EDITA HEKELOVÁ

Firm or corporate legal and ethical behavior is an area that also requires top management attention. How firms go about conducting business is an extremely important issue in the 1990s. In a pluralistic society, there is little agreement on exact ethical standards for behavior. The laws provide minimum standards. Ethical issues are not always coded in law. A large grey area exists between what is considered unethical and what is illegal. In an educated society, professionals are held accountable for the ethical impact of their behaviour. Managers, afforded the status and pay of professionals, can expect no less. In thinking about strategy, they should consider the use of moral or ethical reasoning.

One reason, why unethical behavior occurs in business settings, is that firms are single-minded in their pursuit of short-term profits. In their pursuit of profits, firms often put excessive pressure on their employees. Unethical behavior is one way to meet firm goals and relieve the pressure.

Another explanation for the lack of ethical behavior in the business sector is the failure of business education. People that enter business careers are not adequately prepared for ethical reasoning. Business schools have traditionally offered their students only minimal exposure to ethical reasoning. Apparently, the shortfall is not made up in other areas of education or professional training.

When we can speak about the ethical issues? Ethical issues arise when a person’s behavior holds consequences for another person, especially when that other person is an unknowing or unwilling party to those consequences (Freeman and Gilbert, 1988). Strategy decisions often hold consequences for people other than the strategy makers. Therefore, strategy issues often are ethical issues.

Normative ethics is the study of the “right thing to do” in situations where our behavior will impact others. Often, knowledge about the right thing to do is simply a matter of moral common sense. There are actions that all reasoning people think are moral or ethical. It is right to tell the truth, it is right to avoid harm to others, it is right to help others etc. Ethical reasoning is one method used for the analysis of complex issues when moral common sense is insufficient.

By ethical authorities are commonly suggested three criteria for ethical reasoning (Goodpaster, K.E., 1991):

• utilitarianism
• rights
• duty .

Utilitarianism is a philosophic principle that suggests that ethical or moral ends are served when an action produces the greatest good for the greatest number. For example, given a choice to produce one or two pills, a drug company should produce that pill which will produce the greatest good for the greatest number.

Rights can often conflict. One person’s right to free speech can conflict with another’s right to peace and quiet. Therefore, similar to utilitarianism, rights are an indeterminate criterion of ethical propriety.

A third criterion that is often used in ethical reasoning is duty. Duty suggests that we all have obligations that vary in importance. The use of duty as a criterion requires that we rank order the obligations. Ethical behavior is achieved when respond to the highest duty. Because we all have many duties (to family, company, society etc.), the first ethical task is rank ordering this list of duties. The second ethical task is to analyze the impact of a single action on each of these duties.

The time to use ethical reasoning is when a decision’s consequences have impact on others. Strategic decisions always have an impact on other people. By definition, then, strategic decisions always have an ethical component.

3. Social and ethical responsibility

Legal rights and protection may serve as theoretical boundaries for business decision making and action. Ethical responsibilities may define roles more strictly than the minimum requirements of law and industry practice. It connects with social responsibility.

Social responsibility for the purpose of this text can be define (Velasquez, M., 1992) as the degree to which the activities of an organization protect and improve society beyond the extent required to serve the direct legal, economic, or technical interests of the organization. The contemporary view of social responsibility claims that business, as important and influential institutions in society, have a responsibility to help maintain and improve the society’s overall welfare. The classical view of social responsibility argue against performing the activity, which is not profitable in the short term and is not required by law. Contemporary view argue in favor of performing this activity, if the costs were not too great.

To clarify these issues, the literature (Carroll, A., 1991) proposes a pyramid of corporate social responsibility, shown in Figure 1.

In general, economic and legal responsibilities form the base of the pyramid. The organization must fulfill these requirements to survive and continue to operate.

Fig. 1 Pyramid of corporate social responsibility

[Source: Carrol, A., Business Horizons, July-August 1991, p.42]

Ethical and philanthropic responsibilities to stakeholders become critical when a firm begins to make a profit within the rules laid down by the broader society. Because in some industries an image of integrity and trust is critical to an organization’s profitability, it forces ethical responsibilities much closer to the base of the pyramid.

Efforts to evaluate the ethical responsibilities and ethical influences on business practice are complicated by the lack of a single, universal standard for judging whether a particular action is ethical. The personal ethical perspective of an organization depends on the personal belief and values of its top managers, often shaped by religion and early parental influences, combined with the level of their moral development and the particular ethical framework that they favor. The closely related factors of organizational culture (rituals, ceremonies, language, slogans, history etc.) and the systems through which this culture is sustained and transmitted throughout the firm (structure, policies, rules, code of ethics, reward system, training etc.) make up the other two building blocks of ethical responsibilities a decision making. Culture and systems may work either to constrain or to support the top manager’s ethical perspective.

4. Conclusion

For managers is necessary to think about the costs and benefits of the socially responsible and ethical behavior. These things can help to form a good relationship between managers - employees and the firm - customers. As you will read about the ethical issues, think about the context of the unethical behavior. What responsibilities do managers have to build climates that encourage strong ethical reasoning? Should ethical issues be a matter of personal taste?

1. Freeman, R.E.- Gilbert, D.R.(1988): Corporate Strategy and the Search for Ethics. Englewood Cliffs, N.J., Prentice-Hall.

2. Goodpaster, K.E.(1991): Some Avenues for Ethical Analysis in General Management. In K.E. Goodpaster, J.B. Matthews, L.L. Nash: Policies and Persons: A Casebook for Business Ethics, 2d ed., McGraw-Hill, New York.

3. Hekelová, E. (1993): Etika ako súčasť prípravy manažéra. In CO-MAT-TECH´93, MtF STU, Trnava, 57-61.