Ethical Constraints on Strategy Building

These rough notes were developed by Dr. Rosalyn Rufer and Dr. Alan Belasen

There are many constraints that a manager must consider when formulating and implementing strategy. In addition to those listed are the constraints that evolve from knowing that decisions are best when they are ethical. However, defining ethics is a complex topic. This mini-lecture will hopefully give you some insight on how to make ethical decisions, when developing the firm's strategy.

As educators, we often stress the importance of business ethics. An important part, of the development of the firm's strategy, is making ethical decisions. To help you understand the role of ethics in the global market, I have included, in this mini-lecture, several passages from Richard T. DeGeorge's book Business Ethic. Prentice Hall, Upper Saddle River, New Jersey 07458 (1999) Chapter 1 "Ethics and Business" pg. 11-27.

Richard T. DeGeorge (1999) states that "business is an important part of contemporary society. It involves all of us, in one way or another.... Business is not something separate from society or imposed on it - it is an integral part of society. Morality consists of rules of human behavior and specifies that certain actions are wrong or immoral and that others are right or moral. We can take the moral point of view to evaluate human action. ... Because business activity is human activity, it can be evaluated from the moral point of view....

Business, like most other social activities, presupposes a background or morality and would be impossible without it. For instance, employers expect their employees not to steal from the firm; parties to a contract each expect the other to honor an agreement; those who buy a product expect it to be as advertised, when they take it home and unpack it. People who work with others expect their co-workers generally to tell the truth, to respect rather than to assault them, and to do the job for which they are paid. ... If everyone involved in business - buyers, sellers, producers, management, workers, and consumers - acted immorally or even amorally, business would soon grind to a halt. Morality is the oil as well as the glue of society and, therefore, of business. ... Lying would not succeed if most people were not truthful and did not believe others. A breach of trust requires a background of trust. Most businesses do not operate according to the dictum 'let the buyer beware'. Businesses generally value their reputation.

People, of course, do act immorally in business, just as they do in other spheres of life. There are numerous cases of fraud, misrepresentation, and inflated business accounts, but there is no proof that people are more immoral in their business lives than in their private lives. The structures of business are no more prone to immorality than the structures of government, family, education, or religion, nor are large, impersonal businesses either more or less moral or immoral than small, individually owned businesses.....It is because the ordinary person does not need to be told that things [such as lying, stealing, or murder,] are wrong that they form part of the background of business..... Consequently, the proposition that business and morality do not mix cannot be convincingly maintained. The point of business ethics is not necessarily to change anyone's moral convictions but to build on them. .....

The Business of Business

In the United States, the mandate to business was initially rather simple. People wanted goods to be as plentiful, as good, and as cheap as possible. Those interested in producing them were given relatively free rein under competitive conditions. Some businesses succeeded and grew; other failed. As problems developed, regulations were introduced by law. There laws regulated working conditions, protected children, prevented monopolistic practices, and preserved the environment. The regulations frequently represented the moral concerns of the American people. The business of business was and is, decided by the people of each society. ... The limits are not set by business or by those who run business... The limits and demands [that are] imposed on business by society are frequently moral ones. A business may ignore the moral demands of an individual, but it can hardly ignore the moral demands of a whole society because it is both part of that society and dependent on it....

Business and the Law

Business is a social enterprise whose mandate and limits are set by society..... Hired managers run the companies not for themselves but for the stockholders. They manage the company not necessarily as they choose, but to some extent as they must. They are subject to a board of directors. They cannot impose their own morality on company policy and therefore must run it in a somewhat neutral way. .....The dissociation of management from ownership took place at the same time that laws regulating business proliferated. As a result, it was natural, for those who were managing firms, to feel that what society and the stockholders of their company required of them, was compliance with the law.... Equating what is required of business with what is required by law became a convenient and easy norm to adopt. It made clear one's duty and limited what one had to consider. If provided a convenient rationale for ignoring moral demands and for living by the myth of amoral business.

This view [however] fails to consider carefully the relation of law and morality.

  • Many laws prohibit immoral practices; immoral practices, for the most part, are socially harmful practices..... For instance, racial discriminations was immoral before it was made illegal.
  • Law is for the most part reactive. There is a lag between practices that society discovers are harmful and legislation being drafted and passed to render it illegal.
  • Not all laws are morally defensible. Laws requiring racial segregation and discrimination are a case in point. To abide by the law in practicing discrimination was, in fact to act immorally. ....
  • Not everything that is immoral can be made illegal. Although for instance, it is immoral to lie, this does not mean that all lying should be made illegal. Such a law would be unenforceable, nor would it be worth the time and effort to try to enforce it to any considerable extent. Yet it does not follow - even for those in business who claim that they re bound only by law- that it would be right for business people to lie whenever they feel like it, either to those within the company or to those with whom the do business. ......

Individuals in business can not act as they choose. Government regulations, decisions, and guidelines temper the moves of the marketplace. In addition, corporations area asked, if not forced, to consider the impact of their decisions and actions on the environment, the public, and the common good.....

Ethics has always been a part of business, and to speak of ethics in business is neither new nor any different from speaking of ethics in any other area of human endeavor.... The business ethics movement is a social phenomenon with academic, business, social, and government aspects....Business ethics is not a separate ethics that constrains business in a way that other human and social endeavors are not constrained. Nor does it permit business to do what one is not allowed to do in other areas of life. It is a part of the general field of ethics and only within that wider sphere can it be properly understood.

Business Ethics as a Part of Ethics

Ethics studies morality. Morality is a term used to cover those practices and activities that are considered importantly right and wrong; the rules that govern those activities; and the values that are embedded, fostered, or pursued by those activities and practices. The morality of a society is related to its mores, or the customs that a society or group accepts as being right and wrong, as well as those laws of a society that add legal prohibitions and sanctions to many activities considered to be immoral. Hence, ethics presupposes the existence of morality, as well as the existence of moral people who judge right from wrong and generally act in accordance with norms they accept and to which they and the rest of society hold others. Without an accepted morality there would be no stable society in which business or any other positive, productive activity could be carried out in relative peace and security.

Ordinary moral experience encompasses our moral beliefs, judgments, and feelings, all of which we express in moral language. Moral judgments include evaluations of people or actions or institutions as good or bad, right or wrong, just or unjust, fair or unfair, and so on. They also express emotions, typically negative emotions toward wrong actions and positive emotions toward right actions. ..... In general morality covers all human actions, some of which are morally permitted, some of which are either morally required or morally prohibited, and some of which are beyond one's duty and so especially praiseworthy. ... All of this applies no matter what the society, or what its particular moral judgments are.

In its most general sense ethics is a systematic attempt to make sense of our individual and social moral experience, in such a way as to determine the rules that ought to govern human conduct, the values worth pursuing, and the character traits deserving development in life. .....Business ethics as a field is defined by the interaction of ethics and business. Business ethics is as national, international, or global as business itself, and no arbitrary geographical boundaries limit it.

  • If we consider business ethics in the American context, its major focus on the macro-levels is the moral evaluation of the economics system of American free enterprise, and of possible alternatives to and modifications of it.
  • A second level of moral analysis - and to date, the level of greatest attention- is the study of business within the American free-enterprise system. Since corporations are a prominent feature of this system, they have attracted the most concern. But unions, small businesses, consumerism, and the vast variety of business practices within the system are all appropriate objects of moral evaluation. Within the economic system and the corporations and businesses are individuals who invest in, run, work for, buy from, and are in many ways affected by them.
  • The moral evaluation of individuals and of their actions in economic and business transactions forms a third level of investigation. The field of business ethics embraces these three levels in their interconnections, as well as treating them as discrete areas of investigation. A corporation can be only as ethical as the people who own, manage, and work for it; but its structure, organization, and practices can be more or less conducive to ethical activity, which can in turn be reinforced or impeded by the larger system of which it is a part.
  • Finally, because business is becoming more and more international and global. A fourth level of analysis is international, and it considers the actions of American and other multinational corporations, as well as conditions of trade; the distribution of goods and jobs; the use, abuse, and depletion of natural resources; and the role of business in global warming, destruction of the tropical rain forests, and other activities that vitally affect humankind as a whole...... "

Making strategic choice that have ethical values are complicated in the global market. As a firm diversifies across boarders it is faced with changing cultural and moral values. It is always important to create strategies that are "ethical". The problem is defining "what is ethical" will vary from country to country. In Japan it is ethical to discuss proposed pricing with your competitor. However, in the U.S., not only is it illegal, it is considered unethical. As you set out to develop your global strategy you must consider not only the ethical values of the country in which you operate, but also those in which you may choose to diversify. The decisions, that you make in each market that you serve, will reflect on the perception that customers have of your firm worldwide. Warning labels are required on Cigarettes in the U.S., however if manufactures fail to implement similar labels in unregulated countries, U.S. and customers worldwide, will question the firm's integrity. Thus it is imperative to the longevity of the firm to be consistent and universal in creating an ethical plan its global strategy development.

Last modified: Monday, July 17, 2017, 4:08 PM