Have you ever noticed that leaders of companies love to promote their commitment to ethical business practices? Go to any public company’s annual report and do a search for the word ethical, or ethics, and you’ll see a very nice discussion about the firm’s commitment to ethical business practices. Yet, when you look at litigation trends you see that the number of disputes has never been higher. One study showed that 83% of the corporate counsel surveyed expected litigation to increase, up from 79% the previous year.
Herein lies the problem: Ethical conflicts arise in business, in part, because people don’t define the word “ethical” the same way. Stated differently, it is possible that business owners are causing ethical dilemmas — that lead to lawsuits — by not really understanding the philosophical aspects of ethics.
Leaders don’t seem to be spending enough time understanding this simple truth: What is ethical to one person may not be ethical to the next. That is, they are accusing others of being ethical without delving into the philosophical foundation of ethics. Prerequisite knowledge is as important in business as it is in school. One can’t skip the theory and go straight to practice. It isn’t a sustainable strategy.
For example, assume you are an American entrepreneur sending your production to China, which will result in 100 lost American jobs. Is this ethical? The answer is: It depends on your ethical philosophy.
If you are an ethical egoist you would say “yes”, as you are doing something legal and in your best interest. If you adhere to Divine Command Theory (i.e. integrating religion into your decision making) you would likely say “no”, as China is officially an atheistic state.
The holder of a utilitarian view would probably say “yes” because, economically anyway, more people (i.e. customers) would benefit from the action than be harmed by it. One who adheres to Kant’s Categorical Imperative model would likely say “no”, since Chinese workers are not given the same rights and benefits as American workers.
Practical Tip: To reduce the risk of disputes, which could lead to lawsuits, you may want to state your ethical philosophy clearly to employees, customers and vendors. Most American corporate managers seem to adhere to an ethical egoist or utilitarian model, which is OK. In a free society everyone has the choice to adopt a philosophical framework that they like.
What they don’t have is the right to assume that everyone else will adopt the same model. Just because you justify an action as ethical doesn’t mean that it is. It just means that it’s ethical to you. Also, an unethical action isn’t necessarily illegal. When a conflict gets to court…ethics get thrown-out the window. All that matters is if the elements of an illegal act have been met.
Therefore, be sure to take the time to let all those you work with know your ethical philosophy. They may not agree with it, but if a conflict arises they cannot say they were unaware of it. This should reduce the risk of conflicts, which will reduce the risk of lawsuits. Sometimes lawsuits happen simply because two companies — that never should have done business in the first place — didn’t agree as to what is ethical and what is not.