Four Basic Economic Responsibilities of a Business

A business has economic responsibilities to its direct stakeholders—its investors, employees, and customers. A business has an ethical obligation to meet these responsibilities.
There are four basic economic responsibilities a business has to its direct stakeholders:

1. Profitability: A business creates profit when it sells products or services that are more valuable than the materials and labor it uses to create them. Put simply, the business creates profit by adding value.
   Adding value and creating profit serve the interests of all of a company's direct stakeholders. The company produces products or services that are valuable to customers. The company uses profits to reward investors and pay employees.
2. Transparency: When a business acts with transparency, it provides as much information as practical about its operations. The company allows direct stakeholders to clearly see its practices, strategies, and financial positions. Transparency benefits direct stakeholders.
   Transparency serves the interests of investors by giving them information they need to evaluate the potential risks and rewards of investing in the company. Transparency lets employees and customers see how a company is run. They can make informed decisions about where they work and where they spend their money.
3. Nondiscrimination: In an economic sense, nondiscrimination doesn't refer to the absence of bias against gender or ethnic groups. It means a business applies the same financial criteria to all of its customers, suppliers, and employees. Direct stakeholders benefit from nondiscrimination because the company makes decisions on the financial merit, rather than on the biases and preferences of decision makers.
4. Sustainability: Businesses ensure the sustainability of their operations by improving business processes and developing secure, long-lasting relationships with suppliers and customers. An organization's investors, employees, and customers are called direct stakeholders because they have a stake in the company's future.

Direct stakeholders benefit from the sustainability of a business because when a business has a secure future, investors continue to earn dividends, workers continue to draw paychecks, and customers continue to buy the company's products and services. Why do business organizations exist? Their primary purpose is economic—to make profits for owners and direct shareholders and to provide jobs for employees. Their first ethical responsibility is to fulfill these economic goals.

Four Common Ethical Problems

The phrase business ethics draws a predictable reaction from cynics. They insist that it's a contradiction in terms. However, that's simply not true. Senior managers in a vast majority of businesses believe it's important for employees to act and think ethically. These businesses set standards of conduct to help employees recognize ethical problems and respond appropriately.
Companies that set ethical standards often formalize the standards in a code of ethics. A company's code of ethics addresses the ethical dilemmas its employees face most often. Codes created by different companies may describe vastly different ethical dilemmas.
However, a wide variety of dilemmas spring from the following four common ethical problems:

1. Absence of transparency—Everyone affected by a decision should have all relevant information about the decision maker's possible gain, obligations, and relationships. When relevant facts are hidden from one or more parties, the decision is made in an absence of transparency.
2. Unwarranted gain—Important business decisions are usually intended to cause a gain for the decision maker's company and possibly for other companies. When decision makers seek an improper or unearned benefit for themselves or others, that's an unwarranted gain.
3. Lack of impartiality—In an ideal world, decision makers use rational criteria to make decisions; they don't favor one party over others for personal reasons. However, decision makers may let family relationships, friendships, or other biases influence them. When they do, the decision makers lack impartiality.
4. Nonperformance of obligation—Employees have an obligation to perform the required duties of their jobs. They also have an obligation to act according to the company's principles of conduct. When employees fail to meet their obligations or when they cause others to fail, that's nonperformance of obligation.

Employees in organizations—like other groups of people—behave according to the values shared by members of the business. Common ethical problems create unethical behaviors that threaten those shared values.