Theories of Business Ethics

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

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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.