How Ethics Affect Business Decisions
I recently came across this story from nearly two decades ago and it motivated me to write about the effect of one's ethical and moral compass on business decisions. I took a class on business ethics in a previous semester and I find the topic fascinating.
In any business, whether it is a corporation or is privately owned, company decisions are made by individuals, and the moral courage and ethical foundation of these individuals help frame the decisions that are made. While the main purpose of a business is to turn a profit, individuals sometimes have different agendas, known as a principal-agent problem, such as reaching contractual incentives or pleasing a board of directors. When a person is not morally or ethically strong, and is under pressure to achieve their personal goals, decisions can be made that do not have the company’s best interests in mind. This can end up indirectly harming the company’s other employees, clients, and stockholders. Morally corrupt decision-making can destroy a business; while turning a profit – or in some cases merely appearing to turn a profit – is critical to succeeding in business, the ethical behavior an individual demonstrates when making these decisions is equally crucial. Having a strong ethical foundation, when it is mixed with the adequate moral courage to not fear personal loss when it benefits others, is critical to genuine business success.
While some will argue that nearly all business decisions can be solved without delving into the moral issues associated with those decisions, ethical dilemmas occur in business happenings on a daily basis. While most are not on the level of the Enron or WorldCom debacles, how these dilemmas are handled can often determine success or failure.
However, sometimes having a strong ethical foundation is not sufficient when dealing with extreme dilemmas. When it is impossible to make a business decision that is both fiscally and morally responsible, it is integral that the individual making the decision has enough moral courage to retain his or her virtues and beliefs, and do what he or she thinks is right. In the case of Aaron Feuerstein, owner of Malden Mills, the decision-maker had enough moral courage that he risked his own personal wealth to protect his employees. When his factory burned down in 1995, and he received millions in insurance money, Feuerstein could have retired and kept the money. However, Feuerstein put his money at risk, and decided to keep all 3,000 of his employees on the payroll with full benefits for six months. "I have a responsibility to the worker, both blue-collar and white-collar”, Feuerstein said in a later interview in 1996 with Parade Magazine. “I have an equal responsibility to the community. It would have been unconscionable to put 3,000 people on the streets and deliver a deathblow to the cities of Lawrence and Methuen. Maybe on paper our company is worthless to Wall Street, but I can tell you it's worth more." This deontological behavior, where he ignored the adverse consequences and focused his energy solely on his duty to his fellow man, reveals extreme moral courage that should be praised. Feuerstein is a moral mentor: one who has integrity, shows the highest regard for others, and exhibits consistent and morally sound behavior, even under the most extreme pressure and turmoil. Moral courage and the proof of values can be found in the merging of an individual’s actions and values, and with his unselfish decision, Feuerstein provides unequivocal proof that he has a great deal of moral courage, an indispensible business attribute.
While it is obvious that ethics plays a critical role in business, they are not always present. Even with executive after executive being imprisoned for fraudulent activity, business individuals will continue to act in unmoral fashions and without moral courage if it works to their benefit. Moreover, while Aaron Feuerstein’s selfless decision to pay his employees was a tremendous act of kindness, this type of moral courage is not always possible. While Feuerstein privately owned his company, corporate executives are merely agents of the stockholders, and have a fiduciary responsibility to protect their interests, which are rising profits and stock prices. In corporations, executives must respect the wishes of their stockholders in order to avoid a possibly damaging principal-agent problem. Nevertheless, ethics do play a large role in business, because business decisions are made using the moral compass of the individual. It is impossible to always make the correct business decision: businesses lose money all the time. However, if the decisions one makes are always morally sound, companies and individuals alike can feel satisfied that they made the best decision they could.
