Business philosophy and business ethics are closely related. Business philosophy looks at the role of business in society. It deals with questions such as 'the purpose of business' and whether or not 'businesses are ultimately responsible to more than just their shareholders.' Ideas about the proper role of business in society help us define what is right and wrong in the affairs of a business. That is, business philosophy includes normative ideas about the proper role of business, and these ideas give us a framework to study business ethics. Subsequently, ideas about ethics (about what is right and what is wrong) then help us create regulation or define market mechanisms that can help regulate a business's activities.
In his 1954 book, The Practice of Management, Peter F. Drucker (often coined the father of management) wrote "free enterprise cannot be justified as being good for business. It can only be justified as being good for society." Business philosophy is an academic approach that looks at this bigger picture. As Drucker said, we cannot just focus on what is good for business, we have to show that the way we do business will be good for society as a whole.
(Note: In application, many 'business philosophies' look at organizations as existing in a vacuum, and explain different ways of doing business that will allow for greater sales, lower employee turnover, lower costs or higher profitability. The philosophy of "Total Quality Management" is a prominent example of a 'way of doing business' mistakenly being referred to as a "business philosophy." When we talk about business philosophy from an academic perspective, we are not talking about theories like TQM.)
Business ethics looks at how we classify the affairs of a business as "right" and "wrong," or "good" and "bad." Business ethics helps guide us when we face a moral dilemma as a manager. A moral or ethical dilemma occurs when different choices or actions can benefit or harm others or oneself. Deciding how to act when one person may be harmed to another’s benefit is an ethical dilemma. Ethics are the moral principles, values, and priorities individuals use to decide an appropriate course of action when faced with an ethical dilemma. Ethical theories include Deontological, Teleological (which encompasses utilitarianism), and Virtue Ethics.
Regulation is an important outcome of business philosophy and ethics. To have regulation, we must have a belief about the role that business should play in society, and beliefs about what right and wrong behaviour is. These beliefs then act as guidelines, and are reflected in the public institutions, market mechanisms and corporate governance structures that are put into place to ensure that businesses play by these rules. There is significant public debate over whether the amount of regulation today hinders businesses from being fully productive, and lowers the social benefits of an efficient market. Securities regulation and antitrust regulation involve important regulation-related issues.
Corporate social responsibility is a form of corporate self-regulation that is integrated into the business model. It is supported by market mechanism that make self-regulating companies better off. For example, businesses might enforce safety standards because consumers demand it, or in order to mitigate a legal risk that may exist if they do not.
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