3 Theories of Business Ethics

This article examines three theories of business ethics. There are a good number of theories in Business ethics, but here we shall focus our attention on the major three of them.

Stakeholder Theory

The stakeholder theory of the firm is used as a basis to analyze those groups to whom the firm should be responsible. In this sense, the firm can be described as a series of connection of stakeholders that the managers of the firm attempt to manage. A stakeholder is any group or individual who can affect or is affected by the achievement of the organization’s objectives.

Stakeholders are typically analyzed into primary and secondary stakeholders. Primary stakeholder group is one without whose continuing participation in the corporation the business will survived as going concern. A primary group includes investors, employees, customers and suppliers, together with the public. The secondary groups are defined as those who influence or affect the operations of the corporation but not engaged in any transaction with the corporation and thus not essential for its survival.

Social Contract Theory

The social contract theory has a long tradition in ethical and political theory. In general, this theory considers the society as a series of social contracts between members of society and society itself. The social contract theory in business ethics argues that corporate rights and responsibilities can be inferred from the terms and conditions of an imaginary contract between business and society

An integrated social contracts theory, as a way for managers to take decisions in an ethical context, has been developed. Here, distinction is made between macro social contracts and micro social contracts. Thus, a macro social contract in the context of communities, for example would be an expectation that business provides some support to its local community and the specific form of involvement would be the micro social contract. Hence companies who adopt a view of social contracts would describe their involvement as part of social expectation.

Legitimacy Theory

Legitimacy is defined as a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions. There are three types of organizational legitimacy: Pragmatic, Moral and Cognitive.

It should be pointed out that legitimacy management rests heavily on communication. Therefore, any attempt to involve legitimacy theory, there is a need to examine some forms of corporate communications.

Conclusion

Laws, acts, policies and by-laws are inevitable as long people co-exist. It therefore implies that there is no society that exists without some governing rules and regulations. Likewise, businesses do not operate in isolation. Businesses do operate, therefore, under certain prescribed laws, Acts, norms, culture, etc. This is referred to as business ethics.

Business ethics are the accepted principles of right or wrong governing the conduct of business people. Understanding these ethical laws as they affect business activities is inevitable in modern business activities. As business managers, you are at the liberty to go into any forms of business of your choice; however, you should understand the policies of the government in relation to such business.