Unit 5: Corporate Ethics

Ethics of Business

What is Business Ethics?

Business Ethics (or Corporate Ethics) is a form of applied ethics that examines the ethical principles and moral problems that arise in a business environment.

It questions the "profit-motive" and asks what, if any, moral obligations a corporation has. It applies to all aspects of business conduct, from the boardroom to the factory floor, and deals with the relationships between a business and its stakeholders.

Key Issues in Business Ethics:

• Fair wages and safe working conditions.
• Honest advertising (truth vs. "puffery").
• Environmental responsibility and pollution.
• Product safety and liability.
• Whistleblowing (when an employee exposes unethical practices).
• Discrimination and affirmative action in hiring.

Stockholder Theory vs. Stakeholder Theory

This is the central debate in business ethics. Who does a company (and its CEO) work for?

Theory	Proponent	Core Idea	Argument
Stockholder Theory (or Shareholder Theory)	Milton Friedman	A corporation's *only* social responsibility is to increase its profits for its stockholders (the owners).	The CEO is an *agent* of the stockholders. Using their money for "social good" (like charity) is a form of "taxation without representation" and is essentially stealing from them. Motto: "The business of business is business."
Stakeholder Theory	R. Edward Freeman	A corporation has an ethical responsibility to *all* its stakeholders, not just its stockholders.	A business is not a separate entity; it is part of a community. Its success depends on many "stakeholders": Employees (who want fair wages) Customers (who want safe products) Suppliers (who want fair contracts) The Community (who wants clean air) The CEO's job is to balance the *competing interests* of all these stakeholders.