Business Ethics how its violated to gain competetive advantage
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Published: Mon, 5 Dec 2016
The field of Business Ethics is comprised of several definitions by different scholars and authors over the decades and all have a different way to define it. According to author Goran Svensson and Greg Wood, business ethics is a function of time and culture, this basically means that time/culture in business environment will affect what are acceptable and unacceptable business activities and management principles in the market place and in society. This can be shown in form of a diagram below (journal):
According to Velasquez (1999) “it is the study of moral standards and how these apply to the systems and organisations through which modern societies produce and distribute goods and services”. (journal meaning) or Business ethics is also the branch of ethics which determines the actions and decision by businesses ( corporate and any firm who is in the field of making profits) and how it affects the lives of its stakeholders who are the general public, the shareholders, competitors, employees and the government.
Most businesses think that business ethics are determined by the values in its society. It is true that businesses are there for providing goods and services for the public in order to make profits but the question is: What do they do in order to make profits and not harm the society?
Today business values are changing, information is readily available through media about the actions and to keep businesses running, they have to take care of all the stakeholders. These trends are what has made firms implement business ethics in their strategies so as to keep customer loyalty and stay within the frameworks of acceptable norms of the society.
Actions which are just for the creation of the privileged few at the expense of the many stakeholders is discouraged in the modern societies but there still exists many firms which maximize profits but still follow strict values of business ethics. A popular example is the US $24 billion Johnson and Johnson company led by the chairman and C.E.O Ralph Larsen. The company is known for its valued commitment to ethics, customers, employees, and communities.
The secret of doing profit making business is to follow the needs of all stakeholders and provide goods and services of value to the public and manage the operations in a way which does not harm any stakeholder.
Why business ethics?
Business ethics enables firms who want to be good and gives them knowledge and how to be good. Moral and ethical challenges are part of people’s daily life but in business it is most important——on how they handle such issues. Business ethics enables leaders to have good criteria on making decisions which are in favour of most stakeholders and not just for the few. The main role of any manager in any organisation is to ensure that their firms live up to the required legal and ethical standards. It enables businesses to take care of stakeholder interests while running the firm. Doing business in an ethical manner enables earning of fair profits by providing useful and beneficial products and services and at the same time improving the lives of people in a competitive environment, but profits are only good if they are obtained in the right manner and if man keeps the right attitude towards them. It also involves being able to run a profitable enterprise while being considerate and while taking care of the morals and attitudes of the employees. To avoid other players to either quit or demand high risk premium business players need to act ethically to build trust among those players. Above average profit making firms who use unethical methods to do this do not last long before they get exposed to the law and general public and all the returns they may have made unethically vanishes in few moments.
Models of business ethics
External Stakeholder relationship
Power of media
Social responsible managers
International Business with Integrity
Better corporate citizens
Pay appropriate taxes
Products acceptable Expectations Perceptions Evaluations
organisational values, norms and beliefs
The three main components of a business ethics model is expectations, perception and evaluation and they are interlinked by other five sub-themes that is society expects; organisational values, norms and beliefs; outcomes; society evaluates; and reconnection.
Organisational values, norms and beliefs
Organisations are usually affected by the environment in which they operate and therefore culture in any organisation is an important factor to be taken into consideration. Serpa (1985, p. 426) says that it can be called, “the social glue holding a company together”. Each organisation has been shaped according to its own sets of belief and its a way of interpreting a companys past and future prospects ( Cohan p. 287). The way an organisation carries out its day to day activities influences stakeholders both internally and externally (Freeman 1984). Benson (1989) and Fraedrich (1992) believes that every organisation need to create a good relation with its competitors, customers, and the general community because an organisation can never act separately in the market and therefore every organisation needs to address its relationship with all.
This are the ways in which an organisation chooses to interact with the society at large this maybe in terms of ethical behaviour or unethical, each of this has its own effects.
A company that acts or interacts according to society expectations and the way in which it responds and reacts to these pressures produces an outcome. According to theorists levitt (1958) and Friedman (1962) says that outcome of a company is it has made a profit or a loss and how it influences its stakeholders through the activities in the market place. However Joyner and Payne, 2002;Spiller, 2000 believe that business exist just to make profits but this is not the case today societies interprets what the compayt has done for the society and how its impacted through its actions therefore making a profit is just not enough.
The society uses a number to ways make the decisions of the organisations performance. These decisions are mainly based on: How company contributes to Corporate Social Responsibility? How they have retained their customers by providing services? Are their products healthy for its citizens to consume?
In a general sense, society hates losses and it praises profits that have been declared by a particular company, and they further investigate the situation although profits are not a guarantee that the organisation acted according to the society interests therefore the society goes a step further through a set of checks and balances to ensure that the profits gained are in an ethical manner.
Once evaluation criteria have taken place the model again comes back to the beginning because now the expectations will the foundation on which the performance of an organisation can be judged. As time evolves, the perception of individuals may also change to new levels of ethical behaviour. This model in past years may seem to reconnect again but the world has now changed and it has become more revolutionised and therefore the citizens have moved forward and have become more aware of business expectations and behaviours.
Looking into the concepts and the ideas which have led to development of business ethics date back to the philosophies of many great thinkers like Adam Smith, Stuart Mill, David Hume, Karl Marx, Kant.
Sources of Morality
Sources of morality are the elements which determine the goodness or evilness of an act or the ability to choose between right or wrong, acceptable or unacceptable (journal codes of ethics).
These are the sources of the morality of human acts: (ref)
Object- Is the “matter” of the human act, the ‘what’ we do? The object determines the morality of an act. The human act receives its goodness primarily from the morality of the act itself.
Intention – It refers to the motive of the person in doing an act. No matter how good the intention is, it never makes an intrinsically evil act to become good.
Circumstances – These are those factors that occur with the act and that contributes to the morality of the act. They cannot change an evil act into a good one but can lessen or heighten the blameworthiness.
These three elements helps to evaluate whether the act is evil or good however, intention and circumstances cannot change the morality of intrinsically evil acts examples like stealing from the business, offences against human dignity such as arbitrary imprisonment, slavery, degrading working conditions where men are merely tools for profit.
An act always has a good and bad consequence which makes the person evaluate the act using the double effect criteria (ref). It weighs the extent of both the good and bad effects and the act that has the minimum bad effect is over ridden by the act that is more ethically moral which is good hence reducing the evilness of the bad effect. It also means that the good effect should overdo the bad effect in cases when the bad effect cannot be avoided and steps should be taken to reduce the effects of the bad effects. The object of the act should be good in itself or neutral.
An example of such a scenario is that it is advisable to bomb the headquarters of an enemy camp in order to end the war even if it requires killing civilians around the headquarters.
Another example in a business context is the Johnson and Johnson.
In October of 1982, Tylenol, the leading pain-killer medicine in the United States at the time, faced a tremendous crisis when seven people in Chicago were reported dead after taking extra-strength Tylenol capsules. It was reported that an unknown suspect/s put 65 milligrams of deadly cyanide into Tylenol capsules, 10,000 more than what is necessary to kill a human. This was very unethical since it claimed human lives. Investigations showed that this act was done by a third party since it occurred at the time the product was on the shelves but following the guidelines of the company to protect people first and property second so as to maintain reputation. Thus the firm conducted an immediate product recall from the entire U.S.A which amounted to 31 million bottles and a loss of more than US $ 100 million.
This act definitely had a great impact on the revenues of the firm. So the double effect criteria if used explains that the good effect of saving more lives and maintaining reputation far exceeds the bad effect of losing revenues and incurring the huge losses.
THEORIES AND ORIGIN OF BUSINESS ETHICS
Utilitarian theories are historical roots founded by David Hume (1711-1776), John Stuart Mill (1806-1873) and Jeremy Bentham (1748-1832) (Tom L. Beauchamp pg 17). It is an ethical theory because it has significant impact particularly in shaping politics, economics and public policy. Any ethical act according to Utilitarianism is determined by the consequences of the act. It is identified by the policy of maximizing the overall good or producing the greatest good to the greatest number. Acts that accomplish this are good and those that don’t are bad. Utilitarian’s are pragmatic thinkers (ref) therefore no act is right or wrong as a whole in every situation, it basically depends on the consequences for example it might be ethical to tell a lie if the lie brings good for greater number of people. For utilitarian the economy exists to provide the highest standard of living to the greatest number of people. They recognize two value systems first one called instrumental value that are things done to lead to an end of producing a greater good and second is that happiness is the ultimate good.
The Free market economy is slightly different from Utilitarianism where the Utilitarian’s prefer maximum satisfaction example value for price and therefore, economic transactions occur when consumers look for their own happiness by buying with their own will. If a particular product dissatisfies consumers they will not continue to buy that product and eventually such unsatisfied products will be eliminated from the market completely. In a competitive and free market consumers have a right to bargain for the products that they buy. An agreement between a buyer and a seller will only take place when both believe that this particular transaction will improve its position. A seller will gain by earning a profit and a buyer by buying the product that he desired. Basically free market economics is an efficient way of maximizing Utilitarian’s happiness.
Utilitarianism and business policy
According to Utilitarian’s there are experts who can predict the outcome of public policies for example——–, CBK examines economic data and determines the present and future state of economy……..incomplete
Dispute might arise in businesses and this could be as a result of unsafe working conditions like in a flower farm in Naivasha (Kenya) where employees are working without wearing a mask when spraying on the flowers, most of these employees are highly affected and as a result health problems occur but yet they have to work there to earn a living although that is not his ultimate happiness. Self interest of a particular person will lead to maximum happiness of other individuals unknowingly for example, If a person sets up his business in a place that is yet untapped by other businessman, soon another one or two will also base their business at the same place when they realise the benefits it may be inform of larger customer base and in the long run it benefits three of them leading to maximizing happiness It is referred to as an invisible hand theory(ref). This theory applies in many business markets which have higher demand than supply of certain commodities or services. This theory promotes policies that enable individuals to protect their property, reduce the interest rates on loans so that more people are able to start up their own business which would encourage competition in the long run.
Kant (1724- 1804) was a German philosopher. According to Kant our duty is to act in a way which is ideal and which is ethically accepted by everyone without doing harm or compromising on anyone’s freedom (ref). Kantianism is at times referred to as a form of rationalism and theologism that involves what must be done in accordance with the will of God (Resse, 1980)( journal 19 ref). Kant suggests that our intentions should be based on 3 fundamental imperatives. (ref)
Firstly use man as a means to an end and not as a tool. A person should be given his dues as per what he has worked for and what he deserves. The person should not be used to derive personal interests only. Evil acts under this imperative are deception and coercion (ref). However this does not act as a barrier to commercial transactions as long as both the parties are in agreement and benefit. An employee might have to do overtime during peak production season and upon agreement with management he should be paid his overtime at a higher rate than normal. Second imperative is to do an act which can be made a universal law. This imperative emphasises on the fact that every individual has dignity and that he/she should be respected as a person with equal right towards any public good or resources. No single person should be more privileged than the other. Thirdly in an ideal kingdom you should be the king and a citizen (ref for the 3 points). This imperative enables one to think like the people under him/her and make rational decisions which will not harm anybody. He believed that every human being is free to make their own decisions and no one can influence their decisions.
Implications to business ethics
If a person in financial difficulty borrows money without the intention of not paying back according to Kant, this cannot be applied as a universal law because under normal circumstances money borrowed should be returned by every individual therefore this cannot act as a universal law for every one to follow it’s ethically not right. Any manager that follows the Kantian principle would first ask himself if any decisions that he makes could be universally applied as law, if the decision is worth applying universally then that’s the time it’s implemented. Some of the examples that can be used to explain this theory are: dishonesty and conflicts at work place with your colleagues or basically giving false information about the firm, Cutting the queue or Writing bouncing cheques.
Virtue ethics helps an individual to have a good life because it requires us to act in a particular way for the good of others and this basically depends on our character, our beliefs and our interests. Values are habitual way of acting and they form a character in a person (ref). However, both Kantian Ethics and Utilitarian’s expect us to ignore our emotions but virtue ethics requires us to use character traits which might be formed through schools or at work place or according to how they have been brought up. The four cardinal virtues which a man should posses are as follows:
These virtues enable a person to be strong and hopefull even in adverse cases and not lose out easily. This virtue should be present in managers whose business environments are very competitive and dynamic.
This virtue enables a person to be rational and give everyone what they deserve and not limit anyone’s freedom of right and respect.
This virtue enables a man to keep control and moderate any use of resource which might harm the people or the business if it is not controlled.
Other important virtues like honesty, cheerfulness and humility make a person more admirable and respectable for the actions he/she does.
There are 6 important pillars of characters in virtues: (ref)
Citizenship – A good citizen will always work for the benefit of the country or to serve their own community so that the world can be a better place to live in.
Respect – Respect every human so as for you to be treated well in return.
Trustworthiness – This is indeed an important factor to consider in any person because any business requires its employees to be honest.
Caring – This means taking care of other people in terms of its feelings, being kind and this is the basis of ethics.
Fairness- This means being just and equal to every stakeholder and giving them what they deserve as per their efforts.
Responsibility- This means taking liability and accountability of actions and duties that have been granted by a higher authority to implement, control and maintain.
One of the most famous writers like Adam Smith wrote the “theory of moral sentiments” he said that justice and benevolence are the two most important virtues of a modern market society (ref). Some of the virtues that make a market operate efficiently are honesty. This maybe through signing contract that bind both the parties into one agreement. Courage is also an important factor as it enables one to take risks and gives the strength to stand on its own even when the days of the life are hard. Recognizing hard work and awarding employees so that they are motivated to work extra harder is a virtue that will increase the efficiency and productivity of the employees.
RIGHTS TO PRIVATE PROPERTY AS A NATURAL RIGHT
The whole earth was given to the human race by God to use and enjoy and therefore every man has a natural right to private ownership both for consumer and productive goods. (ref)
There are two schools of thought in private property ownership namely Capitalism and Socialism. (ref)
Capitalism suggests that property should be made available to the public and those who can provide the sufficient resources can own it and develop it. Socialism on the other hand suggests that everyone should have an equal chance and thus the property should be solely owned by the government who in turn will provide the required goods and services as per the basic needs.
Individualism (Capitalism) allows individuals to own property and use it as a resource to generate more capital which leads to competition and ultimately to common good.
Productivity in the generation of goods and services can only be achieved if there is motive for it. Thus the right to private property acts as a motive to bring to the market better products which in turn satisfy more wants of persons and increase the standards of living.
Common good refers to a situation—– the benefit that the persons living in a society derive from actions of all individuals towards doing the right thing. Common good can only be achieved if there is presence of business ethics among the firms operating in the society. If a firm practises unethical behaviour like polluting the environment, then the society can never achieve common good and such firms should be regulated by a higher authority like the local government.
The state is the overall determinant of how resources are allocated and how they are put into use. The state has ministries which control various functions like commerce, land, water, energy, finance and others. All these ministries have a direct impact on the actions of the businesses. Thus the government should make sure there are strict rules and regulations which the firms should follow and that failure to do so should have critical legislative actions.
There are various instances when firms engage in unethical activities which may be legal but this shows that the state has loopholes which should be sealed to prevent this behaviour.
The state should allow employees to associate and form labour unions and support them so that they can have a higher bargaining power against the employer in terms of working conditions and wages. In past when labour unions in Kenya were highly discouraged, the employees used to suffer a lot that they were unable to bargain against the employer. These days collective bargaining has given workers power to ask for their rights and be given what they deserve.
Pursuit of profit in business is a theory that has been in debate since many years and it suggests that employers try to maximise only the profits at the expense of the employees and the other stakeholders like the clients.
Employers according to Kantian should provide meaningful work to its employees. The management should fulfil the obligations of the contract they have entered with the employee. Certain authorities which have a higher influence in making decisions should not use the power to undermine junior employees especially for implicit elements of work. Employees are the people who make organisations move ahead and their demands should be met if they are within the ability of the firm.
Under the universal declaration of human rights, workers have the rights for their demands to be met as long as the employer has the ability and the employee deserves it although the employer cannot take guarantee of it.
Firing employees for minor reasons should be strictly discouraged since it is unethical to take away a persons freedom without giving the person room for making any decision.
Kenya is a developing country and in developing countries the number of jobs available is less than the total number of unemployed. This gives more power to employers who just give the employees a wage equal to the minimum wage which is very unethical.
The management should give employees freedom for expression and not undermine them by not giving them privacy. Certain organisations look into the personal life of the employee even though it does not have any link to the work the employee does.
Employees also act unethically by using the freedom for their leisure time like reading newspapers, using internet and telephone for personal use and loitering out of work during working hours without the knowledge of the management.
Agency theory in business ethics explains the relation and interests different stakeholders have in relation to the activities of the business. Various stakeholders have different needs and not all needs can be satisfied at all times. Therefore Milton Friedman came up with a theory that Cleary explains the reasons why one stakeholder’s expectation differs from the others.
Milton Friedman (ref) argued that profit maximisation should not be the ultimate motive of the business but other thinkers and scholars say social responsibility should be a greater part of the business from which profits are made as a by product.
He suggested that a business is not a person and hence cannot be moral so it can involve the business in costs only and reduce the benefits.
He says that managers should only do what increases the benefits because they have been employed by them and therefore their main aim should be maximising profits.
The Agency theory is an argument which revolves around what the shareholder and the managers should do. Who should be accountable and liable in case the business makes a loss or harms the society and who should be rewarded in case the business makes a healthy profit?
The stakeholder Theory explains clearly what the roles of the management are and what they should do so as not to create conflict among each other.
Kant theory makes it clear that needs of all stakeholders should be met at certain levels according to the efforts, resource and time that has brought a benefit to the company and in case there is a loss, all the related parties who otherwise would have benefited should be penalised.
The stakeholders should be given a right to be part of the firm and influence in the decisions of the firm if the firm is to go ahead and become bigger and more productive.
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