Which of the following are business ethics levels?

Graphics courtesy of Vocal MediaOpens in new window

A number of theories have highlighted the merits of considering the relationship between ethics and business at more than one level. It is important for leaders to understand that ethical problems are not only an individual or personal matter, therefore, it is useful for leaders to see the different “levels” at which issues originate and how they often move to other levels. Since today’s leaders must interact with a wide range of stakeholders inside and outside their organizations, understanding the levels of issues that stakeholders face facilitates a leader’s understanding of the complex relationships within and among participants involved in addressing ethical problems.

Ethical and moral issues in business can be examined at several levels: individual or personal, organizational, macro (i.e., industry, societal, and international).

Since organizations and their various components are run by organizational leaders, the ethical standards day-to-day activities and decisions of individuals in the business are an important consideration. Individuals may well have a very different set of ethical standards from their employer and this can lead to tensions. Factors such as peer pressure, personal financial position, and socioeconomic status all may influence individual ethical standards. Leaders should be aware of this to manage potential conflicts.

We all experience individual or personal level ethical challenges. These include situations leaders face in their personal lives that are generally outside the work context. Questions or dilemmas that we might face at the personal level include:

• Should I tell the cashier that he gave me change for a $20 bill when all I gave him was a $10 bill?
• Should I notify my bank that it credited someone else’s $100 to my checking account?
• Should I cheat on my income tax return by overinflating my charitable contributions?
• Should I return the extra merchandise that the store sent me by accident?
• Is it ethically acceptable for a leader to withhold information from her colleagues about their impending redundancy in order to retain their commitment to the company and thus to avoid a downturn in corporate performance?
• In a supply-contract negotiation, is it OK for a company buyer to give preferential treatment to a supplier with whom he has developed a long-standing business relationship or should supplier arrangements be governed purely by financial considerations?
• And is it all aright for a supplier to offer a gift to the buyer of a company with which she does business in order to thank that person for their custom?
• Moreover, is it ethically permissible for a company buyer to accept such gifts from a supplier?

If an ethical issue involves or is limited to an individual’s responsibilities, that person may examine their own ethical motives and standards before choosing a course of action.

At an organizational level, ethical standards are embedded in the policies and procedures of the organization, and form an important foundation on which organizational strategy is built. These policies derive from the influences felt at macro level and therefore help an organization to respond to changing pressures in the most effective way. There can be a gap between the organization policy on ethical standards and the conduct of those in charge of running the business, especially if they are not the direct owners, which can present an ethical challenge for some employees.

People also confront ethical issues at the organizational level in their roles as leaders or employees. Certainly, many of these issues are similar to those we face personally. However, these issues may carry consequences for the company’s reputation and success in the community and also for the kind of ethical climate or culture that will prevail on a day-to-day basis at the office.

Some of the issues posed at the organizational level might include:

• Should I overlook the wrongdoings of my peers and direct reports in the interest of company harmony?
• Should I perform an unethical or illegal act to earn a division or work unit profit?
• Should I offer a kickback to ensure I get the client’s business to meet my sales quota?
• Should I make this product safer than I’m required by law, because I know the legal standard is grossly inadequate?
• Should I accept this gift or bribe that is being given to me to close a big deal for the company?

It is important for leaders to understand that at this level they might think about things like right, wrong, good, and bad in relation to the activities of particular firms or specific industry sectors. For example, in addition to the questions above one might ask whether it is ethically acceptable for a firm to structure its accounts in such a way that it avoids paying taxes in the country within which its operations take place, paying them instead in another country that offers more favorable arrangements. Or we might question whether a global commodity-supply organization is justified in disposing of waste products at low cost in developing nations. And we might ask if it is OK for financial-service firms to establish highly complex derivative trading structures, which offer the possibility of high returns but in which systemic risk is hard to predict or control.

If an ethical issue arises at the organizational level, leaders should examine the organization’s policies and procedures and code of ethics, if one exists before making a decision or taking action.

At the macro level, sometimes called the systemic level, ethics are defined and influenced by the wider operating environment in which the organization exists. At this level we might consider the wider role that business plays, or should play, within society. Additionally, at this level business ethics touch on considerations of national and international economic policy. It also crosses into the realm of political ideology. Factors such as political pressures, economic conditions, societal attitudes to certain businesses, and even business or industry regulation can influence a company’s operating standards and policies. Contemporary organizational leaders and other organizational members must be aware of how these pressures affect operations and relationships, and how they may impact on markets locally, nationally, and internationally.

The types of questions that occur at a macro level might include whether economic markets alone should be allowed to govern business activity, or whether governments should exercise control over market activity in order to bring about specific social and environmental objectives. Macro-level inquiry might also ask whether corporations have an obligation to consider the impact of their activities on society and the natural environment, or whether they should just do all they can to maximize shareholder returns. And macro-level inquiry might consider whether the benefits and burdens of economic activity are fairly distributed between various communities. Some have suggested the importance of looking at business ethics more specifically from an industry or societal or international perspective.

The industry level is another level at which organizational leaders and others might influence business ethics. The industry might be insurance, stock brokerage, manufactured homes, real estate, automobiles, or a host of others. Related to the industry might be the profession of which an individual is a member—law, medicine, accounting, pharmacy, or engineering. Some examples of questions that might pose ethical problems or dilemmas at this level include the following:

• Is this standard contract we condominium sellers have adopted really in keeping with the financial disclosure laws that have recently been strengthened?
• Is this practice that we stockbrokers have been using for years with prospective clients really fair and in their best interests?
• Is this safety standard we mechanical engineers have passed really adequate for protecting the consumer in this age of do-it-your-self-ers?
• Is this standard we physicians have adopted violating the Hippocratic’ oath and the value it places on human life?

At this level, conflicts of interest and conscience can arise in such situations. At this level, professionals can refer to their professional association’s character code of ethics for guidelines on conducting business or the set of ethical practices of a particularly industry.

1. Societal and International

At the societal and international levels, laws, norms, customs, and traditions govern the legal and moral acceptability of behaviors. Business activities acceptable in China or Turkey or Russia maybe immoral or illegal in the United States, and vice versa. At these levels it becomes very difficult for leaders to have any direct effect on business ethics. However, leaders acting in concert through their companies and trade and professional associations can definitely bring about high standards and constructive changes. The greatest impact of leaders can be felt through what they do personally or as a member of the broader organizational leadership team.

It is also important for leader to recognize that they have an important role to play as ethical role models for society. To the extent that they successfully convey to the general public that they believe in the importance of integrity in business and throughout society, leaders may have a significant impact on society’s general level of ethics and on the future course of the free enterprise system.

Ethical standards (and problems) flow through the entire structure of an organization, shaping how it plans its strategy, deals with customers, and manages its workforce. The standards have a reach far beyond day-to-day operations, and should be considered in all aspects of an organization, from the boardroom to the lowest level (i.e., shop floor) and across all functions and areas. Supporting this effort, leaders and organizations that genuinely understand the value and importance of ethics have appropriate metrics in place to measure achievement and identify problems before they become major issues and adopt an integrated approach to ethical decision-making as discussed in the last entry of this topic.