Education has moved from becoming a quest for knowledge into a business commodity. A university degree is seen as a pathway to a successful career and government education providers cannot cope with the demand. As a result, tertiary education has been liberalized with many private institutions of higher learning sprouting everywhere. Education is a multi billion dollar industry and many countries such as Australia and Malaysia try to establish themselves as regional centres of education to attract foreign students. Unlike government universities, private institutions of higher learning are motivated by profit. While some provide excellent education, others exploit students and are involved in very questionable practices. Therefore, how can this problem of international students being both exploited and exploitative be solved?
Some argue that this problem can be overcome by private education providers adopting an ethical approach. Ethics can be defined as "a system of morals and rules of behavior, which are about fairness, and deciding what is right or wrong, and about defining the practices and rules which underpin responsible conduct between individuals and groups" (Orme and Ashton, 2003). Business ethics, on the other hand, is "a set of moral principles for arriving at a decision within the values of the organization" (Holme, 2008). Many have hypothesized over this issue and one explanation is in the form of the stakeholder theory.
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Peter Drucker was one of the pioneers of modern management. He went against conventional wisdom that the business exists to make profit for its owners. According to him, the purpose of a business is to create customers through marketing and innovation and that profit is a by-product of this purpose. As such, companies are social institutions that have social responsibilities not only to their employees but society as a whole. Drucker makes a compelling argument for businesses and business people to demonstrate ethics in their conduct.
Holme (2008) cites the numerous advantages of having ethical business values. Ethical values lead to fair management decisions especially in terms of conflict resolution and performance appraisal, which contribute to improved employee satisfaction. When executives are faced with difficult moral dilemmas, having guidance from the firm's ethical values will cause less stress. A company that has strong ethical values will be trusted by customers and suppliers alike and this is good for business (Fisher, 2003). Nowhere is this more apparent than in the banking and insurance industries where trustworthiness lend credibility to the organization. However, trust goes both ways and companies look for customers and suppliers that they can trust. Having a reputation for honesty, integrity and commitment contribute to building a competitive advantage.
The stakeholder theory considers the impact of expectations of the different stakeholder groups to determine business ethics. This is expressed by Drucker in his views on business ethics in that management is ultimately responsible to itself and society at large. These sentiments were re-echoed later by Freeman (1984, cited in Enquist et al, 2006) who said it was not just a matter of social responsibility or business ethics, but ultimately the very survival of the company hinges on it. Stakeholders are 'groups from whom the organization has voluntarily accepted benefits, and to whom the organization has therefore incurred obligations of fairness' (Galbreath, 2009).
A firm's traditional stakeholders are its shareholders, employees, creditors, customers and the government. First and foremost, it is obliged to its shareholders for whom they serve to generate profits which are paid out as dividends. A firm also is responsible towards their employees in terms of providing adequate pay, job security and safety. A firm is also obligated to pay its creditors on time and have good creditworthiness. In addition, a firm needs to honour its customers by providing good products at reasonable prices and ensure product safety. Finally, a firm must abide by the law and pay taxes and comply with government regulations.
However, the scope has been expanded in recent years to include non-governmental organizations and the community as a whole. New stakeholders include the local community so a business must ensure that it provides a safe working environment, minimizes pollution and provides employment to locals. NGOs also rank as powerful stakeholders as they can compel firms to act in a more ethical manner.
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A stakeholder approach will allow us to identify our obligations to the various stakeholders. The general obligation for all of us is to do our best and not to harm others. A stakeholder approach will tell us our duties and responsibilities to the various stakeholders. The obligations that we identify will vary depending on the people involved and the roles they play.
Therefore, if higher education providers adopt a stakeholder approach, this problem would never occur in the first place. They should realize that their main purpose is to provide quality education. This means that they ideally be more selective in their student selection process and not lure foreign students who do not meet minimum academic and linguistic requirements. The various stakeholders who are affected by their actions are the foreign students who do not get a good education (even though their main purpose to go overseas is to get a permanent resident status), their lecturers who have to grapple with dealing with problematic students, and the government which is duped into offering permanent resident status to unqualified individuals.
It is well and good to say that education providers should act in a more ethical manner, but how is it done? There are two main approaches to business ethics and stakeholder management. These are called the "carrot" and "stock" approaches. Some companies employ either one of these approaches but the key to successful business ethics and stakeholder management is achieving a balance between the two. The "carrot" approach calls for voluntary self-regulation. The impetus for business ethics comes from internal forces within the company that is its values and ethics, and not because it is compelled to do so by external parties. Voluntary self-regulation comes in the form of having a corporate vision and mission as well as corporate values that promote ethical conduct. Consequently, the company has a series of ethics programs to improve the level of ethics among employees. The company will also adopt best practices with regards to business ethics. The company will also be concerned about risk management and avoid excessive risk taking which would harm the company and its stakeholders. Finally, a company that adopts the "carrot" approach is actively involved in philanthropy.
On the other hand, the "stick" approach is legal and rules based, meaning that the company is compelled to act ethically because of external forces. These are in the form of external regulation compliance through laws, court decisions, regulations and congressional oversight.
Another school of thought is of the opinion that the best remedy to this problem is financial transparency and publication of financial reports for all private education providers. This approach does have its merits because questionable financial transactions also leave a paper trail that can be detected by forensic accountants. Let us examine one example of making financial transparency regulations and its level of success in eradicating fraud.
Battered by a series of financial scandals that shook investor confidence, the U.S. government decided to take stern action by enacting the Sarbanes Oxley Act in 2003. This legislature serves to strengthen financial control of corporations and impose harsher penalties for non-compliance. Essentially, it serves to improve investors' confidence in the financial market. Among the key features of the Act is that a company's management is responsible for maintaining proper documentation of internal control procedures with regards to financial reporting. CEOs and CFOs must also bear the responsibility of attesting that the financial statements are free from misrepresentation and the company must put in place procedures for employees to act as whistle blowers without fear of repercussions.
Financial transparency is essentially about good business ethics, but it serves many purposes. One, it increases employee trust in management because when employees see exactly how revenue and profits are earned, greater trust develops. Two, when employees realize that their work contributes to the success of the firm, there is greater communication between them and management to find ways to improve productivity. Three, when employees are educated through financial transparency, accountability is increased and fraud is diminished.
While the Sarbanes Oxley Act has been widely hailed as landmark piece of legislature, it has many weaknesses. Some of the main criticism is that it is seen as a hastily prepared stop gap measure rather than a means of bringing long term benefits and stability, and that it actually makes businesses less competitive. Another disadvantage of the Sarbanes Oxley is that the costs of compliance are prohibitively high for small businesses. A $100 million revenue company will have to spend up to 2.55% for compliance measures such as internal controls, increased personnel and audits.
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Another weakness of the Act is that it is far too bureaucratic and places a tremendous burden on auditors and management. The stringency of the Act causes far too much time, effort and money to be spent on making, approving, printing and filing reports. This is at the expense of greater competitive advantage. Also, many new internal controls need to be put in place and this increases administrative costs. Auditors are also boggled as they need to audit IT security infrastructure, a task they are not trained to do.
Compliance with the Act necessitates separation of key financial processes in an attempt to reduce embezzlement and fraud. This necessitates more personnel and greater administrative costs. Finally, the Act is seen as overtly harsh as very severe punishment is meted out for violations, such as a fine of $1 million and 10 years in prison.
Therefore, promoting financial transparency may seem good on paper, but it is far too expensive and impractical to implement. If a country has a fledgling private higher education sector, having excessive regulations is a sure way of destroying it. While it may be possible to have a simplified version of the Sarbanes Oxley Act, the question is how effective would it be? Would a watered down version of financial transparency legislature really remedy the current problem.
The issue of exploitation of and by international students is a serious problem that needs to be addressed by all countries that have international students. Despite differences, the ethical and financial transparency approaches share a common objective. This is to establish a value based leadership for stakeholder management and to promote ethical culture. To promote widespread adoption of business ethics, the two approaches need to go hand in hand. Ideally, all companies should have voluntary self-regulation but since most are unconcerned about business ethics, the government needs to step in by imposing some external regulations. At the same time, business ethics and financial transparency legislature cannot be made mandatory for it may be self defeating and raise the cost of doing business. It is believed that a better solution would be to set up an agency to grant licenses to and monitor private education providers. This body should provide clear guidelines to promote educational excellence and punish those institutions that fail to comply. Only then will unethical institutions take notice and mend their ways.