Corporate codes of ethics: necessary but not sufficient

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In today’s business world most large companies all over the globe have a code of ethics; however, the number of cases recorded that involved ethical misconduct among some of these companies does not seem to be decreasing. In order to understand the reasons behind such a trend we need to look at how ethical theory applies to business practice.

When we talk about ethical theory and business practice we are always asking ourselves questions like: Can business organizations be just? Should the main obligation of businesses be to maximize the profits at all costs possible? Do international business organizations have the obligation to protect human rights wherever they do business?

It has been proposed that if a company is legal then it is also moral. If this is the case then why should the business world even concern itself with ethics? Instead, should businesses only be concerned with maximizing the bottomline just like Milton Friedman suggested in his theories? He had two main arguments to support his position. He saw stockholders as the primarily owners of the company and hence all of the profits that the company made would belong to them. He would also see the managers of the company as agents of the stockholders; hence, the managers would be morally obligated to manage the firm in the best interests of the stockholders – i.e. to maximize profits, or stockholders’ wealth. The second argument that Friedman made was that everyone who worked for the company and assisted it in making profits would get paid in the form of wages – this seemed fair – you helped in maximizing stockholders’ wealth, you got rewarded.

However, history has shown that soley trying to maximize profits can cause many negative outcomes. A good example is Enron. It was the corporation that did have a code of ethics and also claimed that it based its operations on core ethical values. But it did not stop Enron executives from making unethical accounting decisions and the company which took 16 years to go from $10 billion to $65 billion in assets went bankrupt in 24 days.

Everybody understands that the purpose of corporations is to maximize profits, but it needs to be done in the best ethical manner as possible. Writing up a code of ethics for the only sake of having one will not be sufficient. There needs to be constant training of employees at all levels of organizations so that everyone is aligned and everyone knows what the ethical policy truly means.


4 Responses to “Corporate codes of ethics: necessary but not sufficient”

  1. January 3, 2010 at 11:10 pm

    Well said, I also believe that an ethical culture can not merely be listed items that a corporation maintains solely for the benefit of having a code of ethics. Furthermore cases like Enron really underline the necessity of instilling a culture in which that same code of ethics is not only in practice but also valued by the members of the culture. Thank you for the excellent post.

  2. January 4, 2010 at 2:37 am

    Ethics are important but laws need to be put into place so that there is no question as to if a question is behaving correctly or not. Ethics can be very gray. Laws should be written so it is very black and white. Good blog!

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My purpose is to write and share ideas about sustainability, best business practices, and personal and business ethics.

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January 2010

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