Business Ethics (Stanford Encyclopedia of Philosophy)

First published Thu Nov 17, 2016; substantive revision Tue Jun 8, 2021

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.

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).

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.

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).

1. Varieties of business ethics

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.

2. Corporate moral agency

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.

3.1 Ends: shareholder primacy or stakeholder balance?

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.

3.2 Means: control by shareholders or others too?

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.

4. Important frameworks for business ethics

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.

5.1 The limits of markets

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.

5.2 Product safety and liability

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?

5.3 Advertising

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).

5.4 Sales

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.

5.5 Pricing

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.

6.1 Hiring and firing

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.

6.2 Compensation

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.)

6.3 Meaningful work

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.

6.4 Whistleblowing

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.

7.1 Corporate social responsibility

“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.

7.2 Corporate political activity

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.

7.3 International business

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”.

8. The status of business ethics

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.