotelian perspective, ethics can face these dilemmas of amoral behaviour and be used as a guide of life-improving principles, no matter if these were used for the life in human society or in business relations.

But as there is no ‘golden rule’ of ethical interpretation and due to the fact that humans are not unfailing, situations of amoral behaviour can occur. As demonstrated in history a small unethical action can sometimes be linked with enormous effects due to corporations influence on a lot of stakeholders and the environment. Because of these misconceptions, human beings tend to develop rules as norms, values and traditions to live together in a harmonious and ethical manner. These systems of guiding principles can also be very effective in corporations.