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This essay is based on business ethics, but generally ethics is a very broad and complicated topic on its own therefore the writer will address on how an organisation carries out is ethical issues and how they are managed. The essay attempts to analyse why business ethics is important, how an organisation evolves around ethics. Business ethics roots have been analysed to give an overview of the different schools of thought that have been developed by various thinkers which are used in present to analyse the goodness or evilness of a business act or decision. This essay tries to look into various ethical aspects that govern the decisions that are made by various organizations in their daily operations. How much importance different businesses should give to various stakeholders like the shareholders, the society and the employees and the sad truth of the number of unethical actions that many businesses perform to gain more profits and more market share
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. More than 100 business people were interviewed by Raymond Bauhart on what ethics meant to them 50 percent defined as "what my feelings tell me is right" , 25 percent defined in terms religion "in accord with my religious beliefs" and 18 percent defines it in terms of what "conforms to the golden rule" (Velasquez, M. G. 2006, p.7
) whereas, according to author Svensson Goran and Wood Grey (2006), business ethics is a function of time and culture, this basically means that time/culture will determine what ethics will be acceptable or unacceptable due to the changes in business environment.
According to Velasquez M. G (2006:13) "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". (Robin .D, 2006) 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's important on how they handle such challenges. 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. (Hooker, John 2003)
Origin of Business Ethics
Business ethics is a branch of the general ethics and philosophies which have been developed for many years. Business ethics has been mostly written about and thought after firms started entering into commercial business independent of communism system.
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.
There are more theories which will be explained as we progress further into the details of each. Example: Utilitarian and Marxism theories. (George D. and John H. 1993, p.255)
Is Business Ethics a Contradiction?
The answer to this question is yes it is very contradicting because what may be good to one person would be completely unethical to the other reasons could be because of different culture, norms or beliefs that they have. Some of the contradicting examples that may arise are:
When an employee is working with a lot of zeal and confidence and producing the best sales result but continuous to be abusive even after several warnings so should the organisation just remove him or her and lose one of its best sales people? It would be difficult for one to decide on what is acceptable and unacceptable. (Holme, Charles, 2008)
It has been said that business ethics is just about doing good however this is not true when a conflict arises between supplier of raw materials and customer on when they should be paid. Is it to the benefit of the suppliers, Customers or both? And a bad decision can be taken by good people when they are in stress or dilemma and this can affect the business in the long run. (Holme, Charles, 2008).
An organisation might increase the prices of goods and services due to increase in prices, inflation, economic recession or due to factors affecting demand and supply. It is necessary for the firm to increase the price per unit for it to meet its production cost therefore, according to the business it is ethical but to the society it may be unethical due to the rise in prices. Similarly, in order to cut down on operational costs a company may lay off its employees; this would be ethical to the organisation but unethical to its employees.
Advantages of business Ethics in organisations
One way of bringing ethics into business is by ensuring that ethical standards are maintained in the process of making profit this enables the organisation to achieve a common goal. Examples of companies who were in compliance with good ethics while maintaining a profitable operation are: Intel, Hewlett Packard, Procter & Gamble, and Starbucks Coffee. (Velasquez, M. G. 2006, p.38)
The ways a manager takes care of its employees in terms of paying a good wage rate, keeping the staffed informed of the day to day work activities, involving employees in decision making taking them into consideration. This way the workers will be producing to the highest levels of production due to good working conditions and friendly working conditions and in return would lead to motivation and therefore creating a good employer-employee relation. These management behaviours can make a difference between employee satisfaction and frustration. (Holme, Charles, 2008)
Perception is a reality. Reputation is the image of any organisation, which is the factor that helps the investor to decide whether to invest in a company or not. Therefore image of any organisation can only be sustained through development of ethical values such as not polluting the environment, paying above the minimum wage or by conserving the environment by reducing the usage of non- environmental friendly products like plastic bags. (Holme, Charles, 2008)
Businesses that practise ethics help them build trust within the society that they are working in. It is obvious that a supplier would be looking for an organisation that he can trust for credit payment and in return the organisation will also expect trust worthiness in terms of quality. This is a two way process and therefore the higher the level of trust the better the business. (Holme, Charles, 2008)
A model 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
(Svensson, Goran and Wood, Grey 2008)
All of those factors that are listed under expectation are important as it shapes the way in which the society comes to view its corporation. These are the factors societies expect to have in any organisation for it to perform better and to satisfy its citizens more efficiently. (Svensson, Goran and Wood, Grey 2008)
Any society in general has expectations of the business and what good it is doing to the general public. Every organisation has to adhere to the needs of the society in order to sustain position in the market. (Svensson, Goran and Wood, Grey 2008)
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 (1985:426) 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 company's past and future prospects. (Svensson, Goran, and Wood, Grey 2008)
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 for what they think about various stakeholders and the attitudes each which has its own effects. Goran Svensson, Grey Wood (2008)
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 Levitt (1958) and Friedman (1962) says that outcome of a company whether 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. (Svensson, Goran and Wood, Grey 2008)
The society uses a number of ways to 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? (Svensson, Goran and Wood, Grey (2008)
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? (Svensson, Goran and Wood, Grey (2008)
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. ? (Svensson, Goran and Wood, Grey (2008)
Ways of maintaining ethical standards also referred to as codes of ethics
Ethics in the any business is a vital determination of sustainability of the organisation regardless of the industry one is trading its goods or services and no matter how large or small a company is. (www.helium.com) Organisations that fail to have a strong ethical foundation are more likely to find their customer base extremely lowered down and their profit margins to have completely reduced than ever before. (International Federation of Accountant, 2006) .The solution for any company to overcome this problem is by:
Creating a credo based company
This defines the ethical responsibilities toward its stakeholders and the underlying values of the entire organisation (Scarborough et al., 2009 p.759) example. Johnson and Johnson have credo based values the analysis, design and interpretation of clinical studies and results. (Fisher, Colin and Lovell, Alan, 2006, p.388)
Conduct ethical training
This is usually carried out by a manager to the rest of its employees. This will enable them to enhance their knowledge on the understanding of what is expected of them. . (Scarborough et al., 2009)
Performing periodic ethical audits
This will measure the effectiveness and compliancy of the ethical system implemented by examining practises, procedures and policies. (Scarborough et al., 2009)
This a core value of code of ethics which requires adhering to highest standards of behaviour like honesty and impartiality example Carbo Ceramics. Every organisation requires its employees to carry out the work assigned faithfully. (Fisher, Colin and Lovell, Alan, 2006, p.389)
Enforcing the codes fairly and consistently
The codes of ethics should be the same for everyone in any organisation therefore one should not be more superior than the other leading to unfair treatment. . (Scarborough et al., 2009)
No harm and risk management
This code of ethics is practised by Johnson and Johnson where there most important responsibility is towards those who use their products and services such as doctors, families and nurses. To ensure that their need are met everything they do has to be of high quality. (Fisher, Colin and Lovell, Alan, 2006, p.389)
Development of a transparent culture
This is very crucial element and if failed to adhere to it the creditability of the organisation can be questioned because secrets can create unhealthy corporate cultures and an open culture leads to honesty and respect among employees. (International Federation of Accountants, 2006)
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. (Dinah, Payne and Brett, J. L. Landry, 2005)
These are the sources of the morality of human acts:
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.
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.
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. 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.
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. (Fisher Colin and Lovell, Alan, 2006, p.101) Values are habitual way of acting and they form a character in a person .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: (Oderberg, David, 1999)
This virtue explains the use of wisdom to decide what is right and think of the correct action to take it also prevents taking wrong actions.
This virtue enables a person to be strong and hopeful 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: (Velasquez, 2006, pp.114-115)
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. Some of the virtues that make a market operate efficiently are honesty. 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 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. (George D. John H. 1993)
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.
There are two schools of thought in private property ownership namely Capitalism and Socialism.
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 (George D and John H.1993). 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. (George D and John H.1993)
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. (George D and John H.1993)
Common good can 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. (George D, John H. 1993, p.37)
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 an 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. (George D. and John H. 1993)
Corporate Social Responsibility
Caroll (1979:500) defined CSR as "the economical, legal, ethical, and discretionary expectancies that society has of organisations at a given point in time". (Valentine, Sean and Fleischman, Gary, 2008).The benefits that accrue from adopting CSR are:
Organisations are usually able to attract and retain their workforce because the values of the business are closely in accordance to those of the individual. CSR encourages loyalty and commitment of employees which is an element of success. (Cacioppe Ron et al., 2008)
CSR has the capability to increase a companies' financial performance this results were shown in an analysis carried out by Margolis and Walsh (2001). (Cacioppe Ron et al., 2008)
An organisation that is looking forward to improve their brand image and reputation has to have good CSR activities due to increased community expectations. The factors that contribute towards CSR are whether its products are "child labour free" and are the products environmentally friendly. (Cacioppe Ron et al., 2008)
The biggest concern is that most of the citizens are still not aware and confident or in other words are yet confused with what is ethically acceptable and what is not. For a better understanding of this concept there was a need for addressing on ways of managing business ethics in today's global environment especially if businesses want to preserve the integrity of the organisation which in turn will increase its revenue. If any business does not practise sound business it should be assured of failure, however some businesses still succeed by throwing away its morals and report a higher return than those practising ethics but this might not be advantageous in the long run sooner or later the business will be exposed.
In today's evolving world business ethics is becoming a strategic importance for competitive advantage and yet it's so difficult to say what is that really right or wrong because what would be unethical would still be legally acceptable. The modern workplace can be an extraordinarily powerful character-building institution which can instil leadership, honesty, responsibility, fortitude, respect and many other values if it is taken seriously. Indeed, in a fast moving, competitive global culture and marketplace, character is a corporation's most valuable input and resource which is the determinant of the long term success of a business. At a time when the commitment of many companies to their ethics codes and mission statements is being questioned, several firms make headlines by adhering to the business ethics policy they have and acting promptly to make sure that all interests of all the stakeholders are met in a way.