There are two major approaches to business ethics. The first approach is called market failures and was developed by McMahon (1981). It argues that markets should produce optimal and efficient outcomes and that firms can only be fired for “just cause.” This approach is controversial, however, and only a few writers adhere to a “pure” version of the view. The second approach focuses on the ethical rules that market actors must follow.
Both approaches to business ethics are grounded in deontology, but Kant’s version is particularly useful. According to Kant, humanity should be regarded as an end and is, therefore, of paramount importance. This approach has proved especially useful in analyzing human interactions in commercial settings. For example, in a highly competitive market, people may be tempted to deceive, manipulate, and exploit others. According to Kant’s version of deontology, such actions are immoral and violate human dignity.
The debate over how much a seller should charge has spawned several competing theories. In the contemporary perspective, most business ethics scholars believe that sellers have a wide degree of discretion when setting prices. However, a more ancient tradition emerged with Aquinas, who argued that the just price is a fair price that reflects the seller’s cost of production. This view is controversial, but the broader implications of business ethics are far-reaching and complex.
Diversification – Divesting from an industry or society that exhibits unacceptable moral standards is a popular solution to the problem of corporate social responsibility. Divestment has several advantages over other forms of business ethics. It avoids the businessperson from complicity in immoral practices and puts pressure on the society in question to alter its practices. But critics worry that divestment is ineffective in forcing social change. That is why some firms choose to remain in such industries and societies.
Political activity – Some people worry that firms are lobbying for political purposes, while others are concerned that they are serving their own interests. Rent-seeking is an economic activity that is characterized by social waste and is a common approach to promoting firms’ interests. Lobbying for government subsidies, tariffs on foreign competitors, and subsidies for renewable energy are examples of rent-seeking. However, this argument fails in many instances. In practice, political activity has the same ethical implications as any other, which is why business ethics is a critical issue for business today.
Product safety is another issue that business ethics scholars must grapple with. While there is considerable debate on the issue, few business ethics scholars have paid much attention to this aspect. Existing treatments typically combine the issue of product safety with the notion of liability – whether or not companies should pay for harm caused by their products. But Velasquez (2012) is the most careful treatment of this problem to date. It explains why the precautionary principle is so important: the safety of the product is paramount.
Increasingly, companies are requiring their employees to attend seminars on business ethics. These seminars typically include discussions of specific case studies and legal requirements. Some companies even require employees to sign agreements stating they will abide by their company’s rules of conduct. Furthermore, many companies are analyzing environmental factors that might encourage unethical behavior. For example, a highly competitive environment may encourage employees to act unethically. So, what can companies do to address these concerns?