Wednesday, July 23, 2008

Business Ethics and Leadership


How does one link between business ethics and leadership? American Heritage Dictionary (2006) defines ethics as the moral quality of a course of action; any set of moral principles or values; the study of the general nature of morals and of the specific moral choices to be made by the individual in his [or her] relationship with others. Business ethics is a subset of the study of ethics and is defined as the study of what makes up good and bad business conduct, (Bowen, 2003). This conduct occurs when the firm acts as an organization, as well as when individual managers make decisions inside the organization.

Examining what comprises the organizational culture should reveal some key attributes that encourage ethical behavior. Scholars who studied organizational reputation (Dutton and Dukerich, 1991) maintained that a positive reputation, such as one for ethical behavior, had a beneficial effect in the marketplace. Stormer (2003) credited neoclassical economic theory with the idea that ethical corporate behavior enhanced profitability, but called for a theory that encouraged ethical behavior from a philosophical standpoint of benefit to society. The sum total of individual employees’ ethical values influences corporate conduct, especially in a corporation’s early years. The activities during these years, in turn, form the basis of what constitutes a corporate culture, or an environment for doing business. In a free-market society, values of productivity, efficiency, and profits become part of the culture of all companies, (Small, 2002).

Theories of ethical thought

Consequential theories

Ethicists, business people, and workers who adhere to a consequential theory of ethics judge acts as ethically good or bad based on whether the acts have achieved their desired results. The actions of a business or any other societal unit are looked at as right or wrong only in terms of whether the results can be rationalized. This theory is best exemplified by the utilitarian school of thought, which is divided into two sub-schools: act utilitarianism and rule utilitarianism, Kubasek, Brennan & Browne (2003). In general, adherents of this school judge all conduct of individuals or businesses on whether it brings net happiness or pleasure to a society. They judge an act ethically correct after adding up the risks (unhappiness) and the benefits (happiness) to society and obtaining a net outcome.

Act utilitarians determine if an action is right or wrong on the basis of whether that individual act (the payment of a bribe) alone brings net happiness to the society as opposed to whether other alternatives (e.g., not paying the bribe or allowing others to pay the bribe) would bring more or less net happiness, Kubasek, Brennan & Browne (2003).

Rule utilitarians argue that an act (the payment of the bribe) is ethically right if the performance of similar acts by all similar agents (other contractors) would produce the best results in society or has done so in the past. Rule utilitarians hold the position that whatever applicable rule has been established by political representatives must be followed and should serve as a standard in the evaluation of similar acts, Kubasek, Brennan & Browne (2003).

Deontological theories

Deontology is derived from a Greek word meaning “duty.” For advocates of deontology, rules and principles determine whether actions are ethically good or bad. The consequences of individual actions are not considered. The Golden Rule, “Do unto others as you would have them do unto you,” is the hallmark of the theory. Absolute deontology claims that actions can be judged ethically good or bad on the basis of absolute moral principles arrived at by human reason regardless of the consequences of an action; that is, regardless of whether there is net happiness. Immanuel Kant (1724–1804) provided an example of an absolute moral principle in his widely studied “categorical imperative.” He stated that a person ought to engage only in acts that he or she could see becoming a universal standard.

Humanist theories

A third school of thought, the humanist school, evaluates actions as ethically good or bad depending on what they contribute to improving inherent human capacities such as intelligence, wisdom, and self-restraint, Kubasek, Brennan & Browne (2003).

Profit-oriented theory

The profit-oriented theory of social responsibility begins with a market-oriented concept of the firm that most readers were exposed to in their first or second course in economics, Kubasek, Brennan & Browne (2003). Holders of this theory argue that business entities are distinct organizations in our society and that their sole purpose is to increase profits for shareholders. Businesses are to be judged solely on criteria of economic efficiency and how well they contribute to growth in productivity and technology. Corporate social responsibility is shown by managers who maximize profits for their shareholders, who, in turn, are able to reinvest such profits, providing for increased productivity, new employment opportunities, and increased consumption of goods, Rost (1995).

Managerial theory

Advocates of the managerial theory of social responsibility argue that businesses, particularly large institutions, have a number of interest groups or constituents both internally and externally that they must deal with regularly, not just stockholders and a board of directors, Kubasek, Brennan & Browne (2003). A business has employees, customers, suppliers, consumers, activist groups, government regulators, and others that influence decision making and the ability of the entity to make profits.


American Heritage Dictionary (2006) Retrieved March 25, 2006, from

Bowen, S. A., (2004). Organizational Factors Encouraging Ethical Decision Making: An exploration into the Case of an Exemplar. Journal of Business Ethics, Part 2, Vol. 52 Issue 4, p311-324, Retrieved March 25, 2006, from EBSCOhost

Dutton, J. E. & J. M. Dukerich: (1991). Keeping an Eye in the Mirror: Image and identity in Organizational Adaptation, Academy of Management Journal 34(3)

Kubasek, N.K., Brennan, B.A., & Browne, M.N. (2003). The legal environment of business: A critical thinking approach (3rd. ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Rost, J.C. (1995). Leadership: A discussion about ethics. Business Ethics Quarterly. 5(01), 129-142. Retrieved March 16, 2006, from University of Phoenix rEsource database.

Small, M. W.,(2002). Practical Problems and Moral Values: Things We Tend to Ignore
Revisited. Journal of Business Ethics, Part 2, Vol. 39 Issue 4, p401-407, 7p. Retrieved on March 16, 2006 from EBSCOhost

Stormer, F.(2003). Making the Shift: Moving from ‘‘Ethics Pays’’ to an Inter-Systems Model of Business’, Journal of Business Ethics. Retrieved on March 16, 2006 from EBSCOhost

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