Video 47: Ethics: Business Ethics an oxymoron?

Question: Isn't the term "business ethics" an oxymoron?

People often joke that "business ethics" is a contradiction in terms. What they are referring to is the apparently inherent conflict between morality and the pursuit of profit. The implication is that if a company has to choose between profits and doing the right thing, profits will always win. If business is about making a profit, can we really do so while still acting ethically?

The answer is that businesses can and do act ethically. And they do so because good, ethical behavior is the best long-term strategy for a company. That's not to say that ethical behavior always pays off financially or that unethical behavior is always punished. Actually, doing the right thing can sometimes be quite costly for a business, and doing something unethical may pay off, at least in the short term. What we mean by "the best long-term strategy" is that for the most part and over the long run, acting ethically can give a company a significant competitive advantage over companies that do not act ethically.

In fact, several studies have looked for a correlation between good ethics and good corporate performance. There are plenty of examples out there of consistently profitable companies that also have a longstanding history of ethical conduct -- for example, Patagonia, Home Depot, Levi Strauss, and The Body Shop. Other studies have looked at how socially responsible firms perform on the stock market, and have concluded that ethical companies probably provide higher returns than other companies. It is true that some studies show no real correlation between ethical behavior and corporate profits. But we do know that no study's been able to prove a negative correlation between ethics and profitable operations.

Beyond studies, though, there are other more basic ways in which ethical conduct figures in a business's long-term strategy. Business -- like human life -- is a cooperative activity. Its very existence requires some minimum ethical standards. No business, just like no community, can survive if its members begin to believe that it's OK to lie to one another, to steal from each other, or to go back on promises. This kind of unrestrained self-interest results in a breakdown of society. Without minimum ethical standards in place in a society, its business activities will also collapse. If you don't believe that, just look at the long term breakdown of business activity in war-torn areas like Lebanon and Afghanistan, or even temporary business interruptions in Buenos Aires or Los Angeles, as a result of political uncertainty and distrust, civil unrest, and ultimately rioting.

Next, remember that businesses act rationally when seeking profits. That rational self-interest might actually dictate acting unethically when there's something to be gained. Doing the right thing is almost always costly, at least in the short term. But because business involves reputation and relationships, unethical behavior usually backfires in the long term. If a business takes advantage of its employees, its customers, or its suppliers, these groups and maybe even others will often find a way to retaliate - by refusing to work for or buy from the company. Over time, unethical behavior can undermine good relationships with all of the stakeholders of a business: employees, creditors, customers, suppliers, shareholders, and even the community in which the firm is located. Ultimately, unethical behavior tarnishes a business's reputation. Particularly with the advent of the Internet, more information than ever is available about corporate conduct, both good and bad. Because most people prefer justice and fairness, they are more likely to want to do business with a company that does good than one that does not. In the end it is unethical behavior that becomes costly, and conversely ethical behavior creates its own competitive advantage.

No, "business ethics" is not an oxymoron. The corporate pursuit of profit can and should survive -- and even thrive -- alongside ethical behavior.

 


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