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What Are Business Ethics & Why Are They Important?

• 27 Jul 2023

From artificial intelligence to facial recognition technology, organizations face an increasing number of ethical dilemmas. While innovation can aid business growth, it can also create opportunities for potential abuse.

“The long-term impacts of a new technology—both positive and negative—may not become apparent until years after it’s introduced,” says Harvard Business School Professor Nien-hê Hsieh in the online course Leadership, Ethics, and Corporate Accountability . “For example, the impact of social media on children and teenagers didn’t become evident until we watched it play out over time.”

If you’re a current or prospective leader concerned about navigating difficult situations, here's an overview of business ethics, why they're important, and how to ensure ethical behavior in your organization.

Access your free e-book today.

What Are Business Ethics?

Business ethics are principles that guide decision-making . As a leader, you’ll face many challenges in the workplace because of different interpretations of what's ethical. Situations often require navigating the “gray area,” where it’s unclear what’s right and wrong.

When making decisions, your experiences, opinions, and perspectives can influence what you believe to be ethical, making it vital to:

• Be transparent.
• Invite feedback.
• Consider impacts on employees, stakeholders, and society.
• Reflect on past experiences to learn what you could have done better.

“The way to think about ethics, in my view, is: What are the externalities that your business creates, both positive and negative?” says Harvard Business School Professor Vikram Gandhi in Leadership, Ethics, and Corporate Accountability . “And, therefore, how do you actually increase the positive element of externalities? And how do you decrease the negative?”

Related: Why Managers Should Involve Their Team in the Decision-Making Process

Ethical Responsibilities to Society

Promoting ethical conduct can benefit both your company and society long term.

“I'm a strong believer that a long-term focus is what creates long-term value,” Gandhi says in Leadership, Ethics, and Corporate Accountability . “So you should get shareholders in your company that have that same perspective.”

Prioritizing the triple bottom line is an effective way for your business to fulfill its environmental responsibilities and create long-term value. It focuses on three factors:

• Profit: The financial return your company generates for shareholders
• People: How your company affects customers, employees, and stakeholders
• Planet: Your company’s impact on the planet and environment

Check out the video below to learn more about the triple bottom line, and subscribe to our YouTube channel for more explainer content!

Ethical and corporate social responsibility (CSR) considerations can go a long way toward creating value, especially since an increasing number of customers, employees, and investors expect organizations to prioritize CSR. According to the Conscious Consumer Spending Index , 67 percent of customers prefer buying from socially responsible companies.

To prevent costly employee turnover and satisfy customers, strive to fulfill your ethical responsibilities to society.

Ethical Responsibilities to Customers

As a leader, you must ensure you don’t mislead your customers. Doing so can backfire, negatively impacting your organization’s credibility and profits.

Actions to avoid include:

• Greenwashing : Taking advantage of customers’ CSR preferences by claiming your business practices are sustainable when they aren't.
• False advertising : Making unverified or untrue claims in advertisements or promotional material.
• Making false promises : Lying to make a sale.

These unethical practices can result in multi-million dollar lawsuits, as well as highly dissatisfied customers.

Ethical Responsibilities to Employees

You also have ethical responsibilities to your employees—from the beginning to the end of their employment.

One area of business ethics that receives a lot of attention is employee termination. According to Leadership, Ethics, and Corporate Accountability , letting an employee go requires an individualized approach that ensures fairness.

Not only can wrongful termination cost your company upwards of $100,000 in legal expenses , it can also negatively impact other employees’ morale and how they perceive your leadership.

Ethical business practices have additional benefits, such as attracting and retaining talented employees willing to take a pay cut to work for a socially responsible company. Approximately 40 percent of millennials say they would switch jobs to work for a company that emphasizes sustainability.

Ultimately, it's critical to do your best to treat employees fairly.

“Fairness is not only an ethical response to power asymmetries in the work environment,” Hsieh says in the course. “Fairness—and having a successful organizational culture–can benefit the organization economically and legally.”

Why Are Business Ethics Important?

Failure to understand and apply business ethics can result in moral disengagement .

“Moral disengagement refers to ways in which we convince ourselves that what we’re doing is not wrong,” Hsieh says in Leadership, Ethics, and Corporate Accountability . “It can upset the balance of judgment—causing us to prioritize our personal commitments over shared beliefs, rules, and principles—or it can skew our logic to make unethical behaviors appear less harmful or not wrong.”

Moral disengagement can also lead to questionable decisions, such as insider trading .

“In the U.S., insider trading is defined in common, federal, and state laws regulating the opportunity for insiders to benefit from material, non-public information, or MNPI,” Hsieh explains.

This type of unethical behavior can carry severe legal consequences and negatively impact your company's bottom line.

“If you create a certain amount of harm to a society, your customers, or employees over a period of time, that’s going to have a negative impact on your economic value,” Gandhi says in the course.

This is reflected in over half of the top 10 largest bankruptcies between 1980 and 2013 that resulted from unethical behavior. As a business leader, strive to make ethical decisions and fulfill your responsibilities to stakeholders.

How to Implement Business Ethics

To become a more ethical leader, it's crucial to have a balanced, long-term focus.

“It's very important to balance the fact that, even if you're focused on the long term, you have to perform in the short term as well and have a very clear, articulated strategy around that,” Gandhi says in Leadership, Ethics, and Corporate Accountability .

Making ethical decisions requires reflective leadership.

“Reflecting on complex, gray-area decisions is a key part of what it means to be human, as well as an effective leader,” Hsieh says. “You have agency. You must choose how to act. And with that agency comes responsibility.”

Related: Why Are Ethics Important in Engineering?

Hsieh advises asking the following questions:

• Are you using the “greater good” to justify unethical behavior?
• Are you downplaying your actions to feel better?

“Asking these and similar questions at regular intervals can help you notice when you or others may be approaching the line between making a tough but ethical call and justifying problematic actions,” Hsieh says.

Become a More Ethical Leader

Learning from past successes and mistakes can enable you to improve your ethical decision-making.

“As a leader, when trying to determine what to do, it can be helpful to start by simply asking in any given situation, ‘What can we do?’ and ‘What would be wrong to do?’” Hsieh says.

Many times, the answers come from experience.

Gain insights from others’ ethical decisions, too. One way to do so is by taking an online course, such as Leadership, Ethics, and Corporate Accountability , which includes case studies that immerse you in real-world business situations, as well as a reflective leadership model to inform your decision-making.

Ready to become a better leader? Enroll in Leadership, Ethics, and Corporate Accountability —one of our online leadership and management courses —and download our free e-book on how to be a more effective leader.

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Business Ethics

Exchange is fundamental to business. ‘Business’ can mean an activity of exchange. One entity (e.g., a person, a firm) “does business” with another when it exchanges a good or service for valuable consideration, i.e., a benefit such as money. ‘Business’ can also mean an entity that offers goods and services for exchange, i.e., that sells things. Target is a business. Business ethics can thus be understood as the study of the ethical dimensions of the exchange of goods and services, and of the entities that offer goods and services for exchange. This includes related activities such as the production, distribution, marketing, sale, and consumption of goods and services (cf. Donaldson & Walsh 2015; Marcoux 2006b).

Questions in business ethics are important and relevant to everyone. Almost all of us “do business”, or engage in a commercial transaction, almost every day. Many of us spend a major portion of our lives engaged in, or preparing to engage in, exchange activities, on our own or as part of organizations. Business activity shapes the world we live in, sometimes for good and sometimes for ill.

Business ethics in its current incarnation is a relatively new field, growing out of research by moral philosophers in the 1970’s and 1980’s. But scholars have been thinking about the ethical dimensions of commerce at least since the Code of Hammurabi (c. 1750 BC).

This entry summarizes research on central questions in business ethics, including: What sorts of things can be sold? How can they be sold? In whose interests should firms be managed? Who should manage them? What do firms owe their workers, and what do workers owe their firms? Should firms try to solve social problems? Is it permissible for them to try to influence political outcomes? Given the vastness of the field, of necessity certain questions are not addressed.

1. Varieties of business ethics

2. corporate moral agency, 3.1 ends: shareholder primacy or stakeholder balance, 3.2 means: control by shareholders or others too, 4. important frameworks for business ethics, 5.1 the limits of markets, 5.2 product safety and liability, 5.3 advertising, 5.5 pricing, 6.1 hiring and firing, 6.2 compensation, 6.3 meaningful work, 6.4 whistleblowing, 7.1 corporate social responsibility, 7.2 corporate political activity, 7.3 international business, 8. the status of business ethics, other internet resources, related entries.

Many people engaged in business activity, including accountants and lawyers, are professionals. As such, they are bound by codes of conduct promulgated by professional societies. Many firms also have detailed codes of conduct, developed and enforced by teams of ethics and compliance personnel. Business ethics can thus be understood as the study of professional practices, i.e., as the study of the content, development, enforcement, and effectiveness of the codes of conduct designed to guide the actions of people engaged in business activity. This entry will not consider this form of business ethics. Instead, it considers business ethics as an academic discipline.

The academic field of business ethics is shared by social scientists and normative theorists. But they address different questions. Social scientists try to answer descriptive questions like: Does corporate social performance improve corporate financial performance, i.e., does ethics pay (Vogel 2005; Zhao & Murrell 2021)? Why do people engage in unethical behavior (Bazerman & Tenbrunsel 2011; Werhane et al. 2013). How can we make them stop (Warren, Gaspar, & Laufer 2014)? I will not consider such questions here. This entry focuses on questions in normative business ethics, most of which are variants on the question: What is ethical and unethical in business?

Normative business ethicists (hereafter the qualifier ‘normative’ will be assumed) tend to accept the basic elements of capitalism. That is, they assume that the means of production can be privately owned and that markets—featuring voluntary exchanges between buyers and sellers at mutually agreeable prices—should play an important role in the allocation of resources. Those who reject capitalism will see some debates in business ethics (e.g., about firm ownership and control) as misguided.

Some entities “do business” with the goal of making a profit, and some do not. Pfizer and Target are examples of the former; Rutgers University and the Metropolitan Museum of Art are examples of the latter. An organization identified as a ‘business’ is typically understood to be one that seeks profit, and for-profit organizations are the ones that business ethicists focus on. But many of the ethical issues described below arise also for non-profit organizations and individual economic agents.

One way to think about business ethics is in terms of the moral obligations of agents engaged in business activity. Who can be a moral agent? Individual persons, obviously. What about firms? This is treated as the issue of “corporate moral agency” or “corporate moral responsibility”. Here ‘corporate’ does not refer to the corporation as a legal entity, but to a collective or group of individuals. To be precise, the question is whether firms are moral agents and morally responsible considered as ( qua ) firms, not considered as aggregates of individual members of firms.

We often think and speak as if corporations are morally responsible. We say things like “Costco treats its employees well” or “BP harmed the environment in the Gulf of Mexico”, and in doing so we appear to assign agency and responsibility to firms themselves (Dempsey 2003). We may wish to praise Costco and blame BP for their behavior. But this may be just a metaphorical way of speaking, or a shorthand way of referring to certain individuals who work in these firms (Velasquez 1983, 2003). Corporations are different in many ways from paradigm moral agents, viz., people. They don’t have minds, for one thing, or bodies, for another. The question is whether corporations are similar enough to people to warrant ascriptions of moral agency and responsibility.

In the business ethics literature, French is a seminal thinker on this topic. In early work (1979, 1984), he argued that firms are morally responsible for what they do, and indeed should be seen as “full-fledged” moral persons. He bases this conclusion on his claim that firms have internal decision-making structures, through which they cause events to happen, and act intentionally. Some early responses to French’s work accepted the claim that firms are moral agents, but denied that they are moral persons. Donaldson (1982) claims that firms cannot be persons because they lack important human capacities, such as the ability to pursue their own happiness (see also Werhane 1985). Other responses went further and denied that firms are moral agents. Velasquez (1983, 2003) argues that, while corporations can act, they cannot be held responsible for their actions, because those actions are brought about by the actions of their members. In later work, French (1995) recanted his claim that firms are moral persons, though not his claim that they are moral agents.

Debate about corporate moral agency and moral responsibility rages on in important new work (Orts & Smith 2017; Sepinwall 2016). One issue that has received sustained attention is choice. Appealing to discursive dilemmas, List & Pettit (2011) argue that the decisions of corporations can be independent of the decisions of their members (see also Copp 2006). This makes the corporation an autonomous agent, and since it can choose in the light of values, a morally responsible one. Another issue is intention. A minimal condition of moral agency is the ability to form intentions. Some deny that corporations can form them (S. Miller 2006; Rönnegard 2015). If we regard an intention as a mental state, akin to a belief or desire, or a belief/desire complex, they may be right. But not if we regard an intention in functionalist terms (Copp 2006; Hess 2014), as a plan (Bratman 1993), or in terms of reasons-responsiveness (Silver forthcoming). A third issue is emotion. Sepinwall (2017) argues that being capable of emotion is a necessary condition of moral responsibility, and since corporations aren’t capable of emotion, they aren’t morally responsible. Again, much depends on what it means to be capable of emotion. If this capability can be given a functionalist reading, as Björnsson & Hess (2017) claim, perhaps corporations are capable of emotion (see also Gilbert 2000). Pursuit of these issues lands one in the robust and sophisticated literature on collective responsibility and intentionality, where firms feature as a type of collective. (See the entries on collective responsibility , collective intentionality , and shared agency .)

Another question asked about corporate moral agency is: Does it matter? Perhaps BP itself was morally responsible for polluting the Gulf of Mexico. Perhaps certain individuals at BP were. What hangs on this? Some say: a lot. In some cases there may be no individual who is morally responsible for the firm’s behavior (List & Pettit 2011; Phillips 1995), and we need someone to blame, and perhaps punish. Blame may be the fitting response, and blame (and punishment) incentivizes the firm to change its behavior. Hasnas (2012) says very little hangs on this question. Even if firms are not morally responsible for the harms they cause, we can still require them to pay restitution, condemn their culture, and subject them to regulation. Moreover, Hasnas says, we should not blame and punish firms, for our blame and punishment inevitably lands on the innocent.

3. The ends and means of corporate governance

There is significant debate about the ends and means of corporate governance, i.e., about who firms should be managed for, and who should (ultimately) manage them. Much of this debate is carried on with the large publicly-traded corporation in view.

There are two main views about the proper ends of corporate governance. According to one view, firms should be managed in the best interests of shareholders. It is typically assumed that managing firms in shareholders’ best interests requires maximizing their wealth (cf. Hart & Zingales 2017; Robson 2019). This view is called “shareholder primacy” (Stout 2012) or—in order to contrast it more directly with its main rival (to be discussed below) “shareholder theory”. Shareholder primacy is the dominant view about the ends of corporate governance in business schools and in the business world.

A few writers argue for shareholder primacy on deontological grounds, i.e., by appealing to rights and duties. On this argument, shareholders own the firm, and hire managers to run it for them on the condition that the firm is managed in their interests. Shareholder primacy is thus based on a promise that managers make to shareholders (Friedman 1970; Hasnas 1998). In response, some argue that shareholders do not own the firm. They own stock, a type of corporate security (Bainbridge 2008; Stout 2012); the firm itself may be unowned (Strudler 2017). Others argue that managers do not make, explicitly or implicitly, any promises to shareholders to manage the firm in a certain way (Boatright 1994). More writers argue for shareholder primacy on consequentialist grounds. On this argument, managing firms in the interests of shareholders is more efficient than managing them in any other way (Hansmann & Kraakman 2001; Jensen 2002). In support of this, some argue that, if managers are not given a single objective that is clear and measurable—viz., maximizing shareholder value—then they will have greater opportunity for self-dealing (Stout 2012). The consequentialist argument for shareholder primacy run into problems that afflict many versions of consequentialism: in requiring all firms to aim at a certain objective, it does not allow sufficient scope for personal choice (Hussain 2012). Most think that people should be able to pursue projects, including economic projects, that matter to them, even if those projects do not maximize shareholder value.

The second main view about the proper ends of corporate governance is given by stakeholder theory. This theory was first put forward by Freeman in the 1980s (Freeman 1984; Freeman & Reed 1983), and has been refined by Freeman and collaborators over the years (see, e.g., Freeman 1994; Freeman et al. 2010; Freeman, Harrison, & Zyglidopoulos 2018; Jones, Wicks, & Freeman 2002; Phillips, Freeman, & Wicks 2003). According to stakeholder theory—or at least, early formulations of it—instead of managing the firm in the best interests of shareholders only, managers should seek to “balance” the interests of all stakeholders, where a stakeholder is anyone who has a “stake”, or interest (including a financial interest), in the firm. Blair and Stout’s (1999) “team production” theory of corporate governance offers similar guidance.

To be clear, in a firm in which shareholders’ interests are prioritized, other stakeholders will benefit too. Employees will receive wages, customers will receive goods and services, and so on. The debate between shareholder and stakeholder theorists is about what to do with the residual revenues, i.e., what’s left over after firms meet their contractual obligations to employees, customers, and others. Shareholder theorists think they should be used to maximize shareholder wealth. Stakeholder theorists think they should be used to benefit all stakeholders.

To its critics, stakeholder theory has seemed both incompletely articulated and weakly defended. With respect to articulation, one question that has been pressed is: Who are the stakeholders (Orts & Strudler 2002, 2009)? The groups most commonly identified are shareholders, employees, the community, suppliers, and customers. But other groups have stakes in the firm, including creditors, the government, and competitors. It makes a great deal of difference where the line is drawn, but stakeholder theorists have not provided a clear rationale for drawing it in one place rather than another. Another question is: What does it mean to “balance” the interests of all stakeholders, other than not always giving precedence to shareholders’ interests (Orts & Strudler 2009)? With respect to defense, critics have wondered what the rationale is for managing firms in the interests of all stakeholders. In one place, Freeman (1984) offers an instrumental argument, claiming that balancing stakeholders’ interests is better for the firm strategically than maximizing shareholder wealth (see also Blair & Stout 1999; Freeman, Harrison, & Zyglidopoulos 2018). (Defenders of shareholder primacy say the same thing about their view.) In another, he gives an argument that appeals to Rawls’s justice as fairness (Evan & Freeman 1988; cf. Child & Marcoux 1999).

In recent years, questions have been raised about whether stakeholder theory is appropriately seen as a genuine competitor to shareholder primacy, or is even appropriately called a “theory”. In one article, Freeman and collaborators say that stakeholder theory is simply “the body of research … in which the idea of ‘stakeholders’ plays a crucial role” (Jones et al. 2002). In another, Freeman describes stakeholder theory as “a genre of stories about how we could live” (1994: 413). It may be, as Norman (2013) says, that stakeholder is now best regarded as “mindset”, i.e., a way of looking at the firm that emphasizes its embeddedness in a network of relationships. In this case, there may be no dispute between shareholder and stakeholder theorists.

Resolving the debate between shareholder and stakeholder theorists (assuming they are competitors) will not resolve all or even most of the ethical questions in business. This is because it is a debate about the ends of corporate governance. It cannot answer questions about the moral constraints that must be observed in pursuit of those ends (Goodpaster 1991; Norman 2013), including duties of beneficence (Mejia 2020). Neither shareholder theory nor stakeholder theory is plausibly interpreted as the view that corporate managers should do whatever is possible to maximize shareholder wealth and balance all stakeholders’ interests, respectively. Rather, these views should be interpreted as views that managers should do whatever is consistent with the requirements of morality to achieve these ends. A large part of business ethics is trying to determine what these requirements are.

Answers to questions about the means of corporate governance often mirror answers to question about the ends of corporate governance. Often the best way to ensure that a firm is managed in the interests of a certain party P is to give P control. Conversely, justifications for why the firm should be managed in the interests of P sometimes appeal P’s rights to control it.

Friedman (1970), for example, thinks that shareholders’ ownership of the firm gives them a right to control the firm (which they can use to ensure that the firm is run in their interests). We might see control rights for shareholders as following analytically from the concept of ownership. To own a thing is to have a bundle of rights with respect to that thing. One of the standard “incidents” of ownership is control. (See the entry on property and ownership .)

As noted, in recent years the idea that the firm is something that can be owned has been challenged (Bainbridge 2008; Stout 2012; Strudler 2017). If this is right, then the ownership argument collapses. But similar contractarian arguments for shareholder control of firms have been constructed which do not rely on the assumption of firm ownership. All that is assumed in these arguments is that some people own capital, and others own labor. Capital can “hire” labor (and other inputs of production) or labor can “hire” capital. It just so happens that, in most cases, capital hires labor. We know this because in most cases capital-providers are the ultimate decision-makers in the firm. In a publicly-traded corporation, they elect the board. These points are emphasized especially by those who regard the firm as a “nexus of contracts” among various parties (Easterbrook & Fischel 1996; Jensen & Meckling 1976).

Many writers find this result troubling. Even if the governance structure in most firms is in some sense agreed to, they say that it is unjust in other ways. Anderson (2017) characterizes standard corporate governance regimes as oppressive and unaccountable private dictatorships. To address this injustice, these writers call for various forms of worker participation in managerial decision-making, including the ability by workers to reject arbitrary directives by managers (Hsieh 2005), worker co-determination of firms’ policies and practices (Ferreras 2017; McMahon 1994), and exclusive control of productive enterprises by workers (Dahl 1985).

Arguments for these governance structures take various forms. One appeals to the value of protecting workers’ interests (González-Ricoy 2014; Hsieh 2005). Another appeals to the value of autonomy, or a right to freely determine one’s actions, including one’s actions at work (Malleson 2014; McCall 2001). A third argument for worker control is the “parallel case” argument. According to it, if states should be governed democratically, then so should firms, because firms are like states in the relevant respects (Dahl 1985; Landemore & Ferreras 2016; cf. Mayer 2000). A fourth argument sees worker participation in firm decision-making as valuable training for citizens in a democratic society (Pateman 1970).

Space considerations prevent detailed examinations of these arguments (for critical reviews see Frega, Herzog, & Neuhäuser 2019; Hsieh 2008). But criticisms generally fall into two categories. The first insists on the normative priority of agreements, of the sort described above. There are few legal restrictions on the types of governance structures that firms can have. And some firms are in fact controlled by workers (Dow 2003; Hansmann 1996). To insist that other firms should be governed this way is to say, according to this argument, that people should not be allowed to arrange their economic lives as they see fit. Another criticism of worker participation appeals to efficiency. Allowing workers to participate in managerial decision-making may decrease the pace of decision-making, since it requires giving many workers a chance to make their voices heard (Hansmann 1996). It may also raise the cost of capital for firms, as investors may demand more favorable terms if they are not given control of the enterprise in return (McMahon 1994). Both sources of inefficiency may put the firm at a significant disadvantage in a competitive market. It may not just be a matter of competitive disadvantage. If it were, the problem could be solved by making all firms worker-controlled. The problem may be one of diminished productivity more generally.

Business ethicists seek to understand the ethical contours of business activity. One way of advancing this project is by choosing a normative framework and teasing out its implications for business issues. In principle, it is possible to do this for any normative framework. Below are four that have received significant attention.

One influential approach to business ethics draws on virtue ethics. Moore (2017) develops and applies MacIntyre’s (1984) virtue ethics to business. For MacIntyre, there are goods internal to practices, and certain virtues are necessary to achieve those goods. Building on MacIntyre, Moore develops the idea that business is a practice (or contains practices), and thus has certain goods internal to it (or them), the attainment of which requires the cultivation of business virtues. Aristotelian approaches to virtue in business are found in Alzola (2012) and de Bruin (2015). Scholars have also been inspired by the Aristotelian idea that the good life is achieved in a community (Sison & Fontrodona 2012), and have considered how business communities must be structured to help their members flourish (Hartman 2015; Solomon 1993).

Another important approach to the study of business ethics comes from deontology, especially Kant’s version (Arnold & Bowie 2003; Bowie 2017; Scharding 2015; Hughes 2020). Kant’s claim that humanity should be treated always as an end, and never as a means only, has proved especially fruitful for analyzing the human interactions at the core of commercial transactions. In competitive markets, people may be tempted to deceive, cheat, use, exploit, or manipulate others to gain an edge. Kantian moral theory singles out these actions out as violations of human dignity (Hughes 2019; Smith & Dubbink 2011).

Ethical theory, including virtue theory and deontology, is useful for thinking about how individuals should relate to each other. But business ethics also comprehends the laws and regulations that structure markets and firms. Here political theory seems more relevant. A number of business ethicists have sought to identify the implications of Rawls’s (1971) justice as fairness for business. This is not an easy task, since while Rawls makes some suggestive remarks about markets and firms, he does not articulate specific conclusions or develop detailed arguments for them. But scholars have argued that justice as fairness: (1) is incompatible with significant inequalities of power and authority within firms (S. Arnold 2012); (2) requires people to have an opportunity to perform meaningful work (Moriarty 2009; cf. Hasan 2015); and requires alternative forms of (3) corporate governance (Berkey 2021; Blanc & Al-Amoudi 2013; Norman 2015; cf. Singer 2015) and (4) corporate ownership (M. O’Neill & Williamson 2012).

A fourth approach to business ethics is called the “market failures approach” (MFA). It originates with McMahon (1981), but it has been developed in most detail by Heath (2014) (for discussion see Moriarty 2020 and Singer 2018). According to Heath, the justification of the market is that it produces efficient—in the sense of Pareto-optimal— outcomes. But this only happens when the conditions of perfect competition obtain, such as perfect information, no market power, and no barriers to entry or exit. (When they don’t, markets fail—hence the market failures approach.) On the MFA, these conditions are the source of ethical rules for market actors. The MFA says that market actors, including sellers and buyers, should not create or take advantage of market imperfections. So, for example, firms should not deceive consumers (creating information asymmetries) or lobby governments to levy tariffs on foreign competitors (erecting barriers to entry).

Selecting a normative framework and applying it to a range of issues is an important way of doing business ethics. But it is not the only way. Indeed, the more common approach is to identify a business activity and then analyze it using “mid-level” principles or ideals common to many moral and political theories. Below I consider ethical issues that arise at the nexus of firms’ engagement with three important groups: consumers, employees, and society.

5. Firms and consumers

The main way that firms interact with consumers is by selling, or attempting to sell, products and services to them. Many ethical issues attend this interaction.

Many have argued that some things should not be for sale (Anderson 1993; MacDonald & Gavura 2016; Sandel 2012; Satz 2010). Among the things commonly said to be inappropriate for sale are sexual services, surrogacy services, and human organs. Some writers object to markets in these items for consequentialist reasons. They argue that markets in commodities like sex and kidneys will lead to the exploitation of vulnerable people (Satz 2010). Others object to the attitudes or values expressed in such markets. They claim that markets in surrogacy services express the attitude that women are mere vessels for the incubation of children (Anderson 1993); markets in kidneys suggest that human life can be bought and sold (Sandel 2012); and so on. (For a discussion of what it might mean for a market to “express” a value, see Jonker [2019].)

Other writers criticize these arguments, and in general, the attempt to “wall-off” certain goods and services from markets. Brennan and Jaworksi (2016) object to expressive or “semiotic” arguments against markets in contested commodities (cf. Brown & Maguire 2019). Whether selling a particular thing for money expresses disrespect, they note, is culturally contingent. They and others (e.g., Taylor 2005) also argue that the bad effects of markets in contested commodities can be eliminated or at least ameliorated through appropriate regulation, and that anyway, the good effects of such markets (e.g., a decrease in the number of people who die because they are waiting for a kidney) outweigh the bad.

Some things that firms may wish to sell, and that people may wish to buy, pose a significant risk of harm, to the user and others. When is a product too unsafe to be sold? This question is often answered by government agencies. In the U.S., a number of government agencies, including the Consumer Product Safety Commission (CPSC), the National Highway Traffic Safety Administration (NHTSA), and the Food and Drug Administration (FDA), are responsible for assessing the safety of products for the consumer market. In some cases these standards are mandatory (e.g., medicines and medical devices); in other cases they are voluntary (e.g., trampolines and tents). The state identifies minimum standards and individual businesses can choose to adopt more stringent ones.

Questions about product safety are a matter of significant debate among economists, legal scholars, and public policy experts. Business ethicists have paid scant attention to these questions (but see Brenkert 1981). Existing treatments often combine discussions of safety with discussions of liability—the question of who should pay for harms that products cause—and tend to be found in business ethics textbooks. One of the most careful treatments is Velasquez’s (2012). He distinguishes three (compatible) views: (1) the “contract view”, according to which the manufacturer’s duty is only to accurately disclose all risks associated with the product; (2) the “due care view”, according to which the manufacturer should exercise due care to prevent buyers from being injured by the product; and (3) the “social costs view”, according to which the manufacturer should pay for any injuries the product causes, even if the manufacturer has accurately disclosed all risks associated with the product and has exercised due care to prevent injury (see also Boatright & Smith 2017). In the U.S. and elsewhere, the law has moved in the direction of the social costs view, where it is known as “strict liability”.

There is much room for philosophical exploration of these issues. One area that merits attention is the definitions of key terms, such as “safety” and “risk”. Drop side cribs pose risks to consumers; so do trampolines. On what basis should the former be prohibited but the latter not be (Hasnas 2010)? The answer must take into account the value of these products, how obvious the risks they pose are, and the availability of substitutes. With respect to liability, we may wonder whether it is fair to hold manufacturers responsible for harms their products cause, when the manufacturers are not morally at fault for those harms. On the other hand, it may be unfair to force consumers to bear the full costs of their injuries, when they too are not morally at fault. The question may be one for society as a whole: what is the most efficient or just way to distribute these costs?

Most advertising contains both an informational component and a persuasive component. Advertisements tell us something about a product, and try to persuade us to buy it. Both of these components can be subject to ethical evaluation.

Emphasizing its informational component, some writers stress the positive value of advertising. Markets function efficiently only when certain conditions are met. One of these conditions is perfect information. Minimally, consumers have to understand the features of the products for sale. While this condition will never be fully met, advertising can help to ensure that it is met to a greater degree (Heath 2014). Another value that can be promoted through advertising is autonomy. People have certain needs and desires—e.g., to eat healthy food, to drive a safe car—which their choices as consumers help them to satisfy. Their choices are more likely to satisfy their needs and desires if they have information about what is for sale, which advertising can provide (Goldman 1984).

These good effects depend, of course, on advertisements producing true beliefs, or at least not producing false beliefs, in consumers. Writers treat this as the issue of deception in advertising. The issue is not whether deceptive advertising is wrong (most would agree it is), but what counts as deceptive advertising, and what makes it wrong.

In the 1980s, Beech-Nut advertised as “100% apple juice” a drink that contained no juice of any kind. Beech-Nut was fined $2 million and two of its executives went to prison. As of this writing (in 2021), Red Bull is marketing its energy drinks with the slogan “Red Bull Gives You Wings,” but in fact Red Bull doesn’t give you wings. There is no problem with Red Bull’s marketing. What’s the difference? We might say that Red Bull’s slogan is not warranted as true (Carson 2010). It is an example of “puffery,” or over-the-top, exaggerated praise which no reasonable person takes seriously (Attas 1999). By contrast, Beech-Nut’s statement appeared to be a claim meant to be taken at face value, but in fact is false. As these examples illustrate, advertisements are deceptive not because of the truth-value of their claims, but what these claims cause reasonable consumers to believe. Questions can be raised, of course, about what it means to be reasonable (Scalet 2003); the answer may depend on who the consumers are.

Intention is usually taken to be irrelevant to deception in advertising. That is, an advertisement may be deemed deceptive even if the advertiser doesn’t intend to deceive anyone. Some philosophers would say that these advertisements are better described as misleading . (For discussion, see the entry on the definition of lying and deception .) Regulators of advertising blur this distinction, or perhaps they don’t care about it. Their goal is to protect consumers from acting on materially false beliefs, which may be caused either by deception or by blamelessly being misled.

Many reasons have been offered for why deceptive advertising is wrong. One is the Kantian claim that deceiving others is disrespectful to them, a use of them as a mere means. Deceptive advertising may also lead to harm, to consumers (who purchase suboptimal products, given their desires) and competitors (who lose out on sales). A final criticism of deceptive advertising is that it erodes trust in society (Attas 1999). When people do not trust each other, they will either not engage in economic transactions, or engage in them only with costly legal protections.

The persuasive component of advertising is also a fruitful subject of ethical inquiry. Galbraith (1958), an early critic, thinks that advertising, in general, does not inform people how to acquire what they want, but instead gives them new wants. He calls this the “dependence effect”: our desires depend on what is produced, not vice versa . Moreover, since we are inundated with advertising for consumer goods, we want too many of those goods and not enough public goods. Hayek (1961) rejects this claim, arguing that few if any of our desires are independent of our environment, and that anyway, desires produced in us through advertising are no less significant than desires produced in us in other ways.

Galbraith is concerned about the persuasive effects of advertisements. In contrast, recent writers focus on the techniques that advertisers use to persuade. Some of these are alleged to cross the line into manipulation (Aylsworth, 2020; Brenkert 2008; Sher 2011). It is difficult to define manipulation precisely, though attempts have been made (for extensive discussion, see the entry on the ethics of manipulation ). For our purposes, manipulative advertising can be understood as advertising that attempts to persuade consumers, often (but not necessarily) using non-rational means, to make irrational or suboptimal choices, given their own needs and desires.

Associative advertising is often identified as a type of manipulative advertising. In associative advertising, the advertiser tries to associate a product with a positive belief, feeling, attitude, ideal, or activity which usually has little to do with the product itself. Thus many television commercials for trucks in the U.S. associate trucks with manliness. Commercials for body fragrances associate those products with sex between beautiful people. The suggestion is that if you are a certain sort of person (e.g., a manly one), then you will have a certain sort of product (e.g., a truck). In an important article, Crisp (1987) argues that this sort of advertising attempts to create desires in people by circumventing their faculties of conscious choice, and in so doing subverts their autonomy (cf. Arrington 1982; Phillips 1994). Lippke (1989) argues that it makes people desire the wrong things, encouraging us to try to satisfy our non-market desires (e.g., to be more manly) through market means (e.g., buying a truck) (cf. Aylsworth 2020). How seriously we should take these criticisms may depend on how effective associative and other forms of persuasive advertising are. To the extent that advertisers are unsuccessful at “going around” our faculty of conscious choice, we may be less worried and more amused by their attempts to do so (Bishop 2000; Goldman 1984).

Our judgments on this issue should be context-sensitive. While most people may be able to see through advertisers’ attempts to persuade them, some may not be (at least some of the time). Paine (Paine et al. 1984) argues that advertising is justified because it helps consumers make wise decisions in the marketplace. But children, she argues, lack the capacity for making wise consumer choices (see also E.S. Moore 2004). Thus advertising directed at children constitutes a form of objectionable exploitation. Other populations who may be similarly vulnerable are the senile, the ignorant, and the bereaved. Ethics may require not a total ban on marketing to them but special care in how they are marketed to (Brenkert 2008; cf. Palmer & Hedberg 2013).

Sales are central to business. Perhaps surprisingly, business ethicists have said relatively little about sales.

An emerging set of issues concerns refusals to sell. Normally businesses want to sell their goods and services to everyone. But not always. In 2012, Jack Phillips of Masterpiece Cakeshop declined to sell a wedding cake to a same-sex couple because he opposed same-sex marriage on religious grounds. In response, the couple filed a complaint with the Colorado Civil Rights Commission. Should Phillips have sold the wedding cake to the couple? We might say that a commercial transaction is a kind of association, and people—including business owners like Phillips—should be free to associate, or not, with whomever they choose. Or we might say, as Phillips did, that his actions were protected by freedom of religion, since they were an expression of his identity, which includes his religious commitments. Alternatively, we might claim that Phillips was discriminating against the couple, and his actions were wrong for the same reasons discrimination typically is, viz., it denies people opportunities and undermines their dignity (Corvino, Anderson, & Girgis 2017).

Questions can also be raised about the techniques advertisers use to sell. These questions are similar to the ones asked about advertising. Salespeople are, in a sense, the final advertisers of products to consumers. An early contribution to the ethics of sales is found in Holley (1986), who develops a set of obligations for salespeople derived from the point of market activity, which he says is to efficiently meet people’s needs and wants (cf. Heath 2014). In what is probably the most sophisticated treatment of the subject, Carson (2010) says salespeople have at least the following four pro tanto duties: (1) provide customers with safety warnings and precautions; (2) refrain from lying and deception; (3) fully answer customers’ questions about items; and (4) refrain from steering customers toward purchases that are unsuitable for them, given their stated needs and desires. Carson justifies (1)—(4) by appealing to the golden rule: treat others as you want to be treated. He identifies two other duties that salespeople might have (he is agnostic): (5) do not sell customers products that you (the salesperson) think are unsuitable for them, given their needs and desires, without telling customers why you think this; and (6) do not sell customers poor quality or defective products, without telling them why you think this. For the most part, (1)—(4) ask the salesperson not to harm the customer; (5) and (6) ask the salesperson to help the customer, in particular, help her not to make foolish mistakes. The broader issue is one of disclosure (Holley 1998). How much information we think salespeople are required to share with customers may depend on what kind of relationship we think they should have, e.g., to what extent it is adversarial.

For many products bought and sold in markets, sellers offer an item at a certain price, and buyers take or leave that price. But in some cases there is negotiation over price (and other aspects of the transaction). We see this in the sale of “big ticket” items such as cars and houses, and in salaries for jobs. While there are many ethical issues that arise in negotiation, one issue that has received special attention is “bluffing”, or deliberately misstating one’s bargaining position. The locus classicus for this discussion is Carr (1968). According to him, bluffing in negotiations is permissible because business has its own distinctive set of moral rules and bluffing is permissible according to those rules. Carson (2010) agrees that bluffing is permissible in business, though in a more limited range of cases. Carson’s argument appeals to self-defense. If you have good reason to believe that your adversary in a negotiation is misstating her bargaining position, then you are permitted to misstate yours. A requirement to tell the truth in these circumstances would put you at a significant disadvantage relative to your adversary, which you are not required to suffer. An implication of Carson’s view is that you are not permitted to misstate your bargaining position if you do not have good reason to believe that your adversary is misstating hers.

In simplified models of the market, individual buyers and sellers are “price-takers”, not “price-makers”. That is, the prices of goods and services are set by the aggregate forces of supply and demand; no individual buys or sells a good for anything other than the market price. In reality, things are different. Sellers of goods have some flexibility about how to price goods.

Most business ethicists would accept that, in most cases, the prices at which products should be sold is a matter for private individuals to decide. This view has been defended on grounds of property rights. Some claim that if I have a right to a thing, then I am free to transfer that thing to you on whatever terms that I propose and you accept (Boatright 2010). It has also been defended on grounds of welfare. Prices set by voluntary exchanges reveal valuable information about the relative demand for and supply of goods, allowing resources to flow to their most productive uses (Hayek 1945). Despite this, most business ethicists also recognize some limits on prices.

One issue that has received increasing attention is price discrimination. This is discrimination based on willingness to pay, or the practice of charging more to people who are willing to pay more. This might at first seem unfair or even exploitative, but in fact it is commonplace and usually unremarkable (Elegido 2011; Marcoux 2006a). Examples of price discrimination include senior and student discounts, bulk discounts, versioning, and the sort of bargaining one finds in car dealerships and flea markets. We might see price discrimination as an implication of freedom in pricing, and according to a familiar result in economics, price discrimination increases social welfare, provided that it enables producers to increase output (Varian 1985). But some instances of price discrimination have come in for criticism. Online retailers collect and purchase enormous amounts of information about consumers, and there is evidence that they are using this to personalize prices, or tailor prices to what they think are consumers’ reservation prices, i.e., the highest amounts they are willing to pay. Some believe that this practice is unfair (Steinberg 2020), though they problem may simply be that consumers don’t know what retailers are up to.

Another issue of pricing ethics is price gouging. Price gouging can be understood as a sharp increase in the price of a necessary good in the wake of an emergency which renders that good scarce (Hughes 2020; Zwolinski 2008). As the novel coronavirus spread around the world in early 2020, retailers began to charge extremely high prices for cleaning products and medical supplies. Many jurisdictions have laws against price gouging, and it is widely regarded as unethical (Snyder 2009). The reason is that it is a paradigm case of exploitation: A extracts an excessive benefit out of B in circumstances in which B cannot reasonably refuse A ’s offer (Valdman 2009). But some theorists defend price gouging. While granting that sales of items in circumstances like these are exploitative, they note that they are mutually beneficial. Both the seller and buyer prefer to engage in the transaction rather than not engage in it. Moreover, when items are sold at inflated prices, this both limits hoarding and attracts more sellers into the market. Permitting price gouging may thus be the fastest way of eliminating it (Zwolinski 2008). (For further discussion, see the entry on exploitation .)

Most contemporary scholars believe that sellers have wide, though not unlimited, discretion in how much they charge for goods and services. But there is an older tradition in business ethics, found in Aquinas and other medieval scholars, according to which there is one price that sellers should charge: the “just price”. There is debate about what exactly medieval scholars meant by “just price”. According to a historically common interpretation, the just price is determined by the seller’s cost of production, i.e., the price that compensates the seller for the value of her labor and expenses. More recent interpretations understand the medieval just price at something closer to the market price, which may be more or less than the cost of production (Koehn & Wilbratte 2012).

6. Firms and workers

Business ethicists have written much about the relationship between employers and employees. Below we consider four issues at the employer/employee interface: (1) hiring and firing, (2) pay, (3) meaningful work, and (4) whistleblowing. Another important topic at this interface is privacy. For space reasons it will not be discussed, but see the entries on privacy and privacy and information technology .

Ethical issues in hiring and firing tend to focus on the question: What criteria should employers use, or not use, in employment decisions? The question of what criteria employers should not use is addressed in discussions of discrimination.

While there is some debate about whether discrimination in employment should be legally prohibited (see Epstein 1992), almost everyone agrees that it is morally wrong (Hellman 2008; Lippert-Rasmussen 2014). Discussion has focused on two questions. First, when does the use of a certain criterion in an employment decision count as discriminatory? It would seem wrong if Walmart were to exclude white applicants for a job in their marketing department, but not wrong if the Hovey Players (a theater troupe) were to exclude white applicants for the role of Walter Younger in A Raisin in the Sun . We might say that whether a hiring practice is discriminatory depends on whether the criterion used is job-relevant. But the concept of job-relevance is contested, as the case of “reaction qualifications” reveals. Suppose that white diners prefer to be served by white waiters rather than black waiters. In this case race seems job-relevant, but it seems wrong for employers to take race into account (Mason 2017). Another question that has received considerable attention is: What makes discrimination wrong? Some argue that discrimination is wrong because of its effects on those who are discriminated against (Lippert-Rasmussen 2014); others think that it is wrong because of what it expresses to them (Hellman 2008). (For extensive discussion, see the entry on discrimination .)

Some writers believe that employers’ obligations are not satisfied simply by avoiding using certain criteria in hiring decisions. According to them, employers have a duty to hire the most qualified applicant. Some justify this duty by appealing to considerations of desert (D. Miller 1999; Mulligan 2018); others justify it by appealing to equal opportunity (Mason 2006). We might object to this view by appealing to property rights. A job offer typically implies a promise to pay the job-taker a sum of your money for performing certain tasks. While we might think that excluding some ways you can dispose of your property (e.g., rules against discrimination in hiring) can be justified, we might think that excluding all ways but one (viz., a requirement to hire the most qualified applicant) is unjustified. In support of this, we might think that a small business owner does nothing wrong when she hires her daughter for a part-time job as opposed to a more qualified stranger.

The question of when employees may be fired is a staple of business ethics texts and was the subject of considerable debate in the business ethics literature in the 1980’s and 1990’s. There are two main views: those who think that employment should be “at will”, so that an employer can terminate an employee for any reason (Epstein 1984; Maitland 1989), and those who think that employers should be able to terminate employees only for “just cause” (e.g., poor performance or excessive absenteeism) (McCall & Werhane 2010). In fact, few writers hold the “pure” version of the “at will” view. Most would say, and the law agrees, that it is wrong for an employer to terminate an employee for certain reasons, e.g., a discovery that he is Muslim or his refusal to commit a crime for the employer. Thus the debate is between those who think that employers should be able to terminate employees for any reason with some exceptions , and those who think that employers should be able to terminate employees only for certain reasons. In the U.S., most employees are at will, while in Europe, most employees are covered, after a probationary period, by something analogous to just cause. Arguments for just cause appeal to the effects that termination has on individual employees, especially those who have worked for an employer for many years (McCall & Werhane 2010). Arguments for at will employment appeal to freedom or macroeconomic effects. It is claimed, in the former case, that just cause is an unwarranted restriction on employers’ and employees’ freedom of contract (Epstein 1984), and in the latter case, that it raises the unemployment rate (Maitland 1989). The more difficult it is for an employer to fire an employee, the more reluctant she will be to hire one in the first place.

Businesses generate revenue, and some of this revenue is distributed to employees in the form of compensation, or pay. Since the demand for pay typically exceeds the supply, the question of how pay should be distributed is naturally analyzed as a problem of justice.

Two theories of justice in pay have attracted attention. One may be called the “agreement view”. According to it, a just wage is whatever wage the employer and the employee agree to without force or fraud (Boatright 2010). This view is sometimes justified in terms of property rights. Employees own their labor, and employers own their capital, and they are free, within broad limits, to dispose of it as they please. In addition, we might think that wages should be should determined by voluntary agreement for the same reason prices generally should be, viz., it allocates resources to their most productive uses, as determined by people’s wants (Heath 2018; Hayek 1945). A “wage”, after all, is just a special name for the price of labor.

A second view of wages may be called the “contribution view”. According to it, the just wage for a worker is the wage that reflects her contribution to the firm. This view comes in two versions. On the absolute version, workers should receive an amount of pay that equals the value of their contributions to the firm (D. Miller 1999). On the comparative version, workers should receive an amount of pay that reflects the relative value of their contributions to the firm, given what others in the firm contribute and are paid (Sternberg 2000). The contribution view strikes some as normatively basic, a view for which no further argument can be given (D. Miller 1999). An analogy may be drawn with punishment. Just as it seems intuitively right for the severity of a criminal’s punishment to reflect the seriousness of her crime, so it may seem intuitively right for the value of a persons’s pay to reflect the value of her work (Moriarty 2016). In this way, pay might be understood as a reward for work.

Some argue that compensation should be evaluated not only as a problem of justice but as an incentive. The question here is what pay encourages employees to do, and how it encourages them to do it. Poorly structured compensation packages for traders in the financial services industry are thought to have contributed to the financial crisis of 2007-2009 (Kolb 2012). Traders were incentivized to take excessively risky bets, and when those bets went bad, their firms could not cover the losses, putting the firms and ultimately the whole financial system in peril. Bad incentives may also help to explain the recent account fraud scandal at Wells Fargo.

The pay of any employee can be evaluated from a moral point of view. But business ethicists have paid particular attention to the pay of certain employees, viz., CEOs and workers in factories in developing countries, often called “sweatshops.”

There has been significant debate about whether CEOs are paid too much (Boatright, 2010; Moriarty 2005), with scholars falling into two camps. Those in the “managerial power” camp believe that CEOs wield power over boards of directors, and use this power to extract above-market rents from their firms (Bebchuk & Fried 2004). Those in the “efficient contracting” camp believe that pay negotiations between CEOs and boards are usually carried out at arm’s-length, and that CEOs’ large compensation packages reflect their rare and valuable skills. (For a recent survey of relevant empirical issues, see Edmans, Gabaix, & Jenter 2017).

There has also been a robust debate about whether workers in sweatshops are paid too little. Some say ‘no’ (Powell & Zwolinski 2012; Zwolinski 2007). They say that sweatshops wages, while low by standards in developed countries, are not low by the standards of the countries in which the sweatshops are located. This explains why people choose to work in a sweatshop; it is the best offer they have. Efforts to increase artificially the wages of sweatshop workers, according to these writers, is misguided on two counts. First, it is an interference with the autonomous choices of employers and workers. Second, it is likely to make workers worse off, since employers will respond by either moving operations to a new location or employing fewer workers in that location (cf. Kates 2015). These writers sometimes appeal to a principle of “nonworseness,” according to which a consensual, mutually beneficial interaction (of the sort sweatshop owners and workers engage in) cannot be worse than its absence. Other writers challenge these claims. While granting that workers choose to work in sweatshops, they deny that their choices are truly voluntary (Arnold & Bowie 2003; Kates 2015). Given their low wages, this suggests that sweatshop workers are wrongfully exploited (Faraci 2019). Moreover, some argue, firms can and should do more for sweatshop workers, on grounds on fairness or beneficence (Snyder 2010). These writers invoke a principle of “interaction,” according to which people involved in a certain relationship (of the sort sweatshop owners and workers are engaged in) must live up to certain standards of conduct (which exploitation is alleged to fall below). In response to the claim that firms put themselves at a competitive disadvantage if they do, writers have pointed to actual cases where firms have been able to secure better treatment for sweatshop workers without suffering serious financial penalties (Hartman, Arnold, & Wokutch 2003). (For further discussion, see the entry on exploitation .)

Smith (1776 [1976]) famously observed that a detailed division of labor greatly increases the productivity of manufacturing processes. To use his example: if one worker performs all of the tasks required to make a pin himself—18, we are told—he can make just a few pins per day. However, if the worker specializes in one or two of these tasks, and combines his efforts with other workers who specialize in one or two of the other tasks, then together they can make thousands of pins per day. But according to Smith, there is human cost to the detailed division of labor. Performing one or two simple tasks all day makes a worker “as stupid and ignorant as it is possible for a human creature to become” (Smith 1776 [1976]: V.1.178).

To avoid this result, some call for work to be made more “meaningful”. In this sense, a call for meaningful work is not a call for work to be more “important”, i.e., to contribute to the production of a good or service that is objectively valuable, or that workers believe is valuable (cf. Michaelson 2021; Veltman 2016). Instead, it is a call for labor processes to be arranged so that work is interesting, requires skill, and gives workers substantial decision-making power (Arneson 1987; Roessler 2012; Schwartz 1982).

Smith’s insight that labor processes are more efficient when they are divided into meaningless segments leads some writers to believe that, in a competitive economy, firms will not provide as much meaningful work as workers want (Werhane 1985). In response, it has been argued that there is a market for labor, and if workers want meaningful work, then employers have an incentive to provide it (Maitland 1989; Nozick 1974). According to this argument, insofar as we see “too little” meaningful work on offer, this is because workers prefer not to have it—or more precisely, because workers are willing to trade meaningfulness for other benefits, such as higher wages.

The above argument treats meaningful work as a matter of preference, as a job amenity that employers can decline to offer or that workers can trade away (cf. Yeoman 2014). Others resist this understanding. According to Schwartz (1982), employers are required to offer employees meaningful work, and employees are required to perform it, out of respect for autonomy (see also Bowie 2017). The idea is that the autonomous person makes choices for herself; she does not mindlessly follow others’ directions. A difficulty for this argument is that respect for autonomy does not seem to require that we make all choices for ourselves. A person might, it seems, autonomously choose to allow important decisions to be made for her in certain spheres of her life, e.g., by a coach, a family member, a medical professional, or a military commander.

A potential problem for this response brings us back to Smith, and to “formative” arguments for meaningful work. The problem, according to some writers, is that if most of a person’s day is given over to meaningless tasks, then her capacity for autonomous choice, and perhaps her other intellectual faculties, may deteriorate. A call for meaningful work may be understood as a call for workplaces to be arranged so that this deterioration does not occur (Arneson 2009; Arnold 2012; Yeoman 2014). In addition to Smith, Marx (1844 [2000]) was concerned about the effects of work on human flourishing.

Formative arguments face at least two difficulties, one empirical and one normative. The empirical difficulty is establishing the connection between meaningless work and autonomous choice (or another intellectual faculty). More evidence is needed. The normative difficulty is that formative arguments make certain assumptions about the nature of the good and the state’s role in promoting it. They assume that it is better for people to have fully developed faculties of autonomous choice (etc.) and that the state should help to develop them. These assumptions might be challenged, e.g., by liberal neutralists (Roessler 2012; Veltman 2016). Yeoman (2014) seeks to surmount this challenge—and make meaningful work safe for liberal political theory—by conceptualizing meaningful work as a fundamental human need, not a mere preference.

Suppose you discover, as Tyler Shultz did at Theranos in 2015, that your firm is deceiving regulators and investors about the efficacy of its products. To stop this, one thing you might do is “blow the whistle” by disclosing this information to a third party. While scholars give different definitions of whistleblowing (see, e.g., Brenkert 2010; Davis 2003; DeGeorge 2009; Delmas 2015), the following elements are usually present: (1) insider status, (2) non-public information, (3) illegal or immoral activity, (4) avoidance of the usual chain of command in the firm, (5) intention to solve the problem. In the above example, Shultz was a whistleblower because he was (1) a Theranos employee (2) who disclosed non-public information (3) about illegal activity in the firm (4) to a state regulator (5) in an effort to stop that activity.

Debate about whistleblowing tends to focus on the question of when whistleblowing is justified—in the sense of when it is permissible, or when it is required. This debate assumes that whistleblowing requires justification, or is wrong, other things equal. Many business ethicists make this assumption on the grounds that employees have a pro tanto duty of loyalty to their firms (Elegido 2013). Against this, some argue that the relationship between the firm and the employee is purely transactional—an exchange of money for labor (Duska 2000)—and so is not normatively robust enough to ground a duty of loyalty. (For a discussion of this issue, see the entry on loyalty .)

One prominent justification of whistleblowing is due to DeGeorge (2009). According to him, it is permissible for an employee to blow the whistle when his doing so will prevent harm to society. (In a similar account, Brenkert [2010] says that the duty to blow the whistle derives from a duty to prevent wrongdoing.) The duty to prevent harm can have more weight, if the harm is great enough, than the duty of loyalty. To determine whether whistleblowing is not simply permissible but required, DeGeorge says, we must take into account the likely success of the whistleblowing and its effects on the whistleblower himself. Humans are tribal creatures, and whistleblowers are often treated badly by their colleagues. (Shultz and his family were hounded by Theranos’s powerful and well-connected lawyers, at a cost to them of hundreds of thousands of dollars.) So if whistleblowing is unlikely to succeed, then it need not be attempted. The lack of a moral requirement to blow the whistle in these cases can be seen as a specific instance of the rule that individuals need not make huge personal sacrifices to promote others’ interests, even when those interests are important.

Another account of whistleblowing is given by Davis (2003). Like Brenkert (and unlike DeGeorge), Davis focuses on the wrongdoing that the firm engages in (not the harm it causes). According to Davis, however, the point of whistleblowing is not so much to prevent the wrongdoing but to avoid one’s own complicity in it. He says that an employee is required to blow the whistle on her firm when she believes that it is engaged in seriously wrongful behavior, and her work for the firm “will contribute … to the wrong if … [she] [does] not publicly reveal what [she knows]” (2003: 550). Davis’s account limits whistleblowers to people who are currently firm insiders. Many find this counterintuitive, since it implies that people often described as whistleblowers, like Jeffrey Wigand (Brown & Williamson) and Edward Snowden (NSA), are not actually whistleblowers.

7. The firm in society

Business activity and business entities have an enormous impact on society. One way that businesses impact society, of course, is by producing goods and services and by providing jobs. But businesses can also impact society by trying to solve social problems and by using their resources to influence governments’ laws and regulations.

“Corporate social responsibility”, or CSR, is typically understood as actions by businesses that are (i) not legally required, and (ii) intended to benefit parties other than the corporation (where benefits to the corporation are understood in terms of return on equity, return on assets, or some other measure of financial performance). The parties who benefit may be more or less closely associated with the firm itself; they may be the firm’s own employees or people in distant lands.

A famous example of CSR involves the pharmaceutical company Merck. In the late 1970s, Merck was developing a drug to treat parasites in livestock, and it was discovered that a version of the drug might be used treat Onchocerciasis, or river blindness, a disease that causes debilitating itching, pain, and eventually blindness in people. The problem was that the drug would cost hundreds of millions of dollars to develop, and would generate little or no revenue for Merck, since the people usually afflicted with river blindness were too poor to afford it. Ultimately Merck decided to develop the drug. As expected, it was effective in treating river blindness, but Merck made no money from it. As of this writing in 2021, Merck, now in concert with several nongovernmental organizations, continues to manufacture and distribute the drug throughout the developing world for free.

The scholarly literature on CSR is dominated by social scientists. Their question is typically whether, when, and how socially responsible actions benefit firms financially. The conventional wisdom is that there is a slight positive correlation between corporate social performance and corporate financial performance, but it is unclear which way the causality goes (Vogel 2005; Zhao & Murrell 2021). That is, it is not clear whether prosocial behavior by firms causes them to be rewarded financially (e.g., by consumers who value their behavior), or whether financial success allows firms to engage in more prosocial behaviors (e.g., by freeing up resources that would otherwise be spent on core business functions).

Many writers connect the debate about CSR with the debate about the ends of corporate governance. Thus Friedman (1970) objects to CSR, saying that managers should be maximizing shareholder wealth instead. (Friedman also thinks that CSR is a usurpation of the democratic process and often wasteful, since managers aren’t experts in solving social problems.) Stakeholder theory (Freeman et al. 2010) is thought to be more accommodating of prosocial activity by firms, since it permits firms to do things other than increase shareholder wealth.

We do not need, however, to see the debate about CSR a debate about the proper ends of corporate governance. We can see it as a debate about the nature and scope of firms’ moral duties, i.e., what obligations (e.g., of rescue or beneficence) they must discharge, whatever their goals are (Hsieh 2004; Mejia 2020).

Many writers give broadly consequentialist reasons for CSR. The arguments tend to go as follows: (1) there are serious problems in the world, such as poverty, conflict, environmental degradation, and so on; (2) any agent with the resources and knowledge necessary to ameliorate these problems has a moral responsibility to do so, assuming the costs they incur on themselves are not excessively high; (3) firms have the resources and knowledge necessary to ameliorate these problems without incurring excessively high costs; therefore, (4) firms should ameliorate these problems (Dunfee 2006a).

The view that someone should do something about the world’s problems seems true to many people. Not only is there an opportunity to increase social welfare by alleviating suffering, suffering people may also have a right to assistance. The controversial issue is who should do something to help, and how much they should do. Thus defenders of the above argument focus most of their attention on establishing that firms have these duties, against those who say that these duties are properly assigned to states or individuals. O. O’Neill (2001) and Wettstein (2009) argue that firms are “agents of justice”, much like states and individuals, and have duties to aid the needy (see also Young 2011). Strudler (2017) legitimates altruistic behavior by firms by undermining the claim that shareholders own them, and so are owed their surplus wealth. Hsieh (2004) says that, even if we concede that firms do not have social obligations, individuals have them, and the best way for many individuals to discharge them is through the activities of firms (see also McMahon 2013; Mejia 2020).

Debates about CSR are not just debates about whether specific social ills should be addressed by specific corporations. They are also debates about what sort of society we want to live in. While acknowledging that firms benefit society through CSR, Brenkert (1992) thinks it is a mistake for people to encourage firms to engage in CSR as a practice. When we do so, he says, we cede a portion of the public sphere to private actors. Instead of deciding together how we want to ameliorate social ills affecting our fellow community members, we leave it up to private organizations to decide what to do. Instead of sharpening our skills of democracy through deliberation and collective decision-making, and reaffirming social bonds through mutual aid, we allow our skills and bonds to atrophy through disuse.

Many businesses are active participants in the political arena. They support candidates for election, defend positions in public debate, lobby government officials, and more. What should be said about these activities?

Social scientists have produced a substantial literature on corporate political activity (CPA) (for a review, see Lawton, McGuire, & Rajwani 2013). This research focuses on such questions as: What forms does CPA take? What are the antecedents of CPA? What are its consequences? CPA raises many normative questions as well.

We might begin by asking why corporations should be allowed to engage in political activity at all. In a democratic society, freedom of expression is both a right and a value (Stark 2010). People have a right to participate in the political process by supporting candidates for public office, defending positions in public debate, and so on. It is generally a good thing when they exercise this right, since they can introduce new facts and arguments into public discourse. People can engage in political activity individually, but in a large society, they may find it useful to do so in groups. The firm might be seen as one of these groups. Indeed, we might think it is especially important that firms engage in (at least some forms of) political activity. Society has an interest in knowing how proposed economic policies will affect firms; firms themselves are a good source of information.

But political activity by corporations has come in for criticism. One concern focuses on what corporations’ goals are. Some worry that firms engage in CPA in order to advance their own interests at the expense of their competitors’ or the public’s. This activity is sometimes described, and condemned, as “rent-seeking” (Jaworski 2014; Tullock 1989). Questions have been raised about the nature and value of rent-seeking. According to a common definition, rent-seeking is socially wasteful economic activity intended to secure benefits from the state rather than the market. But there is disagreement about what counts as waste. Lobbying for subsidies, or tariffs on foreign competitors, are classic cases of rent-seeking. But subsidies for (e.g.) corn might help to secure a nation’s food supply, and tariffs on (e.g.) foreign steel manufacturers might help a nation to protect itself in a time of war (Boatright 2009; Hindmoor 1999). One person’s private rent-seeking is another’s public benefit.

A second concern about CPA is that it can undermine the ideal of equality at the heart of democracy (Christiano 2010). Some corporations have a lot of money, and this can be translated into a lot of power. In 2010, the state of Indiana passed a law—the Religious Freedom Restoration Act (RFRA)—that appeared to give employers the freedom to discriminate against LGBTQ people on religious grounds. In response, Salesforce and Angie’s List cancelled plans to expand in the state, and threatened to leave it altogether. Indiana quickly convened a special session of its legislature and announced that the new law did not in fact give employers this freedom. By contrast, if the average Indianan told the legislature that they might leave the state because of the RFRA, the legislature would not have cared. This objection to CPA is also an objection to political activity by powerful groups like the National Rifle Association (NRA) or the American Civil Liberties Union (ACLU) and individuals like Charles Koch or Tom Steyer.

A third objection to CPA is more narrowly targeted. According to it, corporations are not the right type of entities to engage in political activity (Hussain & Moriarty 2018). The key issue is representation. Organizations like the NRA and ACLU are legitimate participants in the political arena because they represent their members in political debate, and people join or leave them based on political considerations. By contrast, business organizations have no recognized role to play in the political system, and people join or leave them for economic reasons, not political ones. On this criticism, corporate political activity should be conceptualized not as a collective effort by all of the corporation’s members to speak their minds about a shared concern, but as an effort by a small group of powerful owners or executives to use the corporation’s resources to advance their own personal ends.

Traditionally CPA goes “through” the formal political process, e.g., contributing to political campaigns or lobbying government officials. But increasingly firms are engaging in what appears to be political activity that goes “around” or “outside” of this process, especially in circumstances in which the state is weak, corrupt, or incompetent. They do this through the provision of public goods and infrastructure (Ruggie 2004) and the creation of systems of private regulation or “soft law” (Vogel 2010). For example, when the Rana Plaza collapsed in Bangladesh in 2013, killing more than 1100 garment industry workers, new building codes and systems of enforcement were put into place. But they were put into place by the multinational corporations that are supplied by factories in Bangladesh, not by the government of Bangladesh. This kind of activity is sometimes called “political CSR,” since it is a kind of CSR that produces a political outcome (Scherer & Palazzo 2011). We might call it CPA “on steroids”. Instead of influencing political outcomes, corporations bring them about almost single-handedly. This is a threat to democratic self-rule. Some writers have explored whether it can be ameliorated through multi-stakeholder initiatives (MSIs), or governance systems that bring together firms, non-governmental organizations, and members of local communities to deliberate and decide on policy matters. Prominent examples include the Forest Stewardship Council (FSC), the Roundtable on Sustainable Palm Oil (RSPO), and the Extractive Industries Transparency Initiative (EITI) (Scherer & Palazzo 2011). Critics have charged that MSIs, while effective in producing dialog among stakeholders, are ineffective at holding firms to account (Hussain & Moriarty 2018; Moog, Spicer, & Böhm 2015).

There is another kind of corporate political activity. This is political activity whose target is corporations, known as “ethical consumerism” (for a review see Schwartz 2017). Consumers typically make choices based on quality and price. Ethical consumers (also) appeal to moral considerations. They may purchase, or choose not to purchase, goods from retailers who make their products in certain countries or who support certain political causes. These can be described as political activities because consumers are using their economic power to achieve political ends. It is difficult for consumer actions against, or in support of, firms to succeed, since they require coordinating the actions of many individuals. But consuming ethically may be important for personal integrity. You might say that you cannot in good conscience shop at a retailer who is working, in another arena, against your deeply-held values. One concern about ethical consumerism is that it may be a form of vigilantism (Hussain 2012; cf. Barry & MacDonald 2018), or mob justice. Another is that it is yet another way that people can self-segregate by moral and political orientation as opposed to finding common ground.

Many businesses operate across national boundaries. These are typically called “multinational” or “transnational” firms (MNCs or TNCs). Operating internationally heightens the salience of a number of the ethical issues discussed above, such as CSR, but it also raises new issues, such as relativism and divestment. Two issues often discussed in connection with international business are not treated in this section. One is wages and working conditions in sweatshops. This literature is briefly discussed in section 6.2 . The second issue is corruption, which is not discussed in this entry, for space reasons. But see the entry on corruption .

A number of business ethicists have developed ethical codes for MNCs, including DeGeorge (1993) and Donaldson (1989). International agencies have also created codes of ethics for business. Perhaps the most famous of these is the United Nations Global Compact, membership in which requires organizations to adhere to a variety of rules in the areas of human rights, labor, environment, and anti-corruption. In his important work for that body, Ruggie (2004, 2013) developed a “protect, respect, and remedy” framework for MNCs and human rights, which assigns the state the primary duty to protect human rights and remedy abuses of them, and firms the duty to respect human rights (cf. Wettstein 2009). A striking fact about much of this research is that, while it is focused on international business, and sometimes promulgated by international agencies, the conclusions reached do not apply specifically to firms doing business across national boundaries. The duty to, e.g., respect human rights applies to firms doing business within national boundaries too. It is simply that the international context is the one in which this duty seems most important to discharge, and in which firms are some of the few agents who can do so.

There are issues, however, that arise specifically for firms doing business internationally. Every introductory ethics student learns that different cultures have different moral codes. This is typically an invitation to think about whether or not morality is relative to culture. For the businessperson, it presents a more immediate challenge: How should cultural differences in moral codes be managed? In particular, when operating in a “host” country, should the businessperson adopt host country standards, or should she apply her “home” country standards?

Donaldson is a leading voice on this question, in work done independently (1989, 1996) and with Dunfee (1999). Donaldson and Dunfee argue that there are certain “moral minima” that must be met in all contexts. These are given to us by “hypernorms”, or universal moral values and rules, which are themselves justified by a “convergence of religious, philosophical, and cultural” belief systems (1999: 57). Within the boundaries set by hypernorms, Donaldson and Dunfee say, firms have “free space” to select moral standards. They do not have the liberty to select any standards they want; rather, their choices must be guided by the host country’s traditions and its current level of economic development. Donaldson and Dunfee call their approach “integrative social contracts theory” (ISCT), since they seek to merge norms derived from hypothetical contracts with norms that people have actually agreed to in particular societies.

ISCT has attracted a great deal of attention and many critics. Much of this criticism has focused on hypernorms, the criteria for which are alleged to be ad hoc (Scherer 2015), ambiguous (Brenkert 2009), and incomplete (Mayer & Cava 1995). Dunfee (2006b) collects and analyzes a decade worth of critical commentary on ISCT. For a more recent elaboration and defense of the approach, see Scholz, de los Reyes, and Smith (2019).

A complication for the debate about whether to apply home country standards in host countries is that multinational corporations engage in business across national boundaries in different ways. Some MNCs directly employ workers in multiple countries, while others contract with suppliers. Nike, for example, does not directly employ workers to make shoes. Rather, Nike designs shoes, and hires firms in other countries to make them. Our views about whether an MNC should apply home country standards in a host country may depend on whether the MNC is applying them to its own workers or to those of other firms.

The same goes for responsibility. MNCs, especially in consumer-facing industries, are often held responsible for poor working conditions in their suppliers’ factories. Nike was subject to sharp criticism for the labor practices of its suppliers in the 1990s (Hartman et al. 2003). Initially Nike pushed back, saying that those weren’t their factories, and so wasn’t their problem. Under mounting pressure, it changed course and promulgated a set of labor standards that it required all of its suppliers to meet, and now spends significant resources ensuring that they meet them (Hsieh, Toffel, & Hull 2019; Wokutch 2001). This is increasingly the approach Western multinationals take. Here again the response to the Rana Plaza tragedy is illustrative. What lengths companies should go to ensure the safety of workers in their supply chains is a question meriting further study (see Young 2011).

A businessperson may find that a host country’s standards are not just different than her home country’s standards, but morally intolerable. She may decide that the right course of action is not to do business in the country at all, and if she is invested in the country, to divest from it. The issue of divestment received substantial attention in the 1980s as MNCs were deciding whether or not to divest from South Africa under its Apartheid regime. It may attract renewed attention in the coming years as firms and other organizations contemplate divesting from the fossil fuel industry. Common reasons to divest from a morally problematic society or industry are to avoid complicity in immoral practices, and to put pressure on the society or industry to change its practices. Critics of divestment worry about the effects of divestment on innocent third parties (Donaldson 1989) and about the efficacy of divestment in forcing social change (Hudson 2005). Some believe that it is better for firms to stay engaged with the society or industry and try to bring about change from within—a policy of “constructive engagement”.

It is not hard to see why philosophers might be interested in business. Business activity raises a host of interesting philosophical issues: of agency, responsibility, truth, manipulation, exploitation, justice, beneficence, and more. After a surge of activity 40 years ago, however, philosophers seem to be gradually retreating from the field.

One explanation appeals to demand. Many of the philosophers who developed the field were hired into business schools, but after they retired, they were not replaced with other philosophers. Business schools have hired psychologists to understand why people engage in unethical behavior and strategists to explore whether ethics pays. These scholars fit better into the business school environment, which is dominated by social scientists. What social scientists do to advance our understanding of descriptive ethics is important, to be sure, but it is no substitute for normative reflection on what is ethical or unethical in business.

Another explanation for the retreat of philosophers from business ethics appeals to supply. There are hardly any philosophy Ph.D. programs that have faculty specializing in business ethics and, as a result, few new Ph.D.’s are produced in this area. Those who work in the area are typically “converts” from mainstream ethical theory and political philosophy. Some good news on this front is the recent increase in the number of normative theorists working on issues at the intersection of philosophy, politics, and economics (PPE). Many of the topics these scholars address—the value and limits of markets, the nature of the employment relationship, and the role of government in regulating commerce—are issues business ethicists care about. But PPE-style philosophers hardly cover the whole field of business ethics. There remain many urgent issues to address.

I hope this entry helps to inform philosophers and others about the richness and value of business ethics, and in doing so, generate greater interest in the field.

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How to cite this entry . Preview the PDF version of this entry at the Friends of the SEP Society . Look up topics and thinkers related to this entry at the Internet Philosophy Ontology Project (InPhO). Enhanced bibliography for this entry at PhilPapers , with links to its database.

• Marcoux, Alexei, “Business Ethics”, The Stanford Encyclopedia of Philosophy (Fall 2016 Edition), Edward N. Zalta (ed.), URL = < https://plato.stanford.edu/archives/fall2016/entries/ethics-business/ >. [This was the previous entry on business ethics in the Stanford Encyclopedia of Philosophy — see the version history .]
• A History of Business Ethics , by Richard T. De George (University of Kansas), an important early contributor to the field.
• Society for Business Ethics , the main professional society for business ethicists, especially of the normative variety.

agency: shared | corruption | discrimination | economics [normative] and economic justice | ethics: virtue | exploitation | feminist philosophy, topics: perspectives on class and work | information technology: and privacy | intentionality: collective | justice: distributive | justice: global | Kant, Immanuel: moral philosophy | loyalty | lying and deception: definition of | manipulation, ethics of | markets | moral relativism | perfectionism, in moral and political philosophy | privacy | property and ownership | Rawls, John | responsibility: collective | rights | rights: human

Acknowledgments

For helpful suggestions on this entry (and the previous version), I thank Dorothea Baur, George Brenkert, Jason Brennan, Matt Caulfield, David Dick, Anca Gheaus, Keith Hankins, Edwin Hartman, Laura Hartman, Lisa Herzog, David Jacobs, Woon Hyuk Jay Jang, Peter Jaworski, Xavier Landes, Chris MacDonald, Emilio Marti, Dominic Martin, Pierre-Yves Néron, Eric Orts, Katinka Quintelier, Sareh Pouryousefi, Amy Sepinwall, Kenneth Silver, Abraham Singer, Alejo José G. Sison, Cindy Stark, Chris Surprenant, Kevin Vallier, and Hasko von Kriegstein.

Copyright © 2021 by Jeffrey Moriarty < jmoriarty @ bentley . edu >

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To commemorate 40 years since the founding of the Journal of Business Ethics, the editors-in-chief of the journal have invited the editors to provide commentaries on the future of business ethics. This essay comprises a selection of commentaries aimed at creating dialog around the theme Bringing Excitement to Empirical Business Ethics Research (inspired by the title of the commentary by Babalola and van Gils). These editors, considering the diversity of empirical approaches in business ethics, envisage a future in which quantitative business ethics research is more bold and innovative, as well as reflexive about its techniques, and dialog between quantitative and qualitative research nourishes the enrichment of both. In their commentary, Babalola and van Gils argue that leadership research has stagnated with the use of too narrow a range of perspectives and methods and too many overlapping concepts. They propose that novel insights could be achieved by investigating the lived experience of leadership (through interviews, document analysis, archival data); by focusing on topics of concern to society; by employing different personal, philosophical, or cultural perspectives; and by turning the lens on the heroic leader (through “dark-side” and follower studies). Taking a provocative stance, Bal and Garcia-Lorenzo argue that we need radical voices in current times to enable a better understanding of the psychology underlying ethical transformations. Psychology can support business ethics by not shying away from grander ideas, going beyond the margins of “unethical behaviors harming the organization” and expanding the range of lenses used to studying behavior in context. In the arena of finance and business ethics, Guedhami, Liang, and Shailer emphasize novel data sets and innovative methods. Significantly, they stress that an understanding the intersection of finance and ethics is central to business ethics; financial equality and inclusion are persistent socio-economic and political concerns that are not always framed as ethics issues, yet relevant business policies and practices manifest ethical values. Finally, Charles Cho offers his opinion on the blurry line between the “ethical” versus “social” or “critical” aspects of accounting papers. The Journal of Business Ethics provides fertile ground for innovative, even radical, approaches to quantitative methods (see Zyphur and Pierides in J Bus Ethics 143(1):1–16, https://doi.org/10.1007/s10551-017-3549-8 , 2017), as part of a broad goal of ethically reflecting on empirical research.

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Bringing the Excitement Back into Research on (Un)Ethical Leadership

Mayowa T. Babalola and Suzanne van Gils

Introduction

We, the co-editors of the Leadership and Ethics: Quantitative Analysis section, would like to use this occasion to congratulate the Journal of Business Ethics on its 40th anniversary. Compared to the long history of topics in business ethics, systematic research on ethical leadership only began to gain traction in the early 2000s—with some exceptions (e.g., Treviño, 1992 ). Since then, this area of research has grown substantially, with most research building on Brown et al.’s ( 2005 ) definition of ethical leadership as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (p. 120). Related leadership concepts such as authentic leadership, servant leadership, and respectful leadership have also gone through similar development trajectories, establishing relationships to outcomes such as organizational citizenship behavior, performance, and counterproductive work behavior, mediating mechanisms such as social learning and exchange, and personality or situational-based antecedents (Hoch et al., 2018 ).

While extant research in this domain to date has yielded valuable insights, we argue that research on leadership ethics has reached a point of stagnation when it comes to novel insights and that it may be time to bring the excitement back into the research on ethical leadership. In this commentary, we discuss our ideas on how this could be established and highlight recently published articles in the Journal of Business Ethics that could serve as examples.

In this commentary, we highlight some critical issues stifling the advancement of research on (un)ethical leadership. First, we discuss the need for critical disentangling or integrating of ethical leadership styles. Second, we suggest adopting innovative methodological approaches to assess constructs in the (un)ethical leadership domain. Third, we discuss ideas for extending the current understanding of (un)ethical leadership by exploring outcomes relevant to business and society and new trends in digital leadership and ethics. Finally, we emphasize the need to acknowledge different perspectives in the study of leadership ethics—on the one hand, by integrating the role of culture, follower influence, and the potential dark sides of ethical leadership, and, on the other, by reversing the lens and focusing more on follower influence. To conclude, we offer some tips and recommendations to authors aiming to advance the field of ethical leadership. In sum, this commentary offers guidance to authors on the kind of papers that will bring back the excitement into (un)ethical leadership research and provide significant learning opportunities for practitioners.

Critical Disentangling or Integrating of Ethical Leadership Styles

The field of ethical leadership is currently facing heavy critique for conceptual conflation and high intercorrelations between the different leadership styles (see Banks et al., 2021 ). Meta-analyses and reviews, on the one hand, advocate for a better definition and disentangling of the ethical leadership styles (Banks et al., 2021 ), and, on the other, show little incremental value of one style over the other (Hoch et al., 2018 ). Meta-analyses that provide critical suggestions on how the different leadership styles are similar or distinct (Banks et al., 2021 ; Hoch et al., 2018 ) are crucial for the advancement of the field. In this regard, we also repeat the call by Palanski et al. ( 2021 ) for studies that go beyond the usual conceptual suspects and perhaps even combine different leadership behaviors. Research on abusive supervision, defined as leaders’ hostile verbal and nonverbal behaviors, excluding physical contact (Tepper, 2007 ), could be an example. While abusive supervision has at times being treated as the opposite to ethical leadership, the literature has mostly discussed it as an independent construct with unique antecedents, outcomes, and related processes. Recent studies in this domain have addressed an increasing variety of antecedents and psychological effects (e.g., Almeida et al., 2021 ). While such approaches have been suggested for the domain of ethical leadership (Den Hartog, 2015 ), only a few studies have investigated these topics.

Bringing the Excitement Back Through Innovation of Research Methods

The field has also been criticized for its predominant reliance on survey research methods (Banks et al., 2021 ). This is, in part, because survey research limits the understanding of actual organizational dynamics. In this respect, novelty and excitement in the domain of concept clarity may come from studies that focus on ‘what leaders actually do’—investigating leader behaviors by using interview techniques (Haar et al., 2019 ), archival or big data, and experimental intervention studies (Palanski et al., 2021 ).

Bringing the Excitement Back Through Societally Relevant Research Questions

Another possibility for developing new and exciting research on leadership ethics is to focus on outcomes relevant to issues central to business and society today. Large numbers of studies have focused on a limited set of outcomes that put organizational performance center stage (e.g., employee ethical behavior, organizational citizenship behavior, and counterproductive work behavior; Banks et al., 2021 ; Den Hartog, 2015 ). In contrast, many fewer studies have focused on the effects of leadership ethics on outcomes that benefit individuals or society as a whole, such as employee well-being or stress-related outcomes (Vullinghs et al., 2020 ). While there is a wide range of potentially interesting outcomes that leadership ethics may influence, we argue that research on leadership and ethics is more suitable to address current societal challenges and questions. For example, what is the role of ethical leadership in addressing climate change? Or what is the role of ethical leaders in communities facing war, terrorism, and other life-threatening events? More research is also needed to understand how ethical leadership can be applied in digital and remote settings, as experienced during the Covid-19 crisis (Carsten et al., 2021 ). In addition, as work is increasingly digitalized and involves interaction with human as well as non-human actors, ethical leadership in the current age may involve a range of new dilemmas spanning from management of digital teams to monitoring of artificial intelligence and social media interactions. By addressing these questions, researchers will further advance our theoretical knowledge of ethical leadership and offer more valuable recommendations that meaningfully impact business and society and inform public policy.

Bringing the Excitement Back Through Acknowledgment of Different Perspectives

In addition to methodological innovations and societally relevant outcomes, new and exciting insights into ethical and moral leadership may also be derived from acknowledging different personal, philosophical, or cultural perspectives. For instance, a much-discussed but less addressed perspective lies in the domain of cultural and philosophical diversity of ethical perspectives. Various reviews have pointed to the domination of Kantian and WEIRD (Western Educated Individualist Rich Democratic) perspectives in the field of moral leadership (e.g., Eisenbeiss, 2012 ). Although many studies are submitted to the Journal of Business Ethics that rely on non-Western populations (e.g., Wang et al., 2021 ), those studies rarely propose extensions of ethical (leadership) theory through the integration of local cultural values or philosophies. This is unfortunate, because in particular values related to moderation (vis-à-vis indulgence), respect for tradition or ascription-based status that are central to the Buddhist or Islamic religion, or virtue ethics in general, are currently underrepresented in the Western-oriented definitions of ethics. One example of extension of research on business ethics through integration of cultural values can be found in recent research by Haar et al. ( 2019 ). They utilized the context of the Māori culture to show the importance of values such as humility, altruism, and cultural authenticity for ethical leadership perceptions. These concepts are central to the philosophy of ethics, but have not necessarily been discussed in depth in the context of (un)ethical leadership before. Thus, we suggest that there may be valuable insights gained from extending the current operationalizations of ethical leadership constructs and rethinking existing research models through the integration of values and philosophies that may be more central populations that are marginalized (Alm & Guttormsen, 2021 ) and in settings that include different cultural perspectives (Palanski et al., 2021 ). Future studies that integrate local cultural values into their theoretical model may be particularly insightful in guarding the field’s epistemic diversity and in helping to challenge some of our implicit assumptions on (un)ethical leadership.

Bringing the Excitement Back by Reversing the Lens

We also echo previous calls to look at the other side of the coin of ethical leadership by either taking a follower perspective or acknowledging that there may be negative effects of positive leadership (Palanski et al., 2021 ). Research that focuses on the influence of followers on ethical leadership can contribute to this theorizing, for example, by discussing when followers deviate from a course of action outlined by ethical leaders (Uhl-Bien & Carsten, 2007 ), or by discussing exceptions to positive effects of ethical leadership for some followers (Wang et al., 2021 ). Regarding the negative effects of ethical leadership, Stouten et al. ( 2013 ) showed that too much ethical leadership demotivates follower citizenship behavior. More research is needed to enhance further our understanding of the unintended negative effects of ethical leadership, and this may also help to rethink the necessary conditions for leadership to qualify as “ethical.”

Finally, numerous research studies have studied unethical forms of leadership from an actor-centric perspective or with a focus on temporal or daily dynamics (Liao et al., 2021 ). Such research is limited in the domain of ethical leadership (see Lin et al., 2016 , for an exception). In their study, Lin et al. ( 2016 ) found that leaders’ displays of ethical behaviors were positively associated with abusive behaviors the following day via ego depletion and moral credits from their earlier ethical behavior. This finding points to the need for more research on the potential costs and benefits of ethical leader behavior for leaders themselves. Research adopting an actor-centric perspective will help further clarify whether and under what conditions ethical leader behavior is beneficial versus detrimental to leaders’ own well-being. We would also like to encourage researchers to devote more attention to uncovering the dynamics and antecedents of ethical leadership in organizations. If ethical leadership promotes beneficial outcomes (Brown et al., 2005 ), why is this leadership behavior not embraced as expected?

Conclusion: Five Tips

Concluding this commentary, we suggest that authors may promote new excitement in the domain of leadership ethics through the following five tips:

Aim to advance the field through critical disentangling or integrating of ethical leadership styles;

Use new methods (experiments, big data) to investigate what leaders actually do;

Focus on societally relevant questions and outcomes, addressing the ethical challenges that business leaders face today;

Extend theorizing on ethical leadership by integrating marginalized perspectives and promoting cultural and philosophical diversity; and

Reverse the lens by investigating whether and how followers’ actions can facilitate or enhance ethical leadership practices in organizations.

Future of Psychology and Business Ethics

Matthijs Bal and Lucia Garcia-Lorenzo

We desperately need radical voices in these current times to enable a better understanding of the psychology underlying ethical transformations. Previous calls in the Journal (Islam, 2020) have already outlined the multilevel approach required to develop an engaged and current approach to a Psychology of Business Ethics that considers individual psychological behavior within the social, historical, and organizational contexts where it occurs. However, most work on the psychology of business ethics still shares a primarily quantitative micro focus on a single ethical variable (as IV or DV), presents mediation/moderation models trying to predict unethical behaviors in organizations and assumes that unethical behaviors are only those behaviors harmful to organizational performance. While some of these are relevant and interesting, too often papers do not really engage with the deeper issues underpinning the psychology of business ethics. We reiterate calls for building the future of this section, and, more broadly, the field of psychology and business ethics, with papers that have a greater emphasis on understanding the psychology of individual and group behavior, attitude, feeling, cognition, and decision making within the context where it is performed (cf. Islam, 2020). Understanding the psychology of ethical behavior in societal contexts will also allow the field of psychology to disengage from its tainted past (e.g., racism: APA, 2021 ) to radically redefine itself going beyond serving corporate or hegemonic interests (e.g., Bal & Dóci, 2018 ). Psychology can support business ethics by not shying away from grander ideas, going beyond the margins of “unethical behaviors harming the organization” and by expanding the range of lenses used to studying behavior in context, including more constructivist, performative, and processual approaches. Methodologically this would require an expansion of ways of looking beyond simple quantitative models used for prediction of specific behaviors with specific predictors. Ethical behavior cannot be merely explained based on a micro psychology focused on reproducing the status quo.

Any meaningful psychological research needs to understand human beings as embedded within the broader context of organizations, society, and ideological manifestations. Despite recent calls in the Journal to expand and deepen our understanding of the link between business ethics and psychological processes; creativity, critical thought, or imagination are often rather absent in the field. As a result, the standard Journal articles focusing on unethical behavior hardly contribute anything significant to the understanding of the psychology of business ethics. Only a marginal part of the total set of submissions dare to focus on interesting topics (e.g., prejudice, harassment, or moral reasoning), or apply interesting methodological approaches that shed new lights and perspectives on trite topics in the field of business ethics and psychology (e.g., through using qualitative methods, discourse analysis, or conceptual methods). The scarcity of these submissions, however, raises significant questions about the state of the art concerning psychology and business ethics.

Our approach follows and complements Islam’s (2020) call for a multilevel approach to structure research on the psychology of business ethics. We build on his framework to focus on explaining how such a framework may be translated into submissions to the section on Psychology and Business Ethics. Building on the multilevel model moving from societal contexts to intrapsychic contexts to explain the psychology of business ethics, scholars in our field can make meaningful contributions to the literature. First and foremost, we want to emphasize that publishing in academic journals should not be the sole focus of an academic career, despite the pressures scholars face as universities demand their scientists publish in (top tier) scientific journals to be able to secure a career in academia. While we are aware of the pressures, we would like to support the structural change required to turn the tide on the increasingly uninteresting, incremental, risk-avoiding research that has come to fill contemporary work psychology, management, and business ethics journals. Publishing on the topic of Psychology and Business Ethics should be rediscovered again as an endeavor to provide a meaningful contribution to our understanding of the broad topic of psychology and business ethics. We discuss in the following piece the ways through which we, as a community of psychologists interested in business ethics, can write papers that are more meaningful, relevant, and interesting to read for other scholars.

The Future of Psychology and Business Ethics

Too much research within the psychology of business ethics has implicitly adhered to the instrumental logic underpinning human behavior in the workplace (Bal & Dóci, 2018 ). In this logic, humans are instrumental to organizational performance and profit, and behavior not aligned with organizational goals is perceived as unethical . This is a somewhat surprising underpinning of work on the psychology of business ethics, as the American Psychological Association (APA) ethical code (a psychologist’s ethical code gold standard) clearly defines the duty of psychologists to respect and protect the dignity of human beings (APA Code, 2017 , Principle E). It is far from evident that organizational interests are aligned with the principle of human dignity, and a more critical engagement with such issues is necessary in the current era of neoliberal capitalism (Shymko & Frémeaux, 2021 ). Accordingly, business ethics has been hijacked too often as a tool for the improvement of organizational performance, based on the (mis)understanding that “more” ethics means better performance (e.g., Goebel & Weißenberger, 2017 ). For obvious reasons, this is a rather contested notion, as ample evidence shows that organizational un ethical behavior may constitute the main basis for profit. For instance, the destruction of the planet by energy and fossil fuel companies creates a basis for enormous profit, and there are serious questions to be asked about the ethics of individual and collective behavior in such organizations. Merely assessing whether these behaviors are counterproductive to organizational goals constitutes an insufficient perspective on the psychology of business ethics because it ignores the context in which such behaviors emerge (see Islam, 2020). What could or should research do to make meaningful contribution to the psychology of business ethics? In what follows, we discuss issues relevant to the development of greater understanding of this field.

Psychology Inherently Integrated in Context

Research that truly aims to make a contribution to understanding of the psychology of business ethics needs to consider the individual with or in the context, and thus, ethical behaviors, attitudes, feelings, cognition, and decision making (Islam, 2020) can only be properly understood when the context in which they emerge, are maintained or rejected is also explored. Thus, research on the psychology of business ethics needs to move beyond its current focus on individual rationality and revisit the understanding that ethical behaviors and morality are based on the interdependence between the self and other(s) as an ontological (existential) point of departure. Individual and relational rationality are two different forms of thought which determine the kinds of questions we pose about humans and their capacities and have fundamental implications for questions about the nature of thinking and knowing, about individual and social action, as well as about ethics and morality. A relational and contextual approach to ethical behaviors affirms that humans act in order to promote what they consider as good, just and worthwhile, even if what some consider as good, just and worthwhile, others judge as misery, injustice, and worthlessness. Whatever the meaning of good, just and worthwhile, contextualized ethical behaviors based on the interaction between self and other(s) are about the fulfillment of “living” (Taylor, 2011 ). It was Ricoeur who emphasized the idea of ethics as “good life.” He argued for the priority of ethics, that is, of the self’s search for the “good life” with others and with or in institutions based on justice, over what is usually called normative morality. Normative morality, while indispensable in social life, must be subsumed under ethics (Ricoeur, 1990 /1992). Contextualized ethical behaviors based on a self–other(s) interdependence permeate all daily thinking, communicating, and acting in organizations, and they are, therefore, of major interest to a renewed psychology of business ethics.

From this perspective, unethical behavior cannot be simply equated with behavior harming organizational interests, while the ethicality of the organization itself and its practices towards, e.g., the dignity of people and the planet (Bal, 2017 ) need to be also considered. To do so, it is also needed to challenge and move beyond the comfortable practices of quantitative research and the moderated-mediation model. Psychological research and practice is often projected to be value free, neutral, and objective, but there is increasing awareness of the fallacy of such assumptions, as, for instance, indicated by the acknowledgment and apology by the APA of its contribution to the perpetuation of systemic racism (APA, 2021 ). Hence, under the banner of “objective research” using quantitative research methods, psychology has too often fulfilled an ideological role, thereby favoring hegemonic interests in institutions, organizations and society at the expense of vulnerable groups. In light of such unethical past, psychology needs to engage with contemporary workplace issues in a more radical way to remedy its unethical historical legacy. Hence, fundamental questions need to be asked about the ethics of psychology in business, and what psychology has to offer society beyond the perpetuation of the status quo, and cozying up to hegemonic ideologies (e.g., Bal & Doci, 2018 ).

The world is currently facing a number of grand challenges, including the impact of climate change, increasing inequalities, populism, and racism. These challenges also impact on work experiences, and the role of psychology in addressing these issues is still under-acknowledged. While ethics is about the “right thing to do,” this has various implications for the psychology of business ethics: researchers in this field may focus more on the constraints and facilitating factors that contribute to individual attitudes, decision making and behavior in the context of these grand challenges of society. It is well established that more individuals in workplaces want to contribute to a more sustainable world and more sustainable workplaces, and the psychology of how such individual motives can be translated into meaningful action towards more sustainable organizations and societies is currently under-researched. Research in the field of the psychology of business ethics may play a meaningful role in assessing how individual behavior may contribute to addressing the grand challenges of global society, as well as assessing how individuals make sense of these grand challenges, and how this impacts upon their lives. As business ethics is about what constitutes the right thing to do in the context of work, individual behavior is ultimately key to understanding this process. Hence, we would like to call for a revaluing of psychology as the understanding of how individuals behave in the context of business ethics and grand societal challenges, such as the Sustainable Development Goals.

Psychology is currently in a state of crisis, whereby its legitimacy and meaning are questioned by both scholars and practitioners (Highhouse et al., 2020 ). In response to the legitimacy crisis of psychology, and the scarcity of responses generated by psychologists to great challenges of today, including increasing inequalities, climate change and polarization in society, it may be not so much a question of psychology becoming too radical, but of psychology not being radical enough . We, therefore, call upon psychologists to not shy away from asking questions about the bigger context, the bigger picture, to pose more critical questions about the state of psychology and its possible contribution to the understanding of the great challenges of today’s world and workplaces, and to question the hegemonic practices that may hinder scientific progress in our field.

Practical Recommendations

The psychology of business ethics goes beyond the study of micro-behaviors of individuals in organizations, disconnected from its broader context. We would welcome papers that attempt to scrutinize the bigger picture, and try to understand how individual behavior is shaped by societal contexts, and how individuals may contribute to the necessary transformation of business and society towards a “good life,” a more sustainable society and economy, while protecting the dignity of people and planet. Such bigger questions might be squeezed into moderated-mediation models, but they could only offer a simplified version of reality that is inherently limited to the extent that variables are captured into a model, which by definition means a selection of some variables at the expense of potentially other important factors. Instead, psychology is in desperate need of more diversity in ontological and epistemological frameworks to guide our research. Research that moves beyond the all too familiar moderated-mediation model to address bigger questions of today’s world would be most welcome for the Journal. Processual and performative approaches that study how ethical processes emerge from a psychological perspective would shed more light on contemporary issues. This way, more understanding can be generated about how unethical behaviors emerge and become consolidated and taken for granted. Research could also investigate how unethical behavior is performed in daily life in actual workplaces. Observational research would be a useful method to achieve such aims, and would force psychologists to “move out of the lab into the real world,” to assess what is actually happening in contemporary workplaces, and what the ethical dimensions of contemporary workplaces are.

Thus, we call for a psychology of business ethics that supports and promotes engagement with real world problems and aims to have an impact on the type of change necessary for sustainable development and well-being.

Business Ethics Issues in Finance: Challenges and Recommendations

Omrane Guedhami, Hao Liang and Greg Shailer

Public interest in the ethical aspects of finance and related behaviors and activity is reflected in the growing number of submissions to the Finance and Business Ethics section at the Journal of Business and Ethics (JBE). Our objective in the following discussion is to provide a better understanding of the domain of Finance and Business Ethics by first describing some recurring issues with submissions to the Finance and Business Ethics section. We then provide some guidance as to where we see opportunities for meaningful contributions to the finance-ethics literature. This includes advocating for more diversity in empirical methods and the use of novel data, and identifying some areas we think are important but relatively under-researched.

In this commentary, we highlight the importance of combining innovative and rigorous analysis with fundamental economic questions when studying the intersection between business ethics and finance. We first outline some major issues associated with conducting research on ethical issues in finance, and then discuss possible directions in which finance and business ethics research might be further developed and integrated; this includes encouraging methodological diversity and identifying research areas we believe are important but under-researched.

Challenges in Conducting Research on Finance and Business Ethics

Relevance to scope.

To provide a substantial contribution to knowledge at the intersection of business ethics and finance, a study might offer new insights that advance our understanding of ethical issues in finance, or use knowledge or expertise from the finance field to contribute to a larger conversation about ethics. A major issue we encounter when reviewing manuscripts submitted to our section is that many do not offer sufficient contribution to our knowledge of business ethics. Many such studies lack a genuine ethics dimension—with any reference to ethics being largely gratuitous—and a sound theoretical framework and hypothesis development that is grounded in the business ethics literature.

As section editors, we observe two noteworthy types of submissions to the Finance and Business Ethics section that exhibit one or more of the above deficiencies. The first type typically relies on the finance literature and theories, while omitting a persuasive reference to the business ethics literature. For example, a substantial number of rejected submissions have adopted an agency perspective to examine the relations between ownership structure (e.g., family, government, employee, institutional) and corporate financial performance (e.g., profitability, valuation, cost of capital) or outcomes (e.g., payout policy, investment, risk, capital structure, CEO compensation, CEO turnover). Other examples include examining aspects of risk taking by financial and non-financial corporations, assuming that it is detrimental to stakeholders, and examining the determinants or implications of gender diversity for corporate outcomes. It is accepted that agency and ownership issues, risk-taking behaviors, and diversity issues can be meaningfully examined from an ethics perspective, but this does not mean such topics are inherently concerned with or contribute to knowledge in ethics, and it is incumbent on authors to persuasively establish the ethical dimensions or relevance of the study. Even when topics studied have some obvious broad connections with business ethics (e.g., earnings manipulation, fraud, tax avoidance, treatment of employees, greenwashing, pollution), the ethical analysis or ethics implications are usually not sufficiently developed, and the discussion of findings and their implications is largely focused on performance or risk consequences. In possibly gratuitous attempts at satisfying JBE’s scope requirement of business ethics relevance, some manuscripts sporadically include the term “ethics” (often concentrated in the introduction and conclusion), or tangentially refer to studies on related topics that were previously published in JBE. Footnote 1 This does not bring a manuscript within the scope of JBE’s editorial objectives.

The second noteworthy scope-related deficiency is observed in submissions that largely exclude meaningful and contextualized theory reviews or development, thus, failing to present a theoretical framework and hypotheses that are grounded in the business ethics literature; usually, they instead emphasize datasets and research design. For these submissions, we observe that the contributions largely focus on the finance literature or empirical methods, with no meaningful engagement with the business ethics issues. The motivation (introduction) section of some of these submissions does not develop any theoretical arguments, and the background literature relates primarily to finance. Examples of studies exhibiting these deficiencies include some that merely compare the performance of socially responsible or Islamic stocks and funds to conventional stocks and funds, or the performance of socially responsible investing during times of crisis. While some of these papers may rely on novel data or sophisticated portfolio construction approaches, the link to business ethics is not sufficiently established and the theoretical development lacks the ethical framing or rigor appropriate to this journal.

Originality and Contribution

The Finance and Business Ethics section aims to publish original work that has the potential to be influential or have high impact in the domain of business ethics, while intersecting in some way with finance. In our review of submitted manuscripts, we encounter many that do not offer a sufficient contribution that meets the threshold for JBE. Some are of high quality in terms of word craft and empirical execution and satisfy the business ethics relevance requirement, but essentially replicate prior studies, using updated or expanded samples or different countries. Replications can be useful and provide additional insights into previously studied ethical issues in finance, but they do not necessarily contribute sufficient new insights if the motivation is not convincing, the theoretical development is weak, or the results are intuitively obvious or merely confirm existing evidence. To make a contribution with a different sample, one needs to carefully consider and elaborate on how such a setting offers some particular institutional features that allow the study of important business ethics questions that prior studies were not able to address.

In our view, studies exhibiting high-quality execution and writing, but insufficient originality and contribution to the domain of finance and business ethics, include those that examine financial market participants’ assessments of CSR practices, and their implications for other corporate policies, corporate performance, or risk. In addition to the challenge of establishing whether such studies exhibit sufficient relevance to business ethics, the literature addressing these issues is large and relatively mature.

Rigor in Empirical Execution and Analysis

In evaluating the design and execution of any analysis, we emphasize its quality and rigor. Most submissions to the Finance and Business Ethics section involve empirical analysis, with a variety of qualitative and quantitative approaches. Here, we outline some of the more common empirical weaknesses that can be avoided. We also note that studies with substantial weaknesses in their empirical design (including the extent of their ethical focus) or execution are also more likely to exhibit other substantial problems.

Our suggestions here should be read as indicative and not as a checklist. First, many submitted papers that we encounter lack sufficient transparency with respect to sample selection and characteristics. A good paper will provide a sufficiently detailed description of the sample selection process. This might include explaining the desirability of novel sampling strategies or justifying why a sample period stops earlier than appears necessary. Second, and related to the preceding point, a paper should include appropriate descriptions of sampling distributions (e.g., by industry and year) to give readers important information they can use when assessing the study design and results. Third, while innovations or improvements in empirical design are encouraged, they must be rigorously developed and justified, rather than appearing ad hoc . Fourth, as we discuss below, reported analyses should seriously address endogeneity issues.

Many relations within and between firms’ characteristics, behaviors, performance, and environments are inherently endogenous. This is common across many analyses in the business and applied economics domain. Here, we emphasize how important it is that future studies address these issues in a rigorous manner. It is reasonable to provide a clear discussion of the sources of endogeneity threats (e.g., omitted variables, reverse causality, measurement errors) that are specific to the reported study, use suitable methods to address the identified concerns where feasible, and report the appropriate diagnostic tests associated with each approach (e.g., tests of the validity of instruments, tests of overidentifying restrictions). Endogeneity issues are particularly critical in research that examines the direct or moderating effects of firm characteristics (e.g., CSR actions or performance, corporate governance features) that are reasonably theorized (or known) to be endogenously determined with the dependent variable or with other explanatory variables; in the latter case, this may also give rise to multicollinearity concerns. These issues threaten the validity of the modeling, not merely the interpretation and generalizability of results. Finally, we suggest that subjecting the main evidence to substantive sensitivity checks should be a common practice to reduce the likelihood that findings attributed to ethical decisions or practices do not have other credible explanations.

Future Directions

We do not seek to present a detailed research agenda for the finance–business ethics domain but offer some thoughts regarding potentially fruitful areas that researchers might consider. We do this in two stages. First, we comment on the potential for exploiting new or novel data and innovations in analytical tools, with some general examples. We then describe some areas that we believe offer opportunities to shed new light on ethics in relation to finance.

Novel and Innovative Empirical Developments

Strategic attempts to develop publications based on novel datasets or innovations in analytical methods face some challenges. Novelty and innovation are not, by themselves, necessarily interesting or meaningful. The value of novelty and innovation in datasets or methods arises from the extent to which their use advances knowledge in a particular field: they might be better regarded as improved “tools,” and their use is not the contribution. If using a new dataset or an advance in econometrics merely provides confirmation of previously accepted findings, it will be difficult to establish sufficient contribution. If a novel dataset does not allow for generalizable results, the authors face the challenge of convincing reviewers and editors that the findings will be of sufficient interest to the journal’s readers. But despite these and other challenges, developments in data access and analytical methods offer significant opportunities for advancing knowledge. In identifying some of these developments below, it is not our intention to suggest specific research topics; we seek to give some general indications of means by which the literature might be advanced—but we encourage readers to consider how these might be exploited in developing some of the research areas suggested in the next part. How this might be implemented is, of course, a contextual challenge for the researcher to address.

Some innovations in empirical methods (e.g., network analysis, textual analysis) and novel datasets have emerged recently in finance and other areas of business research that are currently underexploited in advancing our knowledge of business ethics in relation to finance. Studies in business and finance are increasingly deploying datasets from other fields to identify or proxy for the effects of environmental factors, such as satellite data that can reveal urban and industrial density and development levels or pollution effects, environmental emissions data, climate data, traffic data, population health data, crime data, data from large multi-user platforms, and datasets from various forms of social media. These (often big) datasets offer potentially rich measures of factors that might motivate or influence responses to ethical issues, or might enable the identification of ethics issues from different perspectives. For example, one might infer the external acceptance of a corporation’s concern about a community’s welfare by analyzing customer feedback or the sentiment of social media messages related to the corporation.

The use of Big Data sources and methods has helped answer important questions in the finance domain that previously could not be answered using traditional archival data. For example, business and finance researchers are using machine-learning techniques to make finer or more nuanced predictions and to conduct more sophisticated textual analysis to construct more granular empirical measures or properties and discover the extent to which they can reveal otherwise difficult-to-observe behaviors, motives, or expectations and relations between them. For example, there are opportunities to follow recent studies of the language properties of earnings announcements and conference calls with analysts (such as the tone of managers’ statements or analysts’ queries, particular word usage, tenses, or other language traits) to gauge awareness of or responses to concerns about ethical issues, and perhaps then examine whether such awareness or responses are predictable or predictive of other behaviors or outcomes. Future work addressing these ethical issues in the context of finance are warranted. However, if using novel datasets and techniques involves proprietary data or sensitive information on individuals, researchers must be mindful of any limitations and potential ethical challenges this entails. Novel data sets might also introduce noise that impedes the reliable identification of effects concerning ethical decisions.

Various forms of network analysis have been used to examine peer effects on behaviors or choices in the business and corporate governance domains. These have been examined as potential consequences of diverse forms of networks, including (1) corporate networks arising from supply chain relationships, interlocking or common directorships, common shareholders, or common analyst coverage, and (2) networks as products of implied social or professional relationships between various types of decision makers. While network analysis is not new in the business domain, we think there is considerable scope to exploit this approach to investigate the extent and nature of peer effects in relation to ethics issues in the finance domain.

Some studies have used laboratory and field experiments to help with causal inference and explore the behavioral foundation of ethical decision making in finance, although historically these have faced substantial generalizability problems. A recent development here is “neural finance” studies that aim to identify the neural basis of decision making by measuring neuronal activities with the help of functional magnetic resonance imaging (fMRI) and other brain scanning techniques. This has the potential to predict outcomes from ethical decision making by observing neuronal activities that are associated with other well-documented decisions.

As a general caution at this stage, we note that research exploiting new or novel data to construct new measures must justify them conceptually and in terms of rigor. Researchers should also be aware of the potential social and ethical concerns associated with using data that involve detailed personal-level information. In the case of laboratory and field experiments, the research may even alter subjects’ pecuniary incentives and social behavior.

Areas for Future Research

The preceding discussion briefly considers the potential usefulness of recent developments in the availability of different forms of data and methods. In this final section, we take on the more ambitious task of identifying particular areas that we believe warrant more research attention because they may yield substantial advances in our understanding of ethics in relation to finance. Again, our commentary is brief and broad. It is only intended to encourage interest in areas we believe will help develop the finance and business ethics literature, and we do not mean to discourage work in areas we do not identify here.

The intersection of finance and ethics is a subset of business ethics, not a thing apart. The providers and users of financial products and services, and other participants in financial markets, share the contemporary responsibilities of all businesses to recognize and respond to the legitimate expectations and demands of stakeholders. Such expectations and demands include the nature and use of products and services, their engagement with and treatment of investors, employees, suppliers and customers, and environmental and social impacts. To this end, positive ethical values should be at the core of their corporate cultures, and evident in participant behavior. The ethical dimensions of behavior in this regard might overlap with legal, socio-economic, and political dimensions, but they are not the same constructs. It is important to keep this in mind when reading our comments to avoid mistakenly interpreting issues associated with social responsibilities or impacts, regulatory obligations and compliance, or political connections and effects as inherently ethics issues. Usually, ethics issues entail conflicting interests, personal dilemmas, or under-weighting harm to other stakeholders.

Financial equality and inclusion are persistent socio-economic and political concerns in both developed and developing economies. While the social and political consequences of inequality or exclusion are not always framed as ethics issues, relevant business policies and practices can manifest ethical values. Businesses can both contribute to the emergence of inequalities and exploit such inequalities (for example, when they relocate to reduce operating or regulatory costs, or by taking advantage of less informed market participants) and can mitigate such problems by advancing policies and implementing practices that facilitate financial inclusion of members of society who might otherwise be marginalized, such as minority groups and the poor. But, at this stage, we have little robust evidence of how policies and practices in the financial sector can impact equality and inclusion, or the incentives or disincentives for pursuing such goals, and the ethical values or trade-offs that are entailed in relevant decisions.

Related to the previous area, microfinance can be socially and economically vital for people in lower economic strata, particularly in developing countries, but requires the embodiment of positive ethical values in the corporate cultures of providers, and supplier confidence in the ethics of those presenting themselves as borrowers. Recent research in some ethical aspects of microfinance has been facilitated by access to novel datasets, including crowdsourcing for microfinancing, but we remain at the early stages of developing the ethics literature in this area.

Related to both the previous paragraphs, prior work in the socially responsible investment (SRI) literature has some relevance but does not necessarily address ethical issues we think are important. For example, how might we evaluate the ethics of investing in an environmentally harmful technology to provide immediate social benefits and then later seek to mitigate the harm? Or whether expected indirect social impacts of investment, such as theorized “trickle-down” effects, can be judged as ethically comparable to direct social impacts? And what ethics criteria might facilitate the comparison? What are the ethical issues confronting investors (or other stakeholders) when they weigh and compare SRI effects on winners and losers if SRI strategies also entail divestment strategies (such as the community and employment effects of withdrawing financial resources from “sin” industries, which are then directed to more socially preferred industries)? Similar questions might be asked about the ethics issues for investors in weighing other negative and positive externalities, and the extent to which investors’ ethical preferences in this regard should influence corporate decision. Relatedly, when might socially preferred financing decisions conflict with some stakeholders’ extant ethical principles, and what are the social and ethical implications of such conflicts?

There is also considerable opportunity for research that will advance our understanding of finance-related decisions that intersect with prominent topical social questions. For example, can we better inform debate about the role of financial institutions in enabling or constraining intimate partner abuse, or expectations of decision making involving cross-border financial arrangements during periods of economic, political, or civil conflict that might range from trade conflicts to wars between countries?

On a different tack, the complexities of mathematical models and tools used in risk management generally work to reduce the transparency and accountability of the decisions they facilitate, which can affect diverse groups of stakeholders. This is particularly evident in previous financial crises. But we have little knowledge of the ethical issues involved in implementing risk management strategies. Integral to this are deficiencies in our understanding of the values associated with taking and avoiding risks, and how to observe the ethical commitment of managers.

In all decision making pertinent to the finance domain, there will be conflicts between the pecuniary and ethical preferences (and other non-pecuniary preferences) of individuals, and between the preferences of managers, investors, advisers, consumers, and other stakeholders. How to identify, model, and test such differences, and consequential actions and outcomes, presents a major—but potentially very important—research challenge.

We do not offer any resolutions to the empirical challenges in investigating finance-related decisions and practices that might entail ethical dilemmas or trade-offs, but we return to our earlier comments about the continuing emergence of new data and analytical tools that more imaginative researchers might be able to exploit for this purpose.

The Blurry (?) Line Between Accounting Ethics and Social/Critical Accounting Research

Charles H. Cho

Over the past several years, some intrigued scholars, in particular working in the area of social and critical accounting, have—formally and less formally—raised questions about what would constitute a submission “in scope” with accounting ethics. While the answer is not as clear-cut as expected, I provide in this commentary some insights based on my own experience as an author, reviewer, and Section co-editor of the Journal.

As Section Co-Editor of the Accounting and Business Ethics section, I regularly get asked whether a specific (accounting research) paper would be a good “fit” for possible publication—and my response always relates to which extent “ethics”—be this an ethical issue, concept, theory, or even story—is central and explicit to the paper. The papers that generally come to my attention (pre-submission, or submitted) are either “easy” to assess for suitability, or lack thereof (e.g., a clear, pure “mainstream” capital markets paper that sometimes includes a few references from JBE and/or an instrumental variable such as gender for diversity to proxy for ethics), or more on the fence (e.g., a “critical” accounting paper that challenges the status quo or the current capitalist system, or a “social” one dealing with corporate social responsibility (CSR) or sustainability issues). On the latter, the “ethicality” is not always evident, which leads me to either send it back to the authors to make it more so—or reject it before review because I see no viable path. This can be challenging at times, but I do believe that, while not always hard and clear, there is still a (possibly blurry) line between what makes an accounting paper “more ethics” versus “social” or “critical”—and these are of course not mutually exclusive either. To me, it really comes down to how accounting research is portrayed in terms of paradigms.

Paradigms in Accounting Research

In the very first class of my PhD program ( Foundations of Accounting Research ) at the University of Central Florida, we did not “dig into” accounting research papers right away. Instead, we were exposed to the first four chapters of Burrell and Morgan’s ( 1979 ) emblematic book. While their proposed model to explain paradigms could be argued to be limited, limiting, and/or outdated, I still believe that, to date, it is one that effectively best explains what “paradigms” are and why it is important to understand the (research) world through them. In particular, Burrell and Morgan ( 1979 ) introduce a 2 × 2 matrix scheme to help classify and understand sociological theories based on four major paradigms (adapted from Fig. 3.1 “Four paradigms for the analysis of social theory,” Burrell & Morgan, 1979 , p. 22).

SOCIOLOGY OF RADICAL CHANGE

• SOCIOLOGY OF REGULATION

Functionalist Paradigm (Objective-Regulation)—Individualism

This is the dominant paradigm for organizational studies, notably in accounting (mainly due to the nature of our discipline and training). Most accounting research belongs to this paradigm with a range of beliefs. Archival research in accounting using financial data(bases) sits on this side of the spectrum. In particular, positivist theory, capital markets research and valuation models are rooted in this paradigm.

Radical Structuralist Paradigm (Objective-Radical)—Materialism

This paradigm has a perspective of inherent structural conflicts within society that create constant change through political and economic crises. It is concerned to develop a sociology of radical change from an objectivist standpoint. In terms of research spectrum position, archival accounting research using other types of data (non-accounting) and advocating a more critical view of the world belongs here. Yet this research still utilizes secondary data and statistical models.

Interpretative Paradigm (Subjective-Regulation)—Collectivism

This paradigm is concerned to subjectively understand the world as it is and the fundamental nature of the social world. Interpretivists seek to understand the very basis and source of social reality, the essence of everyday world. The very broad areas of behavioral, social, and organizational of accounting research would fit well here. Examples of methodology that illustrate this research type would be surveys, questionnaires, case studies, ethnography, phenomenological studies, and some content analysis.

Radical Humanist (Subjective-Radical Change)—Idealism

Proponents of this paradigm are primarily interested in releasing social constraints that connect human development. It is designed to critique the status quo and tends to view society as anti-human. Sources of this paradigm are the same as the interpretivist paradigm, notably Kant, Hegel, and early Marx. However, Marx inverted the frame of reference reflected in Hegelian idealism and forged the basis for radical humanism. In essence, this paradigm is the “perfect” opposite of the functionalist view. Often referred as an anti-organizational theory, the critical research in accounting fits remarkably well into this paradigm and is greatly hosted.

Accounting Ethics Versus Social/Critical Accounting Research

Based on the above sociological paradigms, research perspectives, experiences, and even careers can dramatically vary across accounting scholars. This is so fundamental and foundational that it shapes a researcher’s—or even a person’s—view of the world (which in turn influences one’s view of research). We know that that “mainstream” accounting research is rooted in neo-classical economics theories and primarily, if not only, focuses on the efficiency of the capital markets. That itself emanates from the functionalist paradigm, but while it may seem difficult or impossible to tease out any ethical or ethics-related issues from that “camp,” studies looking at unique settings or factors associated with earnings manipulation (as a non-ethical construct) could in fact constitute a potentially good fit for JBE, in my view. But I do reiterate uniqueness .

Interestingly, such studies may be more likely to contribute to the accounting ethics literature than some that are couched in the interpretative or even radical humanist paradigm (and note that I am not commenting on the methods used—they are irrelevant in this discussion). There is no doubt that social accounting or critical accounting research papers belong to these left-handed, subjective paradigms, but they are not necessarily accounting ethics papers—and it is acceptable, because not every social or critical accounting paper must be an accounting ethics paper. Admittedly, there was a period where JBE did publish research (including mine!) that provided evidence of greenwashing practices (in other words, companies lying in their reports)—but the Journal’s editorial aims and scope have changed—rightfully so—to put ethics back to its core (see the last editorials). I believe that accounting ethics research is, or at least needs to be, a more subtle and “grey area” than greenwashing or CSR or emancipatory issues. There are other wonderful “homes” for this research such as Accounting, Accountability & Auditing Journal, Accounting Forum, Critical Perspectives on Accounting, Social and Environmental Accountability Journal or Sustainability Accounting, Management and Policy Journal. I also see JBE as a specialized journal, in the same way we have some journals for taxation, auditing, or information systems (or CSR). The ethics must be there, almost omnipresent, explicit, and central.

I will end by quoting the following superbly crafted comments from Lennard and Roberts (forthcoming, p. xx) about the challenges of undertaking CSR research (hence part of social accounting research) from an ethical frame:

First, accounting researchers need to make the explicit decision to study [CSR] issues from an ethical perspective. Making the decision to study [CSR] issues does not automatically default to being a study of accounting and business ethics. A substantial amount of accounting research dealing with [CSR] issues study their instrumental effectiveness in improving financial performance or some derivative of financial performance such as a lowering of the cost of capital, averting costly regulation, or avoiding reputational harm. If an accounting researcher is interested in studying the ethics of [CSR], then the theory driving the study should have an ethical grounding. This leads to a second challenge—finding a […] theory [grounded in the ethics literature] that matches well with the research question under study. For example, researchers are often interested in how corporations’ [CSR] performance affects their stakeholders. Stakeholder theory is not necessarily an ethical frame from which to investigate a research question. There are several streams of stakeholder theory, including instrumental stakeholder theory, intrinsic stakeholder theory, and feminist stakeholder theory. Further, there are many ethical theories beyond just the two that have been maintained in extant accounting ethics (i.e., utilitarianism and deontology) which may be crucial in furthering ethical research on [CSR], yet researchers must acknowledge there is significant responsibility when prescribing ethical theories to scientific studies. A major concern when studying business ethics is that ethical theories may conflict, and researchers must make decisions on how to deal with these conflicts. The third challenge for accounting researchers interested in undertaking [CSR] ethics research is specific to those wanting to do large sample empirical research. It is growing increasingly difficult to empirically test ethical theories using large sample, cross-sectional methodologies.

As highlighted and perfectly summarized by Lennard and Roberts, social accounting research (and the same applies for critical accounting) is not a by-default synonym with research in accounting ethics. Though these terms—ethics, CSR, sustainability—are often put together under one “umbrella” or in one “basket,” there are boundaries and I believe the role of the Accounting and Business Ethics section of JBE, at least part of it, is to keep a close eye on this blurry (?) line and those boundaries.

In earlier years, JBE accepted some manuscripts that were essentially tangential or peripheral to the ethics domain, including many relating to CSR and environmental impacts, but the journal has ceased this practice in a return to its core mission of advancing knowledge in relation to business ethics, as signaled in a series of editorials that started with Greenwood and Freeman ( 2017 , 2018 ). To appreciate the journal’s return to its intended domain, authors should carefully read the Aims & Scope statement on the journal’s homepage and editorials published in JBE.

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Babalola, M.T., Bal, M., Cho, C.H. et al. Bringing Excitement to Empirical Business Ethics Research: Thoughts on the Future of Business Ethics. J Bus Ethics 180 , 903–916 (2022). https://doi.org/10.1007/s10551-022-05242-7

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What Is Business Ethics?

Understanding business ethics, why is business ethics important, types of business ethics.

• Implementing Good Business Ethics
• Monitoring and Reporting

The Bottom Line

What is business ethics definition, principles, and importance.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Business ethics is the moral principles, policies, and values that govern the way companies and individuals engage in business activity. It goes beyond legal requirements to establish a code of conduct that drives employee behavior at all levels and helps build trust between a business and its customers.

Key Takeaways

• Business ethics refers to implementing appropriate business policies and practices with regard to arguably controversial subjects.
• Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
• The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to follow to gain public approval.

Investopedia / Katie Kerpel

Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors as they do to wealthier clients. These kinds of practices ensure the public receives fair treatment.

The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on "social issues" was a hallmark of the decade.

Since that time, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally vs. maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.

Business ethics ensure a certain level of trust between consumers and corporations, guaranteeing the public fair and equal treatment.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behavior and how a lack of these moral principles contributes to the downfall of many otherwise intelligent, talented people and the businesses they represent.

There are generally 12 business ethics principles:

• Leadership : The conscious effort to adopt, integrate, and emulate the other 11 principles to guide decisions and behavior in all aspects of professional and personal life.
• Accountability : Holding yourself and others responsible for their actions. Commitment to following ethical practices and ensuring others follow ethics guidelines.
• Integrity : Incorporates other principles—honesty, trustworthiness, and reliability. Someone with integrity consistently does the right thing and strives to hold themselves to a higher standard.
• Respect for others : To foster ethical behavior and environments in the workplace, respecting others is a critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.
• Honesty : Truth in all matters is key to fostering an ethical climate. Partial truths, omissions, and under or overstating don't help a business improve its performance. Bad news should be communicated and received in the same manner as good news so that solutions can be developed.
• Respect for laws : Ethical leadership should include enforcing all local, state, and federal laws. If there is a legal grey area, leaders should err on the side of legality rather than exploiting a gap.
• Responsibility : Promote ownership within an organization, allow employees to be responsible for their work, and be accountable for yours.
• Transparency : Stakeholders are people with an interest in a business, such as shareholders, employees, the community a firm operates in, and the family members of the employees. Without divulging trade secrets, companies should ensure information about their financials, price changes, hiring and firing practices, wages and salaries, and promotions are available to those interested in the business's success.
• Compassion : Employees, the community surrounding a business, business partners, and customers should all be treated with concern for their well-being.
• Fairness : Everyone should have the same opportunities and be treated the same. If a practice or behavior would make you feel uncomfortable or place personal or corporate benefit in front of equality, common courtesy, and respect, it is likely not fair.
• Loyalty : Leadership should demonstrate confidentially and commitment to their employees and the company. Inspiring loyalty in employees and management ensures that they are committed to best practices.
• Environmental concern : In a world where resources are limited, ecosystems have been damaged by past practices, and the climate is changing, it is of utmost importance to be aware of and concerned about the environmental impacts a business has. All employees should be encouraged to discover and report solutions for practices that can add to damages already done.

There are several reasons business ethics are essential for success in modern business. Most importantly, defined ethics programs establish a code of conduct that drives employee behavior—from executives to middle management to the newest and youngest employees. When all employees make ethical decisions, the company establishes a reputation for ethical behavior. Its reputation grows, and it begins to experience the benefits a moral establishment reaps:

• Brand recognition and growth
• Increased ability to negotiate
• Increased trust in products and services
• Customer retention and growth
• Attracts talent
• Attracts investors

When combined, all these factors affect a business' revenues. Those that fail set ethical standards and enforce them are doomed to eventually find themselves alongside Enron, Arthur Andersen, Wells Fargo, Lehman Brothers, Bernie Madoff, and many others.

There are several theories regarding business ethics, and many different types can be found, but what makes a business stand out are its corporate social responsibility practices, transparency and trustworthiness, fairness, and technological practices.

Corporate Social Responsibility

Corporate social responsibility (CSR) is the concept of meeting the needs of stakeholders while accounting for the impact meeting those needs has on employees, the environment, society, and the community in which the business operates. Of course, finances and profits are important, but they should be secondary to the welfare of society, customers, and employees—because studies have concluded that corporate governance and ethical practices increase financial performance.

Businesses should hold themselves accountable and responsible for their environmental, philanthropic, ethical, and economic impacts.

Transparency and Trustworthiness

It's essential for companies to ensure they are reporting their financial performance in a way that is transparent. This not only applies to required financial reports but all reports in general. For example, many corporations publish annual reports to their shareholders.

Most of these reports outline not only the submitted reports to regulators, but how and why decisions were made, if goals were met, and factors that influenced performance. CEOs write summaries of the company's annual performance and give their outlooks.

Press releases are another way companies can be transparent. Events important to investors and customers should be published, regardless of whether it is good or bad news.

Technological Practices and Ethics

The growing use of technology of all forms in business operations inherently comes with a need for a business to ensure the technology and information it gathers is being used ethically. Additionally, it should ensure that the technology is secured to the utmost of its ability, especially as many businesses store customer information and collect data that those with nefarious intentions can use.

A workplace should be inclusive, diverse, and fair for all employees regardless of race, religion, beliefs, age, or identity. A fair work environment is where everyone can grow, be promoted, and become successful in their own way.

How to Implement Good Business Ethics

Fostering an environment of ethical behavior and decision-making takes time and effort—it always starts at the top. Most companies need to create a code of conduct/ethics, guiding principles, reporting procedures, and training programs to enforce ethical behavior.

Once conduct is defined and programs implemented, continuous communication with employees becomes vital. Leaders should constantly encourage employees to report concern behavior—additionally, there should be assurances that if whistle-blowers will not face adversarial actions.

A pipeline for anonymous reporting can help businesses identify questionable practices and reassure employees that they will not face any consequences for reporting an issue.

Monitoring and Reporting Unethical Behavior

When preventing unethical behavior and repairing its adverse side effects, companies often look to managers and employees to report any incidences they observe or experience. However, barriers within the company culture (such as fear of retaliation for reporting misconduct) can prevent this from happening.

Published by the Ethics & Compliance Initiative (ECI), the Global Business Ethics Survey of 2021 surveyed over 14,000 employees in 10 countries about different types of misconduct they observed in the workplace. 49% of the employees surveyed said they had observed misconduct and 22% said they had observed behavior they would categorize as abusive. 86% of employees said they reported the misconduct they observed. When questioned if they had experienced retaliation for reporting, 79% said they had been retaliated against.

Indeed, fear of retaliation is one of the primary reasons employees cite for not reporting unethical behavior in the workplace. ECI says companies should work toward improving their corporate culture by reinforcing the idea that reporting suspected misconduct is beneficial to the company. Additionally, they should acknowledge and reward the employee's courage in making the report.

Business ethics concerns ethical dilemmas or controversial issues faced by a company. Often, business ethics involve a system of practices and procedures that help build trust with the consumer. On one level, some business ethics are embedded in the law, such as minimum wages, insider trading restrictions, and environmental regulations. On another, business ethics can be influenced by management behavior, with wide-ranging effects across the company.

What Are Business Ethics and Example?

Business ethics guide executives, managers, and employees in their daily actions and decision-making. For example, consider a company that has decided to dump chemical waste that it cannot afford to dispose of properly on a vacant lot it has purchased in the local community. This action has legal, environmental, and social repercussions that can damage a company beyond repair.

What Are the 12 Ethical Principles?

Business ethics is an evolving topic. Generally, there are about 12 ethical principles: honesty, fairness, leadership, integrity, compassion, respect, responsibility, loyalty, law-abiding, transparency, and environmental concerns.

Business ethics concerns employees, customers, society, the environment, shareholders, and stakeholders. Therefore, every business should develop ethical models and practices that guide employees in their actions and ensure they prioritize the interests and welfare of those the company serves.

Doing so not only increases revenues and profits, it creates a positive work environment and builds trust with consumers and business partners.

New York University Stern Center for Sustainable Business. " ESG and Financial Performance: Uncovering the Relationship By Aggregating Evidence From 1,000 Plus Studies Published Between 2015 – 2020 ."

Ethics & Compliance Initiative (ECI). " The State of Ethics & Compliance in the Workplace ," Pages 16-22.

Ethics & Compliance Initiative (ECI). " 2021 Global Business Ethics Survey Report The State of Ethics & Compliance in the Workplace: A Look at Global Trends ."

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Methodology

• Ethical Considerations in Research | Types & Examples

Ethical Considerations in Research | Types & Examples

Published on October 18, 2021 by Pritha Bhandari . Revised on June 22, 2023.

Ethical considerations in research are a set of principles that guide your research designs and practices. Scientists and researchers must always adhere to a certain code of conduct when collecting data from people.

The goals of human research often include understanding real-life phenomena, studying effective treatments, investigating behaviors, and improving lives in other ways. What you decide to research and how you conduct that research involve key ethical considerations.

These considerations work to

• protect the rights of research participants
• enhance research validity
• maintain scientific or academic integrity

Table of contents

Why do research ethics matter, getting ethical approval for your study, types of ethical issues, voluntary participation, informed consent, confidentiality, potential for harm, results communication, examples of ethical failures, other interesting articles, frequently asked questions about research ethics.

Research ethics matter for scientific integrity, human rights and dignity, and collaboration between science and society. These principles make sure that participation in studies is voluntary, informed, and safe for research subjects.

You’ll balance pursuing important research objectives with using ethical research methods and procedures. It’s always necessary to prevent permanent or excessive harm to participants, whether inadvertent or not.

Defying research ethics will also lower the credibility of your research because it’s hard for others to trust your data if your methods are morally questionable.

Even if a research idea is valuable to society, it doesn’t justify violating the human rights or dignity of your study participants.

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Before you start any study involving data collection with people, you’ll submit your research proposal to an institutional review board (IRB) .

An IRB is a committee that checks whether your research aims and research design are ethically acceptable and follow your institution’s code of conduct. They check that your research materials and procedures are up to code.

If successful, you’ll receive IRB approval, and you can begin collecting data according to the approved procedures. If you want to make any changes to your procedures or materials, you’ll need to submit a modification application to the IRB for approval.

If unsuccessful, you may be asked to re-submit with modifications or your research proposal may receive a rejection. To get IRB approval, it’s important to explicitly note how you’ll tackle each of the ethical issues that may arise in your study.

There are several ethical issues you should always pay attention to in your research design, and these issues can overlap with each other.

You’ll usually outline ways you’ll deal with each issue in your research proposal if you plan to collect data from participants.

Voluntary participation means that all research subjects are free to choose to participate without any pressure or coercion.

All participants are able to withdraw from, or leave, the study at any point without feeling an obligation to continue. Your participants don’t need to provide a reason for leaving the study.

It’s important to make it clear to participants that there are no negative consequences or repercussions to their refusal to participate. After all, they’re taking the time to help you in the research process , so you should respect their decisions without trying to change their minds.

Voluntary participation is an ethical principle protected by international law and many scientific codes of conduct.

Take special care to ensure there’s no pressure on participants when you’re working with vulnerable groups of people who may find it hard to stop the study even when they want to.

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Informed consent refers to a situation in which all potential participants receive and understand all the information they need to decide whether they want to participate. This includes information about the study’s benefits, risks, funding, and institutional approval.

You make sure to provide all potential participants with all the relevant information about

• what the study is about
• the risks and benefits of taking part
• how long the study will take
• your supervisor’s contact information and the institution’s approval number

Usually, you’ll provide participants with a text for them to read and ask them if they have any questions. If they agree to participate, they can sign or initial the consent form. Note that this may not be sufficient for informed consent when you work with particularly vulnerable groups of people.

If you’re collecting data from people with low literacy, make sure to verbally explain the consent form to them before they agree to participate.

For participants with very limited English proficiency, you should always translate the study materials or work with an interpreter so they have all the information in their first language.

In research with children, you’ll often need informed permission for their participation from their parents or guardians. Although children cannot give informed consent, it’s best to also ask for their assent (agreement) to participate, depending on their age and maturity level.

Anonymity means that you don’t know who the participants are and you can’t link any individual participant to their data.

You can only guarantee anonymity by not collecting any personally identifying information—for example, names, phone numbers, email addresses, IP addresses, physical characteristics, photos, and videos.

In many cases, it may be impossible to truly anonymize data collection . For example, data collected in person or by phone cannot be considered fully anonymous because some personal identifiers (demographic information or phone numbers) are impossible to hide.

You’ll also need to collect some identifying information if you give your participants the option to withdraw their data at a later stage.

Data pseudonymization is an alternative method where you replace identifying information about participants with pseudonymous, or fake, identifiers. The data can still be linked to participants but it’s harder to do so because you separate personal information from the study data.

Confidentiality means that you know who the participants are, but you remove all identifying information from your report.

All participants have a right to privacy, so you should protect their personal data for as long as you store or use it. Even when you can’t collect data anonymously, you should secure confidentiality whenever you can.

Some research designs aren’t conducive to confidentiality, but it’s important to make all attempts and inform participants of the risks involved.

As a researcher, you have to consider all possible sources of harm to participants. Harm can come in many different forms.

• Psychological harm: Sensitive questions or tasks may trigger negative emotions such as shame or anxiety.
• Social harm: Participation can involve social risks, public embarrassment, or stigma.
• Physical harm: Pain or injury can result from the study procedures.
• Legal harm: Reporting sensitive data could lead to legal risks or a breach of privacy.

It’s best to consider every possible source of harm in your study as well as concrete ways to mitigate them. Involve your supervisor to discuss steps for harm reduction.

Make sure to disclose all possible risks of harm to participants before the study to get informed consent. If there is a risk of harm, prepare to provide participants with resources or counseling or medical services if needed.

Some of these questions may bring up negative emotions, so you inform participants about the sensitive nature of the survey and assure them that their responses will be confidential.

The way you communicate your research results can sometimes involve ethical issues. Good science communication is honest, reliable, and credible. It’s best to make your results as transparent as possible.

Take steps to actively avoid plagiarism and research misconduct wherever possible.

Plagiarism means submitting others’ works as your own. Although it can be unintentional, copying someone else’s work without proper credit amounts to stealing. It’s an ethical problem in research communication because you may benefit by harming other researchers.

Self-plagiarism is when you republish or re-submit parts of your own papers or reports without properly citing your original work.

This is problematic because you may benefit from presenting your ideas as new and original even though they’ve already been published elsewhere in the past. You may also be infringing on your previous publisher’s copyright, violating an ethical code, or wasting time and resources by doing so.

In extreme cases of self-plagiarism, entire datasets or papers are sometimes duplicated. These are major ethical violations because they can skew research findings if taken as original data.

You notice that two published studies have similar characteristics even though they are from different years. Their sample sizes, locations, treatments, and results are highly similar, and the studies share one author in common.

Research misconduct

Research misconduct means making up or falsifying data, manipulating data analyses, or misrepresenting results in research reports. It’s a form of academic fraud.

These actions are committed intentionally and can have serious consequences; research misconduct is not a simple mistake or a point of disagreement about data analyses.

Research misconduct is a serious ethical issue because it can undermine academic integrity and institutional credibility. It leads to a waste of funding and resources that could have been used for alternative research.

Later investigations revealed that they fabricated and manipulated their data to show a nonexistent link between vaccines and autism. Wakefield also neglected to disclose important conflicts of interest, and his medical license was taken away.

This fraudulent work sparked vaccine hesitancy among parents and caregivers. The rate of MMR vaccinations in children fell sharply, and measles outbreaks became more common due to a lack of herd immunity.

Research scandals with ethical failures are littered throughout history, but some took place not that long ago.

Some scientists in positions of power have historically mistreated or even abused research participants to investigate research problems at any cost. These participants were prisoners, under their care, or otherwise trusted them to treat them with dignity.

To demonstrate the importance of research ethics, we’ll briefly review two research studies that violated human rights in modern history.

These experiments were inhumane and resulted in trauma, permanent disabilities, or death in many cases.

After some Nazi doctors were put on trial for their crimes, the Nuremberg Code of research ethics for human experimentation was developed in 1947 to establish a new standard for human experimentation in medical research.

In reality, the actual goal was to study the effects of the disease when left untreated, and the researchers never informed participants about their diagnoses or the research aims.

Although participants experienced severe health problems, including blindness and other complications, the researchers only pretended to provide medical care.

When treatment became possible in 1943, 11 years after the study began, none of the participants were offered it, despite their health conditions and high risk of death.

Ethical failures like these resulted in severe harm to participants, wasted resources, and lower trust in science and scientists. This is why all research institutions have strict ethical guidelines for performing research.

If you want to know more about statistics , methodology , or research bias , make sure to check out some of our other articles with explanations and examples.

• Normal distribution
• Measures of central tendency
• Chi square tests
• Confidence interval
• Quartiles & Quantiles
• Cluster sampling
• Stratified sampling
• Thematic analysis
• Cohort study
• Peer review
• Ethnography

Research bias

• Implicit bias
• Cognitive bias
• Conformity bias
• Hawthorne effect
• Availability heuristic
• Attrition bias
• Social desirability bias

Ethical considerations in research are a set of principles that guide your research designs and practices. These principles include voluntary participation, informed consent, anonymity, confidentiality, potential for harm, and results communication.

Scientists and researchers must always adhere to a certain code of conduct when collecting data from others .

These considerations protect the rights of research participants, enhance research validity , and maintain scientific integrity.

Research ethics matter for scientific integrity, human rights and dignity, and collaboration between science and society. These principles make sure that participation in studies is voluntary, informed, and safe.

Anonymity means you don’t know who the participants are, while confidentiality means you know who they are but remove identifying information from your research report. Both are important ethical considerations .

You can only guarantee anonymity by not collecting any personally identifying information—for example, names, phone numbers, email addresses, IP addresses, physical characteristics, photos, or videos.

You can keep data confidential by using aggregate information in your research report, so that you only refer to groups of participants rather than individuals.

These actions are committed intentionally and can have serious consequences; research misconduct is not a simple mistake or a point of disagreement but a serious ethical failure.

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Far more mergers succeed today than in the past. Here’s how to post a win.

Twenty years ago, consultants at Bain & Company published a book that explored a dispiriting reality: Although companies spent billions of dollars a year pursuing deals, 70% of mergers and acquisitions wound up as failures.

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