This paper is designed to provide a practical response to the question of “why be ethical in business” framed around the classic critique of business ethics and corporate social responsibility penned by Milton Friedman.
The primary method is logical reasoning along the following line: Social Environment – > Ethical Norms – > Legal (and especially future legal requirements or consequences). While Friedman argues that the key is to focus on current legal requirements this paper argues that strategic advantages are gained by being ethical and going beyond legal requirements since a firm insulates itself from changes that can result in new or even retroactive legal requirements.
Based on its reasoning the paper argues that acting ethically can serve as a form of insurance or a “strategic shock absorber” for firms. Examples are cited.
The problems of Enron and other firms have increased attention on the role of business ethics. However, since Enron appears to have engaged in illegal conduct, it does not serve as a strong example to be ethical, rather it reinforces the need to simply obey the law. This paper provides a motivation for ethical behavior encapsulated in a framework that managers are likely to already be familiar with based on strategic planning.
While Friedman's critique is over 30 years old and there have been many responses to it, none have been as tightly integrated to extant strategy frameworks as the central argument of this paper.
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