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date: 28 July 2021

Corruption and Business Ethicsfree

Corruption and Business Ethicsfree

  • Steven G. KovenSteven G. KovenUrban and Public Affairs, University of Louisville
  •  and Abby PerezAbby PerezUrban and Public Affairs, University of Louisville

Summary

Corruption remains a way of life for many cultures and subcultures, an ethos that is often consistent with the goal of corporate profit maximization. Corruption may yield benefits at the personal or individual firm level, but at the societal level corruption is detrimental to aggregate growth, individual effort, and faith in institutions. Corruption, as defined by the Oxford English Dictionary, is dishonest or fraudulent conduct by those in power, typically involving bribery. Corruption exists on a continuum that can range from rampant to minimal. Rampant corruption exists when entire organizations willingly and knowingly promote actions that are injurious to workers, consumers, or society as a whole. Egregious examples include knowingly producing and selling harmful products or ignoring conditions that impair the health and safety of workers. At the other extreme, minimal corruption can include petty violations such as stealing a small amount of office supplies for personal use.

Moral, ethical, and legal guides have evolved over time in efforts to ameliorate the most obvious and egregious forms of corruption. These guides are supported by perspectives of philosophy such as utilitarianism, deontology, virtue ethics, intuition, and ethical relativism. Each of these perspectives represent an important and qualitatively different lens in which to assess ethical behavior. While some philosophical viewpoints emphasize the categorical nature of right or wrong action, others emphasize context, net benefits of actions, or individual virtue reflected in individual actions, and perspectives that are systematically reviewed. Philosophical influences are viewed as highly relevant to an understanding of modern-day corruption. Business ethics is also influenced by various competitive and complementary models that compete for influence. While the market model of business ethics has long endured, alternative perspectives of business ethics such as the stakeholder model of corporate social responsibility and the sustainability model have recently arisen in popular discourse and are explored. These alternative models seek to replace or supplement the market model and advocate for a greater recognition of environmental responsibilities as well as responsibilities to a broad array of stakeholders in society such as workers and consumers. Alternative models move beyond the narrow perspective of profit maximization and consider ethical implications of business decisions in terms of their effects on others in society as well as future generations. Various philosophical perspectives of ethics are examined, as well as how these perspectives can be applied to attain a more complete understanding of the concept of corruption.

Subjects

  • Business Policy and Strategy
  • Ethics

Introduction

A general definition of corruption that is often used by scholars and policymakers describes corruption as “the abuse or misuse of power or trust for self-interested purposes rather than the purposes for which power or trust was given” (Nichols, 2017, p. 7). Joseph F. Nye (1967, p. 419) provides the definition of corruption most often used by social scientists, stating that “corruption is behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private regarding influence.” Bahoo et al. (2020) define corruption as an illegal activity (bribery, fraud, financial crime, abuse, falsification, favoritism, nepotism, and manipulation) conducted through misuse of authority or power for private gain and benefit. Deviations from proper behavior can include acts such as bribery, theft, nepotism, and misappropriation. Gardiner (2017) presented three broad categories of corruption: (a) market-centered, (b) public interest-centered, and (c) public office-centered. Market-centered corruption suggests that corruption results from rational behavior of actors who regard public office as a business, the income of which he or she seeks to maximize (Nichols, 2017, p. 5). Public interest-centered corruption focuses on actions of a public servant that cause damage to the public and its interests and benefits those who provide rewards (Friedrich, 1966, p. 74). Public office-centered corruption is a general term covering misuse of authority for personal gain.

According to Gardiner (2017), corruption can be viewed from the perspective of the positive or negative effects of the actions of an entire agency. Typically, ethics refers to the “rightness or wrongness of behavior” (Lewis, 1985, p. 377). Business ethics is inherently difficult to define because universal agreement is lacking in regard to the morality of specific actions (p. 377). Further complicating the issue of defining business ethics is the abstractness and ambiguity of the construct. For purposes of this article, the term “corruption” is viewed as a category of business ethics that represents a manifestation of unethical behavior.

Despite the ambiguity of concepts such as ethics and corruption, scholars nevertheless conclude that some general agreement exists in terms of the propositions that (a) business ethics cannot be separated from personal ethics, and (b) business operations can never be any more ethical than the people who are in the business (Lewis, 1985). Personal ethics derive from particular environments, parents, peers, teachers, religious leaders, and others. Scholars of ethics provide a range of perspectives to define corruptions, including the abuse of entrusted power for private gain (Cuervo-Cazzerra, 2016), payments to either public or private agents to induce them to ignore the interests of their principals and to favor the interests of the bribers (Rose-Ackerman, 2006, p. xiv), and misuse of entrusted power that fuels inequity by skewing how resources are allocated and distributed (Kohler & Bowra, 2020).

Personal ethics can also be spurred by legislation. For example, in 2002, the U.S. Congress passed the Sarbanes–Oxley Act in order to address the growing number of corporate scandals. This law required corporations to maintain a code of ethics that promotes honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure in periodic reports, and compliance with governmental rules and regulations (DesJardins, 2011, p. 5). Codes of ethics set forth general values, ethical principles, and ethical standards by which professionals can be judged. The intent of ethical codes is to provide formal guidance in order to ameliorate corruption. Different types of industries have differing regulatory requirements. Companies in fields such as healthcare, real estate, estate planning, financial advising, information technology, and others ascribe to varied codes of conduct. Codes provide direction; however, prescriptions may or may not be followed. A stronger formal check on corruption is the legal system and the possibility of harsh punishment. These formal means of addressing ethical misconduct (i.e., corruption) are supplemented by informal means such as peer pressure, role models, personal values, and ethical norms of organizations.

Threat of sanctions forces businesses to abide by minimum standards of ethical behavior. These sanctions are put in place in an effort to deter behavior that increases personal, organizational, and societal risk. Enactment of sanctions is influenced by temporal assessments of right or wrong, ethical or unethical behavior. These assessments do not exist in a vacuum but are often time- and place-dependent. While some claim that assessments of ethics are relative, others assert that philosophy provides concrete guides to ethical behavior; these guides include utilitarianism, deontology, virtue ethics, intuition, and ethical relativism. Each of these perspectives remain relevant and are addressed here.

Guides to Ethical Behavior in Business

Utilitarianism and Teleology

Utilitarianism is a normative ethical theory that focuses on the consequences that result from an action rather than the actor or act alone. Utilitarianism is a widely recognized ethical theory relevant to business issues. It follows a straightforward decision-making process that involves creating a list of choices, mapping out the consequences of each choice, and selecting the best choice “with the greatest balance of benefit over harms for everyone” (Boatright, 2009, p. 18). In classic utilitarianism, “pleasure is the only ultimate good and pain the only evil.” In utilitarian theories, good is defined by each individual’s perception of “what it means to be better off” (p. 18).

Jeremy Bentham and John Stuart Mill are the most prominent utilitarian theorists. Bentham’s (1876) hedonist utilitarian theory posits that pleasure and pain can be measured using various factors measuring net benefits of an action. He provides seven criteria for his hedonist calculus: (a) intensity, which measures how intense the pleasure or pain is; (b) duration, how long the pleasure or pain lasts; (c) certainty or uncertainty, measuring the probability of the occurrence of pleasure or pain; (d) propinquity or remoteness, how far into the future is the pleasure or pain; (e) fecundity, what the probability is that the pleasure will lead to other pleasures; (f) purity, what the probability is that the pleasure will lead to pains; and (g) its extent, or who is affected by the pleasure. The first four variables (intensity, duration, certainty, and propinquity) show the value of the pleasure or the pain considered by itself. The next two variables (fecundity and purity) are properties of the event or action produced by the pleasure or pain. Bentham’s version of utilitarianism is the basis for cost–benefit analyses in business management.

Mill’s version of utilitarianism differs somewhat from Bentham in that while Bentham only considered the quantity of pleasure, Mill (1861/1998) considered both the quantity and quality of pleasure. Mill’s theory of utilitarianism suggests that actions are good and right if they promote happiness and bad and wrong if they produce pain. Mill differentiates between the higher intellectual pleasures that are only experienced by humans and the lower sensual pleasures that can be experienced by both humans and animals. While Mill’s theory is more refined, giving weight to human dignity and individual rights, calculating pleasure by both quantity and quality remains difficult.

Mill sought to recast Bentham’s views as a more humane, less calculating doctrine. One of his primary assertions is that people should be free to do whatever they want, providing they do not harm others (Boatright, 2009, p. 18). Mill posits that over time, respecting individual liberty will lead to the greatest human happiness. He rejects the idea of maximizing utility on a case by case basis and calls for a global consideration of utility, grounded on the permanent interests of people as progressive beings (Sandel, 2009, p. 50).

Numerous limitations, however, are present in utilitarianism. These include the fact that it is difficult to quantify the exact pleasure or pain of specific actions because the future cannot be accurately predicted. It is difficult to know with certainty whether the consequences of actions will be good or bad and how much good and how much bad will be caused. In addition, many argue that the most glaring weakness of utilitarianism is its failure to respect individual rights. By caring only for the sum of aggregate satisfactions, individual rights may be sacrificed. Utilitarianism claims to offer a science of morality through quantitative calculations; however, critics of utilitarianism contend that it is impossible to measure all moral goods on a single scale and through aggregate results (Sandel, 2009, p. 41).

The philosophy of utilitarianism appears to take a more permissive view of corrupt behavior. Cuervo-Cazzerra (2016) notes that at the company level, corruption can result in additional costs because of the need for bribery and managerial attention. However, individual companies may be able to benefit from obtaining government contracts or from avoiding complex regulations. Managers can rationalize engaging in corruption as a mechanism for reducing transaction costs in countries with high levels of regulation. Therefore, from the utilitarian point of view, the ethics of engaging in corrupt practices such as bribery can be justified if the benefits from such behavior outweigh the costs. A question for readers to ponder is whether evaluations of benefits and costs can be conducted objectively.

Deontology

A widely accepted definition of deontology perceives the concept as an ethical doctrine which holds that the worth of an action is determined by its conformity to some binding rule. Adherence to rules and principles takes precedence over utilitarian calculations of consequences. A deontological ethic emphasizes categorical right and wrong. Immanuel Kant is the most prominent theorist on deontology. In contrast to utilitarian ethics that focuses on calculations of consequences, Kant (1785) believed that ethical decisions are based upon duties and obligations to others. Rather than measuring net utility of actions, Kant investigated behaviors of individuals, whether their actions should be considered ethical, and how people could become worthy of happiness through proper action (DesJardins, 2011). Ethics, for Kant, is not driven by a cost–benefit analysis of specific behavior; instead, the focus of ethics should be on the implementation of moral rules that are discovered through reason. Under Kant’s deontological theory, humans have a moral obligation to follow a set of principles and rules no matter the outcome, and these rules or maxims (such as do not kill, do not steal) are derived from human reason (Ellis, 1992).

Kant believed that human beings are morally obligated, by duty, to act in accordance with categorical imperatives which test whether an action is morally permissible (Bowie, 1999). According to Kant (1785), an imperative is something people must do, and an imperative is “categorical” when it is absolute, rational, and unconditional. This categorical imperative, or universal law, governs all moral choices, and any choice that does not follow this categorical imperative is deemed both immoral and irrational. Kant believed that the moral worth of an action is determined by the principle on which the action performed is based. Two principles arise from Kant’s categorical imperative. First, people should never be treated in an instrumental manner, as a means to an end. Second, one should never lie. Kant contended that one should never deviate from principle regardless of the consequences (Svara, 2015, p. 67).

For Kant, the moral worth of an action flows from its intentions. Kant believed that the motive for a given action formed the basis of its morality. What is important to Kant is doing the right thing because it is the right thing to do, regardless of outcome. Actions must be carried out for the sake of the moral principle. Kant further elaborated on the “motive of duty” or doing the right things for the right reasons. He stated that actions derived from some motive other than duty (such as self-interest) lacked moral worth. For Kant, conformity with moral law is insufficient; actions should be carried out for the sake of a moral law (Sandel, 2009, p. 11). Kant rejected the utilitarian view of basing morality on desires; he contended that happiness fundamentally differed from virtue. Kant also rejected the idea of basing morality on divine authority. He argued that people can arrive at the supreme principle of morality through the exercise of what he terms “pure practical reason.” Kant maintained that the capacity to reason based upon autonomous actions set humans apart from animals.

Deontological theories differ from utilitarian (consequentialist) theories in several ways. Most noteworthy is that utilitarian theories focus on achieving happiness or a net of pleasure over pain. Any act that advances such happiness is therefore defensible. Deontological theories, in contrast, posit that some acts will always be wrong, no matter the outcome; for instance, murder is always wrong. Deontologists cite an array of advantages to their approach. They claim that deontology provides principles that are greater than oneself, one’s organization, or one’s society. For deontologists, external guidance derived from universal ethical principles exists. Principles supply reasons for specific actions and deontology reinforces the sense of duty. Principles rather than individual traits should allow people to identify ethical action (Svara, 2015, p. 71).

Both Rawls (1971) and Nozick (1974) also contributed significantly to explicating the value of the deontological ethical perspective. Rawls developed moral principles of justice, contending that universal agreement could be reached on those principles if people operated unaware of their station in life, that is, under a veil of ignorance. Nozick emphasized the principle that each person has inviolable rights to live as he or she chooses provided that similar rights are given to others. Nozick argued for a minimal state, limited to enforcing contracts and protecting people against force, theft, and fraud. In a minimalist state, justice in distribution of rewards would depend upon justice in initial holdings (resources used to attain wealth that was legitimately acquired) and justice in transfer (money made in free exchange or gifts voluntarily bestowed) (Koven, 2015, pp. 32–37).

From the philosophical perspective of deontology, if one uses reason to define specific actions as fundamentally corrupt and therefore wrong, they should be categorically avoided. Pure practical reason is employed to define corrupt behavior (such as malfeasance or bribery) as unethical, and therefore one would have a moral duty to eschew such behavior regardless of the outcome. Moral laws would mandate condemnation simply because corrupt behavior was not the right thing to do. Readers could ask themselves whether they agree with the premise of universal, natural, and deontological laws. If not, how might governments protect the weak from the strong? Should the weak be protected?

Virtue and Intuition Ethics

Svara (2015, p. 61) notes that some authors consider virtue and intuition separately, yet they are so closely linked that separation of the two seems artificial. Virtue ethics involves questions of what type of person one should become. It seeks descriptions of character traits or virtues that would constitute a good and moral life (DesJardins, 2011). Various authors identify character traits that could guide behavior and define the nature of individuals. For example, Josephson (2006) lists six pillars of character: truthfulness, respect, responsibility, fairness, caring, and citizenship. Theories of virtue ethics examine the moral status of an action by focusing upon the character traits of individuals and the character of their actions. The “founding fathers” of virtue ethics, such as Greek philosophers Plato and Aristotle, theorized that becoming a virtuous individual was necessary for individuals to live a good life. Aristotle believed that by following and honoring virtuous habits, individuals would be able to develop moral character and would be able to make moral choices.

Koehn (1995) describes how virtue ethics can be applied to business. According to Koehn (p. 536), “virtue ethics treats virtue as a manifest, perceptible feature of action.” Virtuous acts are perceived as noble and good; individuals can be identified with the attributes of actions. In accord with characteristics of individuals, their motives and actions, reputations, external perceptions, and role models are established. These role models can be beneficial, but it is still difficult to link actions with purely Kantian behavior because one is unable to tell the motives of another person, and thus unable to tell if an act is performed under good will. Applying the concepts of right and wrong to business, one can examine a business’s past decisions and the aggregate character of a business. Virtue ethics emphasize the importance of individuals making their own moral decisions and their own contributions to society.

Intuitionist decision models suggest that not all decision makers act with moral or rational reasoning, but make decisions “intuitively,” that is, “outside of conscious awareness” (Woiceshyn, 2011, p. 313). Rationalization of individual moral judgments only comes afterward as a means of social approval (Haidt, 2012). From this perspective, decision makers first rely upon intuitions and then use moral reasoning to justify their actions (Sonenshein, 2007). Intuition provides recognition that an ethical decision is encountered and then provides an impulse for action. This view takes into consideration what a good person would do in a similar situation. The nature of the person (virtue) guides action and intuition then guides choice of an alternative. Impulse is guided by previous actions.

Aristotle provides the foundation of virtue ethics. He contends that the ultimate good is an active life in accord with excellence and virtue. For Aristotle, virtues are within all people, but utilization of inherent virtue is not automatic. Fundamental to Aristotle’s thinking is the concept of the “golden mean” that viewed character or virtue as the desirable middle between two extremes. The golden mean is discovered through reason and the reason of a wise person; excess is defined as vice. Aristotle views character as differing from senses, such as smell, which are naturally possessed. According to Aristotle, character must be developed by habit or “doing.” Becoming virtuous is associated with learning a skill, such as playing a flute. One does not learn to play a flute by listening to music but by continuously practicing. People become just by doing just acts; people become honest by engaging in honest behavior. One becomes by doing. People develop “habitus” or a disposition to lead a moral life. Wealth is viewed by Aristotle as a possible means to worthy ends; the most worthy end is a life of happiness (eudemonia), human flourishing, completeness, and self-sufficiency. Early inculcation of desirable habits helps one acquire virtue, which leads to intuitive action.

From the philosophical perspectives of virtue and intuition, corruption should be rejected on the basis of past habits or senses of what feels right. Inculcating virtuous habits and developing salubrious character traits are means by which people can make ethical choices. Similarly, developing virtuous character traits can lead people to innately feel that acts such as bribery, fraud, embezzlement, sexual harassment, favoritism, discrimination, and other such acts are simply wrong and should be avoided. Readers can ask whether they think intuition guides their behavior. If not, one can consider whether intuition can be altered over time.

Ethical Relativism

Ethic relativism refers to the idea that ethics depend upon time and place of actions. It proposes that what is standard practice and even obligatory in one country or time can be viewed as immoral in another context. Examples of practices that may vary depending upon time and place include bribery, slavery, employee rights, monopoly formation, nepotism, and influence peddling. Relativism concerns adherence to attitudes and social conventions that have been established as societal norms (Miesing & Preble, 1985, p. 468). Ethical relativists posit that ethical beliefs and values are relative to one’s own culture, religion, or feelings (DesJardins, 2011, p. 25). This perspective, however, presents some problems. If objective or rational standards are not applied universally across cultures, time periods, or religions, if there is no way to determine what is normatively right or wrong, then it is likely that social norms will be established to the advantage of the strongest or to whoever has the power to do so. This outcome, from a deontological perspective, ignores fundamental laws and duties. It does not give adequate attention to values such as individual rights, equity, and fairness.

A common example used to justify the claims of ethical relativism is the practice of bribery. For some counties and cultures, it is normal for businesses to participate in bribery. Although it is condemned and illegal in the United States, bribery is a traditional method of business in some cultures. While bribery may be a normal method of business in other countries, its acceptance is not universal, nor is it universally justified. DesJardins (2011, p. 25) proposes that if relativism is correct, then, at best, studies of business ethics can explain the values that underpin judgments but cannot evaluate competing perspectives or competing norms. Relativism is especially important when issues in international business, such as the use of child labor, are considered. Some businesses purchase goods from suppliers who rely on child labor to produce expensive consumer goods such as sneakers and designer clothing. The ethics of such action has been questioned. However, those who justify these actions assert such working conditions are accepted in the host country and therefore critics in other countries have no justification for imposing their own cultural norms on the conditions that are accepted in the host country.

Anthropologists view relativism from the lens of rationalizing custom. For anthropologists, morality differs in every society and is a convenient term for socially approved norms. Anthropologists posit that the existing norms of a social group are the only valid basis for moral appraisals (Lyons, 1976, p. 109) and that the views of ethical behavior vary significantly between cultures. In a culture that conditions people to amass wealth and directs people to seek success, the attainment of extensive property and power will be good, while in a society in which contemplation and fidelity to one’s ancestors are stressed above all, the attainment of wealth and power will not be so highly prized (Nielson, 1966, p. 533).

People often fall into logical traps that lead them to adopt the relativist position. Three logical traps are described by DesJardins (2011, p. 28). The first trap involves holding ethics to too high of a standard of proof. A second trap involves confusing disagreement about values with the conclusion that no agreement about fundamental values is possible. Disagreement about what specific act should be considered virtuous does not imply that all opinions regarding virtuous acts are equally justified or equally valid. Some views clearly appear to be more valid than others. Strongly holding to a view does not prove its validity. For example, over time, civilized societies have come to view certain types of behavior, such as cannibalism or child molestation, as morally reprehensible. If an individual strongly condones such behavior, it does not change the broad societal consensus. In contrast, other actions, such as philanthropy, are broadly praised as a sign of virtue. Ethical relativism would negate the prospects of holding one view of virtue above another. The third trap involves confusing tolerance with relativism. Respect for other views is qualitatively different from rejecting the possibility of establishing ethical guidelines.

Ethical relativism is decried by opponents as incoherent because it rejects the idea of universal principles of right and wrong. Relativism is seen, however, as valuable in understanding the role of context or environment in assessing ethical worth. Relativist philosophers accept the view that norms of given groups fundamentally differ. For example, an organized crime family may encourage robbery, embezzlement of funds, extortion, or other actions that produce income. One would expect others, such as religious groups, to take a very different position regarding the ethics of such activities. Readers can ask themselves whether they believe societal norms or different criteria, such as income maximization, should be used to assess the ethical quality of actions.

The four philosophical frameworks of utilitarianism, deontology, virtue and intuition, and relativism each reflect distinctive perspectives of corruption and business ethics. These are not the only lenses through which the rightness or wrongness of behavior can be assessed. Some, such as natural rights theorists, argue that certain rights are innate. These are rights given at birth and are universal; they are granted by a higher power. Natural law holds that human beings are not taught natural law but discover natural law by consistently making choices for good instead of evil. Saint Thomas Aquinas (1224/1225–1274 ce) viewed natural law and religion as inextricably connected and perceived eternal law to be a rational plan by which all creation is ordered. Natural law is viewed as a way that human beings participate in eternal law. Natural law holds the promise of reinfusing economic activity with humane purpose (Velasquez & Brady, 1997, p. 102).

Each philosophical perspective in its own manner contributes to understanding business ethics. Consensus, however, remains elusive regarding the ethical responsibilities of business. Various perspectives and different models that apply directly to business have been posited. These models include that of profit maximization, the stakeholder model of corporate social responsibility (CSR), and the strategic model of corporate social responsibility.

Alternative Models of Business Ethics

Profit Maximization Model

Neoclassical Theory

Profit maximization occurs when marginal cost is equal to marginal revenue and the marginal cost curve intersects the marginal revenue curve from below (Primeaux & Stieber, 1994). Under these conditions, a company will continue to produce goods as long as marginal revenues from units continue to exceed marginal costs. With the production of more units, scarcer resources will reach diminishing returns, which leads to an increase in marginal cost. Once marginal cost equals marginal revenue, a company operates with a level of output that can guarantee customers the maximum amount of goods and services it can offer (Primeaux & Stieber, 1994). Many consider the profit maximization model the accepted paradigm for business in a capitalist society. This model gives priority to the interests of owners who seek to maximize monetary gains from their business practices. This model has long prevailed in classical economics, supported by the writings of economists such as Milton Friedman (1962). Under Friedman’s shareholder theory, the social responsibility of a firm is to maximize profits “so long as it stays within the rules of the game”; the interest of a firm’s shareholders comes first (Friedman, 1970). This model, however, has been challenged as too narrow and deficient in that the interests of other stakeholders are not considered. Also, “the rules of the game” Friedman references may not be ethical from a utilitarian perspective in that some may be able to write rules that only benefit a small number while the majority do not benefit. Some business interests may contribute large sums of money to ensure future benefits. They “play by the rules” that exist; however, the rules may be unethical from a Kantian point of view. Rules, according to Kant, may not have moral worth in that the motive for the rules may not conform to moral laws. Furthermore, the rules may not represent a good that can be universally or categorically applied. Ethical issues also arise in the profit maximization model because the interests of other stakeholders, such as customers and employees, are not adequately considered. If the desires of the shareholders are prioritized, the interests of the owners and holders of stock take precedent, and the interests of others in society can be neglected. In alternative models, rights of employees, consumers, and future generations are also considered.

Even staunch defenders of capitalism and the free-market system acknowledge the ethical legitimacy of placing some limits on the pursuit of profit. Business pursuit of profit is tempered by the interests of others, such as workers who lobby for legislation. Other stakeholders, such as ethical managers, philanthropic leaders, politicians, environmentalists, and the courts constrain business behavior.

Moral Leadership and Social Responsibility as Constraints on the Neoclassical Model

Chester Barnard (1938) stressed the view that organizations and their managers played an important role in developing unwritten rules that guide business activities. He noted that effective leaders need first to be moral leaders and that both technical and moral proficiency are prerequisites of sound leadership. Barnard contended that conceptions of social responsibility were necessary for effective leadership. He viewed the manager’s moral code as the crucible from which responsible work behaviors and effective leadership behaviors emerged. Barnard went well beyond the profit maximization conception of business in his contention that management possessed the moral authority to both run and modernize the nation and to harness the forces of technological change for the public good (Gabor & Mahoney, 2013).

Drucker (1984) argued that many of those with economic power (such as Andrew Carnegie and the Italian Renaissance Medici family) recognized that they had responsibilities to the community. For Drucker (2007), free enterprise could not be justified as being solely good for business; it also had to be justified on the basis of being good for society. For Drucker, business should have an impact on people, communities, and society; business should be obligated to add to its concern for producing goods and services a concern for the physical, human, and social environment of people and their communities. Drucker was one of the first management scholars to speak about the social responsibilities of business in promoting the public good.

Philosopher Norman Bowie (1999) proposes that the pursuit of profit should be constrained by an obligation to obey a moral minimum. Once business managers meet minimum obligations, they are free to pursue profit. In what Bowie terms the neoclassical model of corporate social responsibility, he distinguishes between three ethical imperatives: (a) cause no harm, (b) prevent harm, and (c) do good. He contends that people in business have a strong ethical obligation only in regard to the first imperative of causing no harm, with only a prima facie duty to prevent harm or do good. According to Bowie, an obligation to do good can impose unreasonable burdens and limitations on managers. Doing good is praiseworthy but not something that people are obligated to do. Managers have a duty to further the interests of stockholders. Provided they comply with the moral minimum and do not cause harm, they only have responsibilities in regard to maximizing profits. Critics of the profit maximization model contend that it fails on ethical grounds and needs to be replaced or supplemented by alternative models that take a much broader view of business’s ethical responsibilities. Solely prioritizing the interests of owners may result in negative externality such as monopoly creation, injury to consumers, exploitation of workers, disregard for the general good of communities, and exploitation of the environment. The concerns of these stakeholders are considered in alternative models such as the stakeholder model and strategy model of corporate social responsibility.

Stakeholder Model of Corporate Social Responsibility

Stakeholder Pluralism

Unlike the profit maximization model that considers only the interests of the shareholders to be important, the stakeholder model considers the interest of a wider range of stakeholders. Under this model, to be successful a company must take into consideration not only the needs of stockholders and its financial interests, but should also strive to understand the needs and requirements of various interests. R. Edward Freeman (1984) originally theorized this approach, suggesting that multiple stakeholders need to be involved and play “a vital role in the success of the business” (p. 25). Stakeholders include a multiplicity of interests such as governmental bodies, political groups, communities, trade associations, unions, financiers, suppliers, employees, and customers. Freeman (1984) adopts a Kantian approach, arguing that each stakeholder group should “not be treated as a means to some end,” but rather, each stakeholder has a right to participate in the organization, management, and future of the business in which they have a stake (p. 97). Freeman’s model identifies morals and values that a firm should follow in order to manage in an ethical manner. Ethical management includes considering the interests of all stakeholders, not just its shareholders. In theory, taking into consideration the interests of all stakeholders not only proves to be ethical, but also can improve business overall. The stakeholder model differs significantly from the shareholder profit maximization model in that it takes into consideration the interests of a variety of stakeholders. Stakeholders can be both broadly and narrowly defined, and some controversy exists in terms precise identification. The narrower perspective views stakeholders as any group vital to the success and survival of a business, while the broader view defines stakeholders as any group or individual who can affect or be affected by a business (Evan & Freeman, 1988, p. 97). Freeman and Phillips (2002) define stakeholder theory as a managerial conception of organizational strategy and ethics where an organization’s success is dependent on how well it manages relationships with key groups such as customers, employees, suppliers, communities, and financiers (p. 333). The task of the manager is to keep the support of groups and balance their interests over time. Most scholars include employees, customers, suppliers, financiers, and local communities at a minimum as stakeholders. The stakeholder theory differs qualitatively from the shareholder theory. The shareholder theory contends that owners and shareholders of companies advance capital to managers who spend funds only in ways that have been authorized by the shareholders. The only social responsibility in this model is to use resources for activities designed to increase profits so long as companies engages in open and free competition, without deception or fraud. In contrast, stakeholder theory asserts that managers have a duty to both the corporation’s shareholders and others who contribute, either voluntarily or involuntarily, to a company’s wealth-creating capacity. Stakeholders include those who are potential beneficiaries or bear the risks of company action (Post et al., 2002). Under the stakeholder theory, managers have two responsibilities: (a) to ensure that the ethical rights of any stakeholder is not violated; and (b) to balance the legitimate interests of the stakeholders when making decisions. The objective of managers is to balance profit maximization with the long-term ability of the corporation to survive. DesJardins (2011) suggests that the shareholder model ignores over a century of law and legislation that recognized corporate responsibilities to stakeholders such as consumers, employees, competitors, the environment, and the disabled (p. 69). Both the courts and legislation have rejected the view that management can ignore duties to everyone but stockholders. Under the stakeholder perspective, corporate managers must respect rights and interests of the various constituencies that are affected by corporate decisions. Stakeholder theory has broad application and is not limited to consideration of the ethical or unethical nature of individual business decisions. Stakeholder theory has also received significant attention in the discourse of political economy. From this perspective, a stakeholder economy features a large-scale role for government in the process of value creation and trade. Phillips and Margolis (1999) argue that there is great benefit in expanding the concept of stakeholders to include public institutions and the entire world economy. They note that the very nature and definition of stakeholder theory is a contentious issue, but the idea is quite simple. A “stakeholder theory is one that puts as a primary managerial task the charge to influence, or manage, or balance the set of relationships that can affect the achievement of an organization’s purpose” (p. 334).

In a broad sense, stakeholders who influence ethical behavior in society also include communicators and educators. Communication ethics has engaged in questions about how to create ethical worlds. The field of communication ethics increasingly has been concerned with balancing competing values, needs, and wants of multiple constituents. In terms of corporate ethics, institutional practices such as transparency, accountability, and profit-sharing for all stakeholders (including workers, the Earth, and animals) has drawn attention (Lipari, 2017). Some research focuses on the importance of workers and work in terms of the ability of work to dominate people’s experiences, not only as employees, but as members of their own families, and as people, in general, in their roles as citizens (May, 2018).

Stakeholders and Social Responsibility

The stakeholder model is consistent with the view that a stakeholder pluralism should lead to a wider embrace of corporate social responsibility. Carroll’s (1991) four-part definition of corporate social responsibility originally proposed that corporate social responsibility encompassed the economic, legal, ethical, and discretionary (philanthropic) expectations that society had of organizations at a given point in time. Carroll cast his four-part definition in the form of a pyramid. The economic responsibility was placed as the base of the pyramid because it is viewed as a foundational requirement in business. His conception of corporate social responsibility is built upon the premise of economically sound and sustainable businesses. Society also expects business to obey the law and comply with regulations because law and regulations are the basic ground rules upon which business is required to operate in a civil society. In addition, business is expected to operate in an ethical fashion, with an obligation to do what is right, just, and fair, and to avoid or minimize harm to all stakeholders. Finally, business is expected to contribute financial, physical, and human resources to the communities of which it is a part. Carroll’s pyramid reflects the fundamental roles played and expected by business in society. Carroll (2016) concluded that corporate social responsibility enthusiasts would like to think that the notion of social responsibilities would be adopted the world over; however, the more probable scenario is that the notion of corporate social responsibility will continue to grow incrementally at a steady rate.

Barney (2018) argues that it is necessary for managers to consider non-shareholder claims to a firm’s profits. He notes that a growing empirical literature has examined how certain stakeholders (such as certain kinds of employees) are able to appropriate more or less of the profits their human capital helps generate. This is consistent with the resource-based model of profit that asserts firms can leverage rare, non-substitutable resources in order to acquire additional resources. Barney concludes that

to attract the kinds of resources that can generate profits, managers must recognize that stakeholders, besides shareholders, have claims on the profits that their resources help generate. This, in turn, suggests that managers seeking to generate economic profits must adopt a stakeholder perspective in how they manage their firm. (p. 3305)

A few challenges to the stakeholder model are present. Critics of the model argue that the stakeholder model, while ethical in theory, is unable to evenly distribute the interests of its numerous stakeholders, and that the interests of the more powerful stakeholders will take precedence over others (Blattberg, 2000). Challengers to the stakeholder model point to problems in identifying stakeholders in a moral sense, identifying courses of action to take to balance stakeholder interests, and identifying a normative justification for the theory. An obvious problem with the theory is its inability to provide standards for assigning relative weights to the interests of the various constituencies. Furthermore, it has been suggested that groups as disparate as environmental activists and business competitors can be considered stakeholders. Challengers contend that the theory is problematic in that it is unable to rule out any group from stakeholder status, as a group may someday come to affect the achievement of an organization’s objectives. The inability to properly discern stakeholders from nonstakeholders threatens the meaningfulness of the term (Phillip, 2003, p. 82).

Strategic Model of Corporate Social Responsibility: Sustainability

Strategic Visions

Similar to the stakeholder model, the sustainability model considers the interests of multiple stakeholders but further stresses the importance of protecting the rights of future generations from unethical behavior. This model conceives of social responsibility as part of the strategic vision of the firm. In the strategic model of social responsibility, one can serve the interests of owners and shareholders while also serving social ends. This model conceives of social responsibility as part of a broad strategic vision of long-term survival. In this model, one serves the ends of owners or shareholders by serving social ends. Many organizations have social goals at the center of their operations, which include nonprofit organizations such as hospitals, foundations, schools, colleges, and government agencies (DesJardins, 2011, p. 72).

McWilliams et al. (2006) define corporate social responsibility (CSR) as “situations where the firm goes beyond social compliance and engages in actions that appear to further some social good, beyond the interests of the firm and that which is required by law” (p. 1). Socially responsible firms consider the needs and interests of not only the shareholders, but also other stakeholders. CSR actions include the incorporation of social features into a firm’s products as well as manufacturing processes, implementing advanced human resource management practices, embracing higher environmental standards of performance, and working closely with communities (McWilliams et al., 2006).

New Worldviews of Social Responsibility

DesJardins (2005) proposed that a “new worldview” of corporate social responsibility is necessary to address the problems of poverty, population growth, displaced populations, and worldwide ecological threats (p. 38). This new worldview would aspire to create a more just and environmentally sound model for growth and development. Within this conceptualization, business would no longer accept profit maximization as its primary goal, with ethical and environmental considerations functioning as constraints to profit. In the new model, business would have three equally compelling goals that must be balanced over the long-term. These goals would need to be balanced with each other and include: (a) economic goals, (b) ecological goals, and (c) ethical goals. Sustainability is understood as taking into consideration all three of these goals.

DesJardins (2011) further argues that what he terms the “sustainability” model can provide better guidance for creating a world in which people can meet the needs of the present generation without jeopardizing the ability of future generations to meet their own equally valid needs. He states that pressing problems provide the motivation to create a more just and environmentally sound economic model (pp. 37–38). The new model aspires to foster a business community that is economically vibrant enough to address human needs without diminishing Earth’s capacity to support life, and ethically sensitive enough so that human dignity is not lost or violated in the process (p. 35).

In addition to nonprofit organizations, some for-profit organizations also can adopt social goals that are viewed as central to their mission. A bank that makes microloans to the poor (such as the Grameen Bank of Bangladesh) is an example of a for-profit organization that accepts social responsibility as central to its mission. The concept of sustainability contends that the long-term financial well-being of individual firms is directly tied to its interface with the natural environment. A business that uses resources at unsustainable rates and creates wastes (such as carbon dioxide) at rates that exceed the Earth’s absorbing capacity fails it social responsibilities. Damage to the environment can have direct business effects. For example, extensive fishing can effectively eradicate the commercial product and destroy fish-related businesses (DesJardins, 2011, p. 74).

Amram et al. (2013) argue that business complexities coupled with enhanced global transformation have propelled corporations to behave as responsible citizens. They note that the number of corporations reporting publicly on various aspects of their environmental and social performance has increased over time, with many of the top Global Fortune 500 companies issuing environmental or sustainability reports. These authors reviewed the quality of sustainability reporting in the Asia-Pacific region and concluded that while there was room for improvement, the institutionalization of corporate social responsibility in organizations provided a foundation for enhancing the quality of social reporting.

Corporate social responsibility and environmentalism are viewed by some as a strain on profits and an intrusion on the freedom of business people to exercise control over their property. Business people often view social responsibility and environmentalism as a zero-sum game; environmentally sustainable decisions come at a cost to profitability; thus, pursuing profits requires business managers to forgo environmental responsibilities. Others, however, attempt to refute this perception, contending that what is right in terms of sustainability may also be right in terms of business performance.

Discussion

Philosophy and models of business ethics provide a means of assessing business ethics and corruption. In contrast to the dogmatism of deontology, the utilitarian approach can be viewed as more pragmatic in its weighing of outcomes. Both ethical relativism and utilitarianism stand in stark contrast to deontology. While deontology looks to universal principles to guide action, utilitarianism weighs benefits and costs of outcomes and a relativism view of ethics as governed by societal norms. Virtue- and character-based ethics are consistent with the deontological view in that virtue may lead to taking principled stands that may be unpopular. Table 1 summarizes linkages between philosophies, models, and corruption.

Table 1. Philosophies, Models, and Corruption

Philosophies and Models

Dominant Perspective

Views on Corruption

Utilitarian

Costs and benefits of outcomes

Contingent on outcomes

Deontology

Principle and duty

Immoral

Virtue and intuition

Character, instincts

Instinctively avoid based on one’s character

Relativism

Societal norms

Context bound

Profit maximization

Short-term gain

Impacts on profits

Stakeholder corporate social responsibility

Balance many stakeholder interests

Contingent on stakeholder pressures

Strategic corporate social responsibility–sustainability

Sustainable futures

Contingent on how it affects the future

As displayed in Table 1, clear differences in orientations toward corruption exist between philosophies and models. While utilitarian philosophers adopt a result and outcome orientation to evaluate activities such as corruption, deontologists assess corruption against the mandates of universal laws. Virtue ethicists focus on individual character and behavior that can either lend support to or reject corruption, while relativists look to the norms of their society to define acceptable or unacceptable behavior. Models of business ethics also adopt differing views of corruption. The profit maximization model may view corruption as simply a means to the end of profit. In contrast, the stakeholder model is more influenced by relevant interest groups, and the strategic model looks to the impact of business decisions on the future.

Corruption should not be viewed only as a U.S. problem but appears to be endemic throughout the world. Picci (2018) noted that corruption and bribery by firms of one country to officials of another country represent global problems. The extent of the problem is reflected in the adoption of international instruments such as the United Nations Convention against Corruption. Corporate fraud was found to be prevalent in many nations, including companies in the emerging economic powerhouse of China (Zhang, 2018) and enterprises in the nation of Lithuania (Pakstaitis, 2019). Case studies of corruption in European nations indicate that problems of corruption continue to grow because strategies to reduce corruption have proven to be ineffective (Bull & Haywood, 2019).

Various studies have addressed the issue of how to reign in excesses of corruption and how to improve the ethical climate of businesses. Some studies focus on regular training of employees as an effective means to prevent corruption. For example, Hauser (2019, p. 281) found that training was positively linked to the likelihood of rejecting justifications for corruption. Other studies considered the legal ramifications of corruption and bribery, questioning whether a respect for the law was a myth that does not comport with current realities. Rossbacher (2006) asked whether corrupt behavior was lost in a “quagmire of self-interest and cost benefit analysis” and whether crime was “just a high-risk business tactic.” He concluded that the legal system was impeding as well as deferring prosecution and questioned whether the United States was “on the path back to the buccaneering days of unfettered capitalistic greed epitomized by the 1890s.” Research indicates that culture appeared to be a lasting driver of corruption (Simpser, 2020, p. 1373). A reversion to the days of the 1890s would suggest a cultural shift away from more inclusive models.

Conclusions

Phillips (2003) maintained that the assertion that the purpose of business activity is to maximize the wealth of business owners (shareholders in the case of corporations) has near religious status (p. 4). It is the dogma of business and is taken for granted “like the air we breathe.” The profit-maximizing model has also been championed by leading economists such as Nobel laureate Milton Friedman, who asserted that owners and stockholders wish to have the value of their investment maximized. Friedman argued that managers who fail to maximize shareholder wealth were in fact “stealing” another’s money and violating a moral property right (p. 156).

Champions of the sanctity of property rights such as Friedman, however, do not give several realities ample attention. They should give greater recognition to the need for balancing property rights with the rights of others. They should recognize that ethical standards underpin social contracts between actors in societies. Egregious abuses of ethical standards undermine the social contract that binds society. From the utilitarian perspective, unethical business behavior can cause pain, can be bad for business, and can lead to prosecution. From the deontological perspective, certain types of behavior are simply unacceptable from a moral point of view. Deontologists argue that societies function on the basis of adherence to universal rules and ethical standards. Behavior that too blatantly departs from ethical norms therefore threatens the effective functioning of societies.

To paraphrase 17th-century poet John Donne, no man or business is an island entire of itself, all are part of the main. Businesses function as part of a broader society that can either support or oppose specific types of business activity. Laws and court decisions have reigned in business behavior in the past. Monopoly creation, child labor, hazardous working conditions, discrimination, false advertising, and development of harmful products represent just some of the business practices addressed in legislation and legal decisions. Business therefore should be cognizant that ignoring ethical responsibilities not only endangers others but also imperils their existing business models.

Business ethics is often referred to as an oxymoron. This is a reflection of society’s low opinion of business behavior and an assumption that business cannot be ethical. The low opinion of business ethics is reinforced by a steady stream of narratives that expose the most offensive types of unethical business behavior. If business ethics is to become something other than a fundamental contradiction of terms, behavior must change. Property rights and business prerogatives have limits, and ignoring this reality only endangers them.

Further Reading

  • Boatright, J. R., & Smith, J. D. (2017). Ethics and the conduct of business (8th ed.). Pearson.
  • Carroll, A. B., Lippartito, K. J., Post, J. E., Werhane, P. H., & Goodpaster, K. E. (Eds.). (2012). Corporate responsibility: The American experience. Cambridge University Press.
  • Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
  • DesJardins, J. R. (2011). An introduction to business ethics (4th ed.). McGraw-Hill.
  • Marcus, A. A., & Hargrave, T. J. (2021). Managing business ethics: Making ethical decisions. SAGE.
  • Mees, B. (2020). The rise of business ethics. Routledge.
  • Sandel, M. (2009). Justice: What’s the right thing to do? Farrar, Straus and Giroux.

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