Influence of Ethics in Business
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Published: Tue, 18 Jul 2017
The purpose of this paper is to show how ethics influences international business. In today’s business with the growing competition, there has been a rise of unethical behaviour by managers, employees or even shareholders. To stay in a business and maintain long term profitability it is important to maintain high ethical standards. It is good to point out that even if it means reducing profitability, the company expect employees to follow the ethical policy. Without a proper ethical program or laws, the company may find itself in illegal procedure or lawsuit.
Today globalisation has taken place almost all over the world and it presents new opportunities to generate extra value added which deserve exploration. It helps to exploit the country’s competitive advantage and it develops economies of scale. Businesses enter foreign markets by exporting, importing, foreign manufacturing, franchising, licensing.
Only recently, many large organisations regarded business ethics in terms of administrative compliance with legal standards and adherence to internal rules and regulations. However today, ethics have become a very important issue. Many organisations now realise that they must comply with the business ethical policies in order to succeed. International business ethics demand greater accountability towards government, laws, people and environment.
Chapter two discusses on ethical issues and philosophical approaches to ethics
Chapter three put emphasis on the discussion and analysis of international business ethics
Chapter four provide conclusion and recommendation
2.1 INTERNATIONAL BUSINESS
In Wikipedia, the term international business refers to all commercial transactions that is cross border transactions of goods and services and resources which are done between different countries.
In fact the following terms are commonly used in international business: multinational, Transnational, globalisation, multi domestic, worldwide and the global marketplace.
Many large businesses operate in many different markets. Some examples are McDonald, General Motors, Sony, Shell, Samsung, Toyota, Nike etc. While an organisation operate in another country, its survival depends on a number of factors such as legal, political, economic, language, environmental ,culture, foreign exchange market, labour, climate education.
2.2 BUSINESS ETHICS
Business ethics is defined as the behaviour that a business adheres to in its daily dealings with the world. Different business adopts diverse ethics which are suitable for the company. The unethical behaviour of a company can lead to a bad reputation. The way a business conduct itself show the ethical behaviour. Every business should adopt good business ethics. Many global businesses have even been fined worth millions for breaking ethical business laws. Today if a business breaks anti-trust, ethical or environmental laws, it may ends up being fined. And to safeguard business image, it has become important to establish a good ethical policy in any business. The involvement of ethical issues such as the Employment Practices Human Rights, Environment regulations are very common. Many large organisations such as Boeing, BP, Tesco, Shell and so on have their own ethical policies which give guidance in respect of good behaviour in the workplace, business ethics issues and values.
Ethics provide the trust necessary for efficient transactions and the glue that holds business together.
2.3 ETHICAL ISSUES IN INTERNATIONAL BUSINESS
The economic development, law, culture, political systems are different in all over the world. What seems to be unaccepted in developed countries may be accepted in third world countries. In a multinational business framework, the source and nature of ethical issues and dilemmas are discussed below.
2.3.1 HUMAN RIGHTS
Today all international organisations set fundamental standards to protect human rights. Company code is designed to give the employee’s protection because employees are the most vital asset of the organisation. Charles W L Hill asserts that human rights still are not respected by giving the case of human rights in South Africa. The world has changed so much with the global market that it brings complex challenges for the protection of human rights. According to Amnesty International research, companies can jeopardise the human rights of individuals and communities by their operations.
2.3.2 ENVIRONMENTAL POLLUTION
Developed and developing countries are faced with environmental pollution. Because of lack of environmental regulations ethical issues may arise with the higher level of pollution. In developed countries many environmental regulations such as dumping of toxic chemicals, emission of pollutants and so on are in place whereby in developing countries these laws are lacking. A lot of money is invested to save the planet from environmental pollution. Today many businesses encourage green investment.
2.3.3 EMPLOYMENT PRACTICES
It is important to set out proper standards of code of conduct in the host country where business is carried out. The working condition, wages, forced labour or child labour are the ethical issues associated with employment practices. The reason is the work condition may be very poor in different countries. The Nike example clearly illustrates that bad employment practices were carried out in poor nation where children were working workers were getting low wages and a failure to protect employees.
In this new era as well, corruption plays a vital role in international business. In this context Foreign Corrupt Practices Act prohibits US companies to try to obtain contracts by offering improper payments, gifts to foreign officials. It is against the law for any member of the organisation to influence any foreign official to give any payments or gifts in return of something in the business. It is good to point out that what is considered to be gift in one country may be bribe in another.
2.3.5 MORAL OBLIGATION
Indeed organisations have the required power to control their resources and they can as well move their businesses from one place to another. If power is used positively to increase social welfare then it is said to be ethical. However organisations today make it their social responsibility to help the host country and increase their social welfare by giving them something back For example, BP, an oil company make social investments in the place where they do business.
2.4 PHILOSOPHICAL APPROACHES TO ETHICS
2.4.1 STRAW MEN
According to business ethics scholars, the straw men approaches does not provide appropriate guidelines for the ethical decision making process. There are four approaches under the straw men philosophy which are discussed below.
2.4.1a THE FRIEDMAN DOCTRINE
In the Friedman Doctrine, Milton Friedman argues that any business social responsibility is to increase its profits as far as the organisation stays within the law. He adds that businesses should not undertake any social expenditure.
2.4.1b CULTURAL RELATIVISM
Cultural Relativism believes that ethics is the ‘reflection of a culture’ where a business has to operate according to the ethics of the culture. For instance, if slavery is accepted in a culture, the business has to adopt that culture if operating in that place.
2.4.1c THE RIGHTEOUS MORALIST
According to Righteous Moralist, the home country standards of ethics are much better to follow in foreign countries.
2.4.1d THE NAIVE IMMORALIST
According to Naive Immoralist, if a firm does not abide by the ethical norms in a host country then the other firm should follow the same path.
2.4.2 UTILITARIAN AND KANTIAN ETHICS
Utilitarian approaches to ethics assert that ‘moral worth of practices or actions is determined by their consequences’. According to this approach some consequences are good and some are harmful. It highlights the point that it is important to weigh the cost of business action and its social benefits. However the action should be pursued only when the benefit outweighs the cost.
In Kantian Ethics, a person is treated as an end but not as a means to the ends of others. According to this philosophy, low wages, poor work conditions, sweatshops are all against the law of ethics.
2.4.3 RIGHTS THEORIES
Rights Theories which were developed in the 20th century argues that every individual has fundamental rights and privilege. Indeed these human rights transcend culture and national boundaries. According to the Rights Theorists, a minimum level of morally acceptable behaviour should be followed and they argue that firms should not engage in any business where human rights are violated.
The United Nations Universal Declaration of Human Rights provides basic principles of human rights that everyone should follow.
2.4.4 JUSTICE THEORIES
The principle of Justice Theory states that ‘just distribution’ of economic of goods and services has to be achieved. The ‘just distribution’ is considered to be fair and equitable. It is good to point out that different justice theories conflict with each other. One of the justice theorists, John Rawls illustrates that there should be ‘equal distribution of goods and services except when an unequal distribution would work to everyone’s advantage.’
2.5 ETHICAL DILEMMAS
Managers are faced with real ethical dilemmas. To deal ethically with employment conditions, human rights, corruption, environmental pollution and the proper use of power is not always easy. Ethical dilemmas occur when a manager comes in a situation where it is not ethically acceptable.
2.6 THE ROOTS OF UNETHICAL BEHAVIOUR
There are several reasons that make a manager unethical. Personal ethics, organisation culture, unrealistic performance goals, leadership, decision-making processes are all the roots of unethical behaviour. Conflicts of Interests can affect employee’s objectives concerning the duties and responsibilities directly or indirectly.
2.7 ETHICAL DECISION MAKING
Large international corporations have the moral obligation to consider corruption, human rights, environmental pollution, working conditions in their business decisions. Along with these there are a few things that global businesses has to take into consideration for a proper follow up of ethical issues in any business decisions.
First of all an organisation has to hire and promote an employee who has a strong personal ethics. In addition it is important to build a business culture where proper ethical behaviour is fully implemented. Moreover not only the corporate leaders have to encourage ethical behaviour in the organisation but they need to act upon it. Consequently the managers need to develop moral courage of the employees so as they can come forward to bring to the attention of any breach of the principles of ethics. Ethics advisors can give guidance in respect of good behaviour in the workplace and business ethics issues and values.
2.8 IMPORTANCE OF ETHICAL POLICY
There are several factors which are important to being ethical in any business. First of all a strong ethics programs can reduce potential costly fines. Employees are expected to comply with national, international, local laws. Secondly a strong ethics can help to improve brand image and reputation. The organisation has the ability to attract investment capital. Moreover, it can help to decrease vulnerability to misconduct since they provide necessary training to make ethical decision. Lastly it can affect positively employee’s commitment to work and enhance customer loyalty.
DISCUSSIONS AND ANALYSIS
Why is it important to have business ethics in organisation? Today plenty of evidences show that unethical corporate practices lead to decrease profitability of organisations with lawsuits. Since human rights and environmental conservation are very much recognised, the scandals of unethical practices can tarnish public perception of multinational. For example Boeing Company has established a very good framework of business ethics to assure an effective program to prevent and detect violations of law. The Boeing company code of conduct put much emphasis on expected behaviours for all Boeing employees likewise many large organisations have their own ethical policy that have to be followed.
Climate change is a vital environmental issue. Nowadays any businesses that damage the environment are challenged by the NGO’s, media or government. Protecting the environment and finding new sources of energy are the big challenges for a company since they do not bring easy solutions. In this context Boeing Company managed to achieve carbon neutral growth and holding net emissions constant. In addition it has change the airplane co2 emissions reduction by 70 percent and the noise area by 90 percent.
However recently, in the case of China the Ministry of Environment has announced that the air pollution is worsening after the amelioration of economic growth. Moreover pollution of coastal waters also was detected. Being the world’s fastest growing economy it is told that its carbon dioxide emissions will continue to increase. This situation is unethical, since in the long run the health of the citizen can be affected.
According to John V Mitchell (1999), business codes of ethics are rooted in national and cultural values which then can be in conflict at international level. Every country has its own culture, values, customs and traditions which are followed by own ethical values and principles. In this context it is difficult to have one international ethical code of conduct to be accepted and followed by all nations. Child labour in poor countries is culturally accepted. But how far is it ethical for a multinational to encourage child labour.
Is it easy for multinationals to follow ethically its code of conduct, it is difficult to say. Nike was accused of not monitoring its subcontractors and not providing training on code of conduct. Contract, discrimination, overtime, wages, wages, working condition, child labour were all the issues involving Nike. The Nike case has indeed given lessons to the global market so as to minimise ethical issues. Nevertheless, recently Nike comes into the news for not paying $2.2 million in severance to Honduran Garment workers. The question of moral obligation arises again.
Another question may arise about the responsibility of a multinational in a country where human rights are not respected. Still there are countries where freedom of speech, freedom of association, freedom of assembly and freedom from political repression are not respected.
According to Charles Mitchell (2003) corruption can affect global market. It manages a country’s development in several ways. It reduces growth, decreases foreign investment, have negative impact on the loan and aid funds. In fact corruption brings high return to the corrupt but it can have no benefit to the people. The United States condemn business gifts however many nations accept business gifts as a good gesture since it tightens business relationship.
Marketing should aim at providing accurate information to its customers. Marketing and safety practices should be ethical. Inappropriate marketing can tarnish the image of the Company. The example is Nestle who used wrong advertisement and end up killing babies in poor countries.
General Agreement on Tariffs and Trade (GATT), World Trade Organisation (WTO), International Monetary Fund(IMF), World Bank are those global institutions that manage and regulate the global marketplace. In addition they organise treaties to govern the multinational system.
Developing an organisational and global ethical culture is not easy. The benefits of business ethics is that it contributes to employee commitment, investor loyalty, customer satisfaction and profits. It is of paramount importance not to change rigid values however if required maintain a flexible moral principles so as to provide an effective ethical framework. Today ethics is a must in an organisation since it brings awareness of organisational goal and shows the right way of action. A good ethical behaviour provides a healthy and nice climate of doing business. If an organisation encourages moral values in its business then clients’ support and attention provides competitive advantage. Thus it can be concluded that globalisation influences the world economy and gain unprecedented power. At international level the complexity of business ethics is not easy to tackle since our values , cultures differ from one another.
1. Ethical values should be communicated more effectively to employees. An ethics programs can reduce potential costly fines from wrongful, fraudulent and illegal activities. Employees are expected to comply with national, international, local laws
2. Depending on the host country, there should be a proper communication channel that work best for the business
3. A global company must establish an environment that encourage ethical behaviour
4. Since employees’s behaviour has a crucial impact on the profitability of the organisation, it is important to improve ethical climate of a multinational. The organisation has the ability to attract investment capital by improving brand image and reputation
5. Training session, awareness of codes of ethics, reward systems should be considered. The ethics programs can help to decrease vulnerability training to make ethical decision
6. Global market should respect human rights regardless of where their operations are.
7. Corruption has to be tackled and eliminated.
8. Multinationals should be encouraged to work in collaboration with the government of the host country, NGO’s, locals.
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