Journal of Business Ethics

, Volume 13, Issue 10, pp 803–815 | Cite as

Imperfect markets: Business ethics as an easy virtue

  • S. Prakash Sethi
Article

Abstract

This paper marks a radical diversion from the large body of prevailing literature in business ethics which primarily views the issue in individual-personal terms, i.e., corporate executive and employee, and suggests that making corporations more ethical would primarily come through changes in executive behavior. While this approach has strong intellectual roots in moral philosophy and religion, it fails in explaining the persistence of unethical and illegal behavior among corporations of all sizes, financial health, competitive market conditions, and, level of individual executive compensation. This paper argues for a fundamentally different approach to understanding ethical behavior, or lack thereof, among corporations and their executives. It is asserted that an overwhelmingly large rationale and/or inducement for proactive ethical business behavior is rooted in competitive aspects of particular markets, and industry structures prevailing in those markets. Furthermore, while highly competitive markets may promote efficiency, they do not guarantee ethical behavior and may indeed provide greater opportunities and incentives for unethical business behavior. Thus, by following the current prognosis, we could be wasting enormous resources in terms of teaching business ethics, and creating and imposing corporate codes of conduct. We assert that these approaches would at best make a marginal improvement in the ethical performance of corporations while at the same time exacerbate the problem by ignoring more fundamental, structural issues. Imperfect markets, with their above-market profits, are a necessary but insufficient condition for corporations to behave ethically. It is only under conditions of imperfect markets that individual executives can play an important role in guiding their corporations toward greater ethical norms. These are undertaken for a variety of reasons, including, protecting a corporation's good name, public expectations, competitive norms, and, corporate culture and individual executive's predilections, to name a few.

Keywords

Business Ethic Ethical Behavior Executive Compensation Imperfect Market Business Behavior 

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Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • S. Prakash Sethi
    • 1
  1. 1.Centre for Management Development & OrganizationBaruch College, City University of NYNew YorkUSA

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