Business Ethics

Business Ethics

Some commentators, such as Milton Friedman, believe that the "primary and only responsibility of business is to make money" while abiding by the law. Supporters of this point of view argue that companies' self-interested pursuit of profit benefits the whole of society. Profitable businesses clearly benefit shareholders, but other commentators, such as Edward Freeman, argue that businesses should also benefit other stakeholders. Stakeholders are people and groups with whom the business has a relationship. This includes shareholders, but extends out to include employees, their families, the community within which the business operates, customers and suppliers.

Advantages

Business ethics offer companies a competitive advantage. Consumers learn to trust ethical brands and remain loyal to them, even during difficult periods. In 1982, Johnson & Johnson spent over $100 million dollars recalling Tylenol, its best-selling product, after someone tampered with bottles of the painkiller. The company followed its credo, a set of ethical organizational values, and the result was a boost in consumer confidence, despite the contamination scare. Society benefits from business ethics because ethical companies recognize their social responsibilities.

Disadvantages

Business ethics reduce a company's freedom to maximize its profit. For example, a multinational company may move its manufacturing facility to a developing country to reduce costs. Practices acceptable in that country, such as child labor, poor health and safety, poverty-level wages and coerced employment, will not be tolerated by an ethical company. Improvements in working conditions, such as a living wage and minimum health and safety standard,s reduce the level of cost-savings that the company generates. However, it could be argued that the restrictions on company freedom benefit wider society.

People, Planet, Profit

Companies increasingly recognize the need to commit to business ethics and measure their success by more than just profitability. This has led to the introduction of the triple bottom line, also known as "people, planet, profit." Companies report on their financial, social and environmental performance. The Dow Jones Sustainability Index benchmarks companies who report their performance based on the triple bottom line. This type of performance reporting acknowledges that companies must make a profit to survive, but encourages ethical and sustainable business conduct.