History of Business Ethics

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Ethical concepts have been discussed from the time of Aristotle. In business and commerce, it is within the last several decades that business ethics has had dialogue and made advances. This paper will summarize the development of business ethics over the past several decades, including a definition of ethics in business and the rise of social issues in business. The major changes and events that gave rise to the present focus on business ethics will be described as well as how these changes impact current business philosophies and reporting practices. The evolution of personal ethics will be compared to the evolution of business ethics.

According to Ferrell and Ferrell (n. d.), in order to understand the history of business ethics, ethics must first be defined within the scope of business: We define business ethics from a managerial perspective as ‘decisions about what is right or wrong (acceptable or unacceptable) in the organizational context of planning and implementing business activities in a global business environment to benefit: organizational performance, individual achievement in the workplace, social acceptance and approval of peers and coworkers in the organization as well as responding to the needs and concerns of relevant internal and external stakeholders.’ (p. 1) 

It is the ethical firm’s goal to instill operations to check if a corporation’s ethical system is effective, and also to continuously improve upon the corporation’s current practices. Ferrell and Ferrell also stated that business ethics can also be understood from macro (legal issues governing businesses) and micro perspectives (writing down codes of ethics for employees to follow), as well as normative (ideals) and descriptive (these are the set of rules intended to follow).

Defining business ethics provides the framework for its historical development. One can trace the beginning of business ethics to the 1960s, Ferrell and Ferrell (n. d.) and Ethics Resource Center (ERC) (2009) conveyed. Ferrell and Ferrell pointed out that the 1960s marked the beginning of business ethics on a micro-level rather than on a societal level. If societal issues were viewed, they were considering them in the sense of the corporation’s role and obligations and its effects on its operations and business.

The 1960s were a pivotal time in America in general. The Civil Rights movement was underway and had a direct influence on business ethics. Instead of employees being ever faithful to their place of employment, they were at odds with company management. According to the ERC (2009), the 1960s was the birth of the “social responsibility movement” (1960s, Business Ethics Development). Companies began to establish values and codes of conduct.

The ERC (2009) described events in the 1970s. There was outrage over the practices of companies contracted to build weapons and meet other military needs for the government. The recession drove employee frustrations to an all-time high, further polarizing employer and employee relationships. Employees begin to protest about substandard working conditions and wages. In the face of this conflict, some industries covered the rising problems rather than dealt with them. From these historical developments, the ERC was established. Laws were enacted to prevent corruption. The environment began to encourage businesses to find a way to educate their employees so ethics were incorporated into their employees’ own values system, rather than ethics just being a set of rules and guidelines to follow.

In the 1980s, conveyed the ERC (2009), the most salient issues were corporation downsizing and attention to health care issues. Due to the downsizing, employer-employee relationships eroded. Financial and advertising fraud became a focus, as well as bribing and other illegal activities. From these set of circumstances, the ERC develop the first code of ethics for government workers in 1980. 

The 1990s brought an entirely new set of challenges, stated ERC (2009), and was a decade of litigation. The global community became smaller with the growth of multinational corporations and the Internet. “Financial mismanagement and fraud” (1990s, Major Ethical Dilemmas) were still a major concern. These activities prompted lawsuits against companies, such as against cigarette companies and Dow Chemical. In addition, the “Delaware Chancery Court ruling” (ERC, 2009, Business Ethics Developments) ruled that the company does have an obligation to be ethically responsible. According to Allen (1996):

That the Board will establish a Compliance and Ethics Committee of four directors, two of which will be non-management directors, to meet at least four times a year to effectuate these policies and monitor business segment compliance with the ARPL, and to report to the Board semi-annually concerning compliance by each business segment; and that corporate officers responsible for business segments shall serve as compliance officers who must report semi-annually to the Compliance and Ethics Committee and, with the assistance of outside counsel, review existing contracts and get advanced approval of any new contract forms. (p. 7). 

Another landmark of the 1990s was the Federal Sentencing Guidelines for Organizations (FSGO), stated Ferrell and Ferrell (n. d.). This encouraged businesses to enforce their own ethical codes of conduct. In return, if employees were found to be involved in conducting illegal activities, corporations would not have to worry about massive fines if they could demonstrate that they followed and enforced their code of ethics. 

The legal activity within business ethics made the 1990s a very influential time in the shaping of business ethics. Business ethics went from being ideals to uphold in the sixties, seventies, and eighties, to becoming a legal obligation for corporations.

According to ERC (2009), the year 2000 to present was a time of economic growth and contraction, terrorism, cyber crimes, and shamed corporations (such as the Enron and Arthur Anderson scandal). These events spurred the “Federal Sentencing Guidelines for Organizations and the Sarbanes-Oxley Act of 2002”, which made it illegal for companies to misrepresent their financial status, “stronger emphasis on Corporate Social Responsibility and Integrity Management” was placed, “UN Global Compact adopts 10th principle against corruption (2004)”, and “Increased emphasis on evaluating ethics program effectiveness” (2000s, Business Ethics Development). Corruption was also confronted as a problem in business.

Business ethics can be compared and contrasted with individual ethics. Corporations have their own relationship with society, just like individual people do. Like people, corporations must look inward to determine their own set of ethics and what role they are going to play in society. Corporations, just like people, struggle with their own identity and must decide what their own set of beliefs are in order to be aware of their responsibilities in society. 

All in all, domestic business ethics and ethics in international business developed out of problems of corruption. Eventually, these big corporations, from cigarette companies to Enron, had eroded the trust of the American public. Between legislative action to produce ethical guidelines and legal action that brought these corporations to justice, the American corporate image is tarnished. Practices today are necessary, stated Ferrell, Fraedrich, and Ferrell (n. d.). to help restore faith in corporations, as well as the legal obligations of corporations to maintain and report their ethical plans and to uphold lawful business practices. Business ethics was discussed in terms of its definition, and how it was historically defined in terms of responses to corruption and scandal and personal ethics were compared to the historical development of business ethics to provide a better understanding of the evolution of both over time.

References

Allen. (1996). In re caremark international inc. derivative litigation consolidated civil action No. 13670 698 A.2d 959, 1996 Del. Ch. LEXIS 125 (Del. Sept. 25, 1996) {960}. Retrieved from http://www.wlrk.com/docs/INRECAREMARKINTERNATIONALINCDERIVATIVELITIGATION.pdf

Ethics Resource Center. (2009). Business ethics timeline. Retrieved from http://www.ethics.org/resource/business-ethics-timeline

Ferrell, O. C. & Ferrell, L. (n. d.) Historical development of business ethics: Then and now. University of New Mexico. Retrieved from http://danielsethics.mgt.unm.edu/pdf/Historical%20Development%20of%20Business%20Ethics.pdf

Ferrell, O. C., Fraedrich, & Ferrell, L. (n. d.). Business ethics: Ethical decision making and cases 8E (Chapter 1). Retrieved from http://www.coursehero.com/courses/121/concept/3935/60s-Rise-of-Social-Issues/