Can ethics and profits balance against each other

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Ethics in business world have become very important it helps a organization to produce a quality product and deliver good quality service. Consumers have changed over the years and switched to different companies because they feel its important to be ethical. It's a human behavior that consumers so not tend to continue to do business with an organization that does not conduct day-to-day procedures in an ethical manner. An organisation may also have to face failure because of its unethical actions towards people or environment. Word of bad business practices spreads much faster in the market. Majority of customers and stakeholders do consider unethical behavior or ethical behavior. Gross describes Ethics as set of standards to judge wrong from right and It's very important to properly put into practice and keep an ethics agenda in your organisation. Bringing it down to the low level, it means a business must operate fairly and honestly as a indivsual not as a organization enjoy and utilize these standards. It can be applicable to every individual employee working in an organization at any level using their best concern such as: treating every person with respect, doing all their job with honesty, Consider their or the company's actions which might unlawful or unethical. On other hand a business must work within the law and play a fair and honest competition towards its rival and towards its customers. Most companies make their pre-rules and they work under it these policies are called code of conduct or code of ethics (Gross, 2008). Majority of companies set and practice their expected ethical actions in the code of conduct. This document is not the policies created to make the organization undergo that the organization is doing the right actions in day-to-day workings. It is a set of rules that must be followed on a daily basis by all people working in a firm, from the CEO's to the security person. These set of rules is written, "To clarify an organization's mission, values and principles, linking them with standards of professional conduct" (ERC, 2008). This is made to be an indication the ways a business intend to operate on a day-to-day basis. If the code of conduct is properly written it will set practices, standards and procedures, it will not a replacement to these activites. Its important to make sure that the code of conduct is written in a clear and to the point manner. The wording should not be open to interpretation; the agenda should be understood easily by all (Murphy, 1988).

Ethics also include corporate social responsibility (CSR). CSR can mean different to different people, but in general it means business in play a important role beyond jobs and money (Bainbridge, 2008). To put it in simple way for business CSR means to have a better future for the all of us. The holistic approach must give business and the society a mutual benefit is the main motive behind CSR. The question arises why are companies required to perform CSR. The answer to it lays in one word that is ' Globalization'. Globalization is not only tie ups between nations but also concerns processes, and the result is the eme rgence of civil society .(Bainbridge, 2008). In 1990's, decisions regarding the selection of social issues to support tended to be made based on themes reflecting emerging pressures for doing good to look good. Corporations would commonly establish an report and fixed annual budget or giving sometime tied to revenue or pretax earnings. Funds were allocated to as many organizations as possible, reflecting a perception that this would satisfy the most constituent groups and create the most visibility for the responsibility cause. Commitments were made more for short-term periods allowing companies to spread the wealth over a variety of organizations and issues through the years. (kotler and lee, 2005).There are many alarming problems occurring due to development in the business world for instance 'Global Warming', It becomes a responsibility of all of us to take a step further to find a solution for these problems they may be related to food crises, poverty in other nations and many other things. (kotler and lee, 2005). So companies with large amount of wealth can afford to take a step further and help every one out by taking these responsibilities the companies also obtain a good social status, which helps them to recognize them in the market. Kotler and lee described 'The new Corporate Philanthropy' as making long term commitments to specific global issues and efforts, providing extra financial contributions, forming strategic alliances; and doing all this in a way to advance their business goals.

Profits

In the market, there are two important roles-sellers and buyers, who make up the market. Mankiw (2007) indicates that a seller's final goal is gain the maximum profit. It should be associated that the firm is a part of sellers, so the firm also desires to gain profit-maximizing in the competitive market. profit is the difference between total revenue and total cost; hence, clearly understanding the concepts of cost and revenue is crucial. Total cost is the amount of fixed cost and variable cost that the firm invest to produce.. In terms of marginal cost, it refers to the incremental change in cost with extra unit produced. Regarding marginal revenue, it refers to the incremental change in total revenue with extra unit sold. Under perfect competition, the firm is price-taker; accordingly, price is determined by the market and it is fixed. This leads price equals marginal revenue or average revenue. Meanwhile, marginal cost is related with average cost and can influence profit eventually. Moreover, one economic principle indicates that rational people often consider margin when making decisions. Therefore, the significance of marginal revenue and marginal cost should be considered when the firm choose the level of output to maximize profit. Considering the importance of the margin and by means of one above graph it demonstrates that the firm can choose the level of output when marginal cost equals marginal revenue to gain maximum profit under perfect competition in case of marginal revenue exceeds average total cost. (Mankiw. 2007). Profit maximisation has been one of the main aims of the firms. The generally accepted view is the long run will wish to maximize profit. Marginal Cost and Marginal Revenue can be used to find the profit maximising level of output. Marginal cost is the addition to total cost of one extra unit of output. Marginal revenue is the increase in total revenue resulting from an extra unit of sales.

Relations between Ethics and Profits.

There have been many studies into the relationship between Financial Performance and social responsibility, with more recent studies reaffirming the belief that there is a positive relationship between profits and Ethics, however firstly one must consider a neutral relationship. McWilliams (2008) argues that there is an ideal level of ethics (which will depend on the organisation's size, level of diversification, research and development, advertising, consumer income, labour market conditions, and the stage in the industry life cycle) that will maximise profits while satisfying demand for ethics from the stakeholders. To maximise profit, the firm should 'offer precisely that level of social responsibility for which the increased revenue (from increased demand) equals the higher cost (of using resources to provide ethics) (McWilliams, 2008). This allows the firm to meet the requirements of the relevant stakeholders that demand ethics, as well as the shareholders. Therefore, according to this argument, the ideal level of ethics y is the point where the firm is in equilibrium and from this McWilliams predicts there will be a neutral relationship between ethics activity and firm financial performance. However, although a neutral relationship between ethics and profit might theoretically sound plausible, as McWilliams notes in her article, it is difficult to test empirically given the lack of data on the demand for and supply of Social Responsibility.

Therefore, managing its social responsibilities has become a strategic priority in order to protect its reputation, market share and to operate in a way which satisfies all its stakeholders (Sharma.S, Starik.M, 2004). However, it should be noted that ethical behavior is not always rewarded by a competitive advantage over companies that are not ethical as much depends on how consumers react (William B. and Chandler.D, 2006). But, due to technological advances, which allow fast communication and the ability for investors to use electronic funds transfer to invest elsewhere instantaneously, companies are finding ethical behavior necessary in order to maintain ethical investors it is far from obvious that managers will wish to see profits maximized like shareholders. As workers they will attempt to maximize their own rewards. These may include their own pay and fringe benefits, their ability to appropriate resources, and the amount of effort they have to make. There is always the threat of takeover or bankruptcy leading to a loss of jobs, so managers have to make enough profit to satisfy the demands of their shareholders. This is known as profit satisficing, The state government provides an underlying framework for the operation of the company. Legislation on taxation, the environment, consumer protection, health and safety at work, employment practices, solvency and many other issues forces companies to behave in a way in which they might otherwise not do in an unregulated environment. The consumer, through organizations such as the Consumers' Association or various trade organizations, can also bring pressure to bear on companies in an attempt to make them change their policies. (William B. and Chandler.D, 2006).

In conclusion, it was noted that the general environment has evolved and therefore recently managers have needed to change the way in which they do business. One change has been the increased usage of social responsibility in order to gain a competitive advantage. Social responsibility was found to add social and environmental value to the firm, by enhancing the firm's assets. It was also determined that most managers believe social responsibility contributes to financial performance, and this belief was supported with explanations for a positive social responsibility-financial performance relationship, with a neutral relationship considered but found to be difficult to test empirically. An ethical organisation was introduced and it was noted that ethical behavior is necessary to maintain ethical investors. With improved social and environmental performances, manager implications were mainly considered to be improved loyalty from major stakeholders, which in turn increases turnover. For financial performance, it was established that social responsibility poses many practical implications for managers, especially as new accounting methods are becoming more prominent. Therefore, it has been found that social responsibility has become increasingly important in organisations because it increases the market value of the firm.

References

Gross,B. (2008). Ethics and People Management. Retrieved 12/ 02/ 2010, from http://www.allbusiness.com/human-resources/employee-development-employee-ethics/2975409-1.html.

Ethics Resource Center. (2008). Why Have a Code of Conduct. In Ethics Toolkit. Retrieved 12/ 10/ 2010, from www.ethics.org/resources/wy-have-code.asp.

Murphy, P. E. (1988). Implementing Business Ethics. Journal of Business Ethics, pg 907

Kotler, P and Lee, N (2005), Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause, John Willy and sons, Hoboken -New Jersey, pg-54, 67, 71

Bainbridge, David (2008), Introduction to Information Technology Law, (6thedn) Pearson Education, New Jersey, Pg- 106-113

Mankiw.G. (2007), Principles of Economics, South -Western, Mason (OH, USA).

McWilliam.A. (2008), The Oxford handbook of corporate social responsibility. Oxford press, New York.‬ 

Pg249-262

Sharma.S, Mark Starik. (2004), Stakeholders, the environment and society. Edward Elgar Publishing, Cheltenham

William B. Werther, Chandler.A. (2006), ‪Strategic corporate social responsibility: stakeholders in a global environment. Sage Publication, London Pg74-81

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