Business Ethics: What Everyone Needs to Know
A book review by Howard Brod Brownstein
Business Ethics: What Everyone Needs to Know, by professors J.S. Nelson and Lynn A. Stout, is an important book that is encyclopedic in its coverage yet easily accessible in its language and organization. Board members will find it valuable, both as a handy resource whenever ethical issues arise and as foundational reading to help them identify areas of company activity that may be particularly susceptible to ethical problems.
Overseeing the management of risk is a key responsibility of boards, and ethical issues are an element of risk that can arise in virtually every area of business activity. Many board members may assume that they already understand everything they need to know about business ethics. However, as we all know, whenever a business scandal explodes into the news and social media, often the first question asked is, “Where was the board?” As this book clearly demonstrates, business ethics is a broad and ever-changing area of interest, so this topic should be a permanent part of the board’s oversight of risk, and board members should educate themselves more fully about business ethics.
The book tackles such questions as whether being ethical is in fact rewarded by the business environment in which we operate, or whether it might put one at a competitive disadvantage. While the moral underpinnings of ethics are important — and the book covers these — the tenor of the book is pragmatic, and its lessons relate to everyday life and business decisions.
There is a helpful discussion of how science relates to ethical behavior, taking advantage of a large amount of research into ethical behavior, as well as a detailed exploration of how law relates to business ethics, since some — but not all — ethical rules in business have their underpinnings in applicable law or regulation. The legal discussion includes an in-depth explanation of different types of business entities and how the law creates them as “fictitious persons” with some of the rights of natural persons, such as the ability to own property or conduct business.
Regardless of one’s moral compass, the practical risks of failing to uphold business ethics are very real, transcending any legal or regulatory requirements. A company’s most valuable asset may be its reputation, yet that asset appears nowhere on the company’s balance sheet. Board members’ oversight of risk management should therefore include reputational risk as a key element, which requires attention to business ethics throughout the company’s activities, both current and planned. This book provides excellent examples — good and bad — that will be instructive for board members in overseeing management of reputational risk.
There is a valuable “deeper dive” into how-to advice, like creating whistleblower policies and encouraging employees to report questionable practices. The authors also explore how boards can ensure that management is taking appropriate steps to institute best practices in ethics. There is also a useful discussion of designing and maintaining an ethical culture in a company.
In preparing this review, I had a brief discussion with author J.S. Nelson, who has been a visiting associate professor at Harvard Business School, and is currently serving as a visiting researcher at Harvard Law School. Unfortunately, her coauthor, Lynn A. Stout, who had been a distinguished professor of corporate and business law at Cornell University, passed away in 2018 after beginning work on the book. Nelson confirmed that it was the authors’ intention to create a book that is handy and useful, down-to-earth and free from unnecessary jargon. They have therefore posed relatively short questions and answers, while still parsing the variations and multiple dimensions in business situations that may involve ethical considerations.
Business Ethics: What Everyone Needs to Know is a valuable resource for all directors, educating them on the depth and breadth of business ethics and how virtually every business activity may have ethical considerations.
Howard Brod Brownstein is president of The Brownstein Corporation, an M&A and turnaround management firm, and serves as an independent corporate board member for Merakey and P&F Industries Inc.