Business Bluffing Justified?

            Something becomes an ethical dilemma when and only when someone observes that something is not completely just.  Thomas M. Garrett of the University of Scranton describes the general sense of ethics as “the science of judging specifically human ends and the relationship of means to those ends” (Garrett 4).  Many people use the word “ethics” too generally, denoting something that is completely wrong as an ethical dilemma; however, an ethical dilemma is to be disputed and analyzed with a goal of finding the most correct solution.  What better subject to discuss possible wrong doing in this day and age than business itself.  The common view of business in the twenty-first century is that of corruption and deceit, but are many of these so called “misdeeds” merely moves in a grand game of chess?  Albert Carr thinks that this assumption is true: “Business is our main area of competition…But the decisions in this area are, in the final test, decisions of strategy, not of ethics” (63).  Thus, what research and different theories illustrate is that the “best story” is that what are perceived as unethical or questionable business moves can ultimately be categorized as necessary business strategies. 

            The textbook Honest Work illustrates the different elements and conceivable perceptions of ethics in the business world such as whether or not to “blow the whistle” within a business, differences between cultures, and even basic discrimination on the job.  What Albert Carr argues in his essay, however, refers to the ethics of business strategy or the active participation of businesses within national and international markets.  Thus, one can argue that a different code of ethics is applicable to business strategy than to some other subjects discussed in the business ethics class.  In his essay, Carr calls this “special ethics” (60).  In society, we believe that killing is wrong in any situation, yet war is seen as an option in international disputes.  We also believe that every life must be preserved no matter the cost, yet we have people who are refused care by physicians based on a lack of health insurance.  There is no one solid code of ethics that can be applied to every situation, so why would business strategy be any different?  Even Kant acknowledges differences between ethics in society and business ethics when he states “One might think that a Kantian theory of leadership is as much an oxymoron as business ethics itself” (547). The example that Carr uses is that of a poker game.  Carr says “A player feels no more than a slight twinge of sympathy, if that, when…he strips a heavy loser…of the rest of his chips” (61).  One controversial argument that might supplement Carr’s argument, and one that must be understood for this essay to hold true, is that of Milton Friedman’s argument of a businesses’ social responsibility: “That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society” (242). Thus, one must determine if what is observed is ethical behavior within a situation, which is precisely what is taught in this particular class. 

            What must be understood before one can talk about business ethics is exactly what it means to “play the game.”  One great example that comes from recent corporate news is the still ongoing situation between British candy manufacturer Cadbury and the Kraft Corporation.  Cadbury, in light of the recent recession, is sustaining a drastic loss in profits just as many other corporations have and will likely be forced to shut down many operations, but Kraft Corporation has offered multiple bids to the Cadbury CEO in an attempt to buyout the company and merge it within the Kraft label.  The CEO of Cadbury, although he realizes that the business would go under with continued operations, has refused the offers every time stating that the company would not be sold.  Weeks later, that same CEO alerted the press that another, more exceptional offer from Kraft would be taken into serious consideration (Rohwedder). The sudden flip-flop or hypothetical change of heart is merely basic business strategy by company officials in order to extract more money and funds from Kraft or other firms considering takeover bids.  This is seen as the status quo in the corporate business world because of the fact that there is a code of special ethics involved in business.  From a social dimension, this strategy would not be as universally accepted.  A college student would not hold “bids” for selling a textbook to a friend.  He would, at least in most cases, merely want to receive the amount which he would have collected from a book store buy-back or sometimes slightly less than he or she paid for the book.  In terms of business though, this strategy is not seen as taboo; on the contrary, the companies bidding for Cadbury would actually expect nothing less from the corporation when businesses are created in order to attain as much profit as possible even in the face of complete eradication.  Thus, in terms of “special ethics”, the fact remains that society cannot hold true the conventional ethics of individuals to the institution of business as interests are completely different between the two. 

            People argue that business should be conducted completely honestly and without any kinds of deception.  This, in economic terms, is called “perfect information” and is not applicable to real life with good reason (Baye 459).  With perfect information comes zero economic profits for businesses and with zero profits comes zero incentive to enter into the business world.  For example, if a customer knows exactly what it costs for a business to create an item and the prices that companies are selling the item, companies would be forced to sell the product at the cost of the product or else they would receive no customers.  Because companies would merely be covering the cost to create an item, what incentive would there be for more businesses to enter into the free market (Baye 336)?  Although it sounds extreme to say that without business strategy there is no business, there is factual and hypothetical economic evidence to support this radical claim.  The book Taking Sides explains Adam Smith’s version of business strategies:

“…(Adam) Smith believed that individual businesspeople acting in their own selfish interest would be guided by an ‘invisible hand’ to promote the public good.  In other words, the individual’s drive for maximum profits and the regulation of the competitive marketplace would interact to create the greatest aggregate wealth for a nation and therefore the maximum public good” (Newton 59).

            People get into the business world because they feel that they can make a profit or their ideas can be translated into profit; not every idea will be translated into a non-profit organization.  With this thought in mind, would it not be seen as “unethical” in theory for a business to not maintain the welfare of itself as well as the employees and investors of the business?  This would be an example of the “manager’s responsibilities to the investor” problem that arises in the corporate world (Friedman 243). 

Even a Kantian view is, in one interpretation, an anti-economic view:  “a business relationship cannot be simply economic; business interactions are interactions among person and thus they are always subject to morality as well…What are the laws that govern such interactions?” (Bowie 548).  This quote takes on too general of a definition of “economic” because anyone that studies this field does in fact know the laws which govern these interactions because they are but the laws of basic economics themselves as Adam Smith states.  They are not written, contract laws, but nonetheless are an “invisible hand” that must be comprehended in order to succeed in the economic conditions.  Such laws are understood that in order to produce profits, a firm must realize the maximum values at which consumers will value a product and then recognize the amount of output at which to set production. In other words, a business cannot simply gouge the general public in order to gain; there are hypothetical but known laws that govern business interactions and if they are not consulted, a firm will lose business as well as profits.  This principle that consumers affect economic decisions in terms of price is called “price elasticity of demand,” and is a measure of how the general consumers will react to price change (Baye 408).  A great real life application of this theory involved what would later be seen as the beginning of the video game industry boom in the 1980’s.  Before the Japanese company Nintendo almost completely took over the market for video game systems, there was the Atari, the first video game system ever made.  While the Atari as an invention was a breakthrough in technology, the company failed because no one was going to purchase such a machine for the extremely high prices the system was demanding.  What was expected by the company was drastic sales revenue and output that could be set at any production, but what occurred was a dearth of sales and a surplus of systems becoming backlogged in storage rooms of retailers.  This occurred because even though Atari was a great breakthrough and felt it could charge any price and maintain sales, it cannibalized itself.  After the fall of Atari, Nintendo stepped in to an otherwise dead market.  What Nintendo proceeded to do was to create and sell a video game system with a much lower price tag than did the Atari, and also controlled the shipment of systems and limited the output in the market (Brandenburger 111-14).  Because Nintendo controlled completely the shipments that were given to retailers, many stores ran out of systems very easily and were unable to serve customers.  Although Nintendo had the resources and manufacturing capacity to create enough machines, it knew that in terms of business, withholding units was the “smart” business strategy and is the way the company “played the game” by using principles of economic theory. 

            These concepts are merely a few economic theories that actually serve as laws of sorts to govern the interactions between “person(s)” as Bowie constructs it in his article on Kantian views.  Thus, in contradiction of the Kantian view, morality is not necessarily the basis for which business interactions are governed.  In fact, Thomas M. Garrett also agrees with this statement when he says:

“Ethics is not the study of morals, whether this word is used to designate conformity to conventional social rules or the existing moral judgments of men.  Although existing norms and judgments may contain valuable insights, ethics does not accept them, but sets out to criticize and test them in terms of more ultimate norms…the accepted courtesies of a society are not the foundation of ethics even though they can provide valuable hints as to what men think” (Garrett 3).

             One interpretation of this quote would be to say that individual and social morality and sense of virtue cannot always play large roles in ethics in general, not to mention business ethics.  A statement which says that business should be collectively made up of managers implementing complete and utter moral ethical practices seems one of economic blindness.  If one were to be technical about business, would the pursuit of profit itself be unethical?  In “moral” ethical standards, charging more than the cost to create a product would be deemed unethical in theory, thus eliminating the field of economics, a system that has been in existence since recorded human history.  Joanne B. Ciulla, in an essay about leadership, actually touches on morality when she states that sometimes humans are faced with “the ends justifying the immoral means” (535).  As business strategy is the method of attaining profit for business, it is necessary and must be observed from an economic standpoint.

            One governing body that understands these economic standards very well is the United States government which enforces laws that we as citizens must obey out of fear of physical punishment.  Law takes on an entire definition when it comes to businesses; in fact the study of business law is developed into an entire college course because of its specificity from generic American laws, thus showing another instance of “special ethics.”  For instance, economics states that monopolies are not beneficial for the public utility, thus the American government has “anti-trust” laws that prevent a company from consuming an entire market and actually encourages competition in business as it is more effective in providing more utility for the general public.  Many occurrences of morals and virtues are often derived from the tangible, stated laws of the land themselves. Thus from Carr’s point of view, these laws go in accordance with what many would consider to be moral standards anyway.  Carr states “As long as they (businesses) comply within the letter of the law, they are within their rights to operate their businesses as they see fit” (61).  It has always been debated whether law and ethics can be related and how much relevance each has with the other.  One statement from a college textbook illustrates that “Some aspects of morality are so widely held, so universal, that society will enact laws enforcing those aspects—putting the weight of government and the machinery of law behind them” (Wines 5).  If the moral “laws” to be enforced no matter what the conditions are embodied within the American government’s set of laws, why would a businessman feel morally obligated to hold his business to a higher standard by not implementing “bluffing” or “playing the game” as part of his company strategy (excluding charitable organizations which are created of course for the public good)?  Business laws aim to restrict strategies sometimes to the extent that businesses are taken to court when, to the public’s eye, no wrong doing has occurred.  Going back to the video game example, after success in American markets, Nintendo was taken to court on suspicion of violations of anti-trust laws.  The issue became the fact that Nintendo placed a security chip within their video game system that restricted games that would play on the system to only those which Nintendo permitted.  This meant that companies that created video game software would have to go through the Nintendo Corporation in order to be able to play their software on the Nintendo system.  Thus, this security chip in the system was deemed by many as being “anti-trust” behavior.  Although Nintendo was taken to court, how can a company be expected to create such complex equipment when the company itself would have no bearing on the software to be used for it (Brandenburger 116-17)?  To the average person the security chip would seem to serve a necessary function, but the government felt that it should be analyzed as monopolistic behavior.  This example shows that laws are in place that not only prevent corporations from complete corruption, but also are there for the good of the public even when the strategy seems to be justified in principle. 

            Not only does the American government prevent much of the corporate activity that would be detrimental to the public, but they serve severe punishment for those who attempt to take advantage of the financial assets of corporations.  The classic example of this severity of punishment comes from the biggest case of corporate corruption in the past decade: the Enron trials.  Enron was a company in the business of trading energy and energy assets nationally and internationally.  The company, illegally, put up a false sense of business success as they deceptively represented the accounting books and numbers to appear as though the company was making a profit when in fact the company was on the verge of complete bankruptcy.  Before the company fell, the highly regarded officers of the company began to sell stock at an alarming rate.  The punishments that were to come for those involved in the massive fraud that cost the general public millions in stock assets was going to be so severe that Cliff Baxtor, a chairman of the company, committed suicide rather than receive the punishment to come (Thomas).  The crackdown on white collar crime is becoming more and more prevalent.

            Strong moral beliefs will always drive individuals separately to exit from business, and for this reason, the business world has been called cutthroat, vicious and not for everyone.  Sometimes even the mere mention of the fact that a person works in a corporate setting automatically brings to mind assumptions of corruption.  However, the fact remains that, because of the nature of business and corporate industry, one must observe “special ethics” as is needed in many other aspects of society because business is not a direct parallel of society in general as interests differ; so morals cannot necessarily be a great barometer for ethical or unethical behavior in the business world.  Even so, we have economic rules and principles (laws) as well as tangible governing body laws of the land which restrict erratic decision making and prevent strategies which will discriminate against the public utility.  Thus, one cannot label a business manager to be unethical for “playing the game” and “bluffing” as means to grow and maintain his business.   

Works Cited

Baye, Michael R. Managerial Economics and Business Strategy. 6th. New York: McGraw-Hill/Irwin, 2009. Print.

Bowie, Norman E.. “A Kantian Theory of Leadership.” Honest Work. (2007): 547-50. Print

Brandenburger, Adam M., and Barry J. Nalebuff. Co-opetition. New York: DoubleDay, 1996. Print.

Carr, Albert Z. “Is Business Bluffing Ethical?.” Honest Work. (2007): 59-63. Print.

Joanne B. Ciulla. “What is Good Leadership?.” Honest Work. (2007): 535. Print.

Friedman, Milton. “The Social Responsibility of Business Is to Increase Profits.” Honest Work. (2007): 241-45. Print

Garrett, Thomas M. Business Ethics. New Jersey: Prentice-Hall, Inc., 1966. 3-5. Print.

LaFeber, Walter. Michael Jordan and the New Global Capitalism. Expanded. New York: W.W. Norton & Company, Inc., 2002. Print.

Newton, Lisa H., and Maureen M. Ford. Taking Sides. 10th. New York: McGraw-Hill, 2008. Print.

Rohwedder, Cecilie. “Cadbury CEO Eases Stance Against a Bid From Kraft.” Wall Street Journal 22 Sep 2009: B1, B2. Print.

Thomas, Cathy Booth. “Called To Account.” TIME Magazine 18 Jun 2002: n. pag. Web. 22 Nov 2009. <http://www.time.com/time/business/article/0,8599,263006,00.html&gt;.

Wines, William A. Ethics, Law, Business. Mahwah, N.J.: Lawrence Erlbaum Associates, 2006. 5. Print.

~ by bleeddukeblue on December 3, 2009.