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Business ethics is the application of ethical values to business behavior. It applies to any and all aspects of business conduct, from boardroom strategies and how companies treat their suppliers to sales techniques and accounting practices. Ethics goes beyond the legal requirements for a company and is, therefore, discretionary. Business ethics applies to the conduct of individuals and to the conduct of the organization as a whole. It is about how a company does its business, how it behaves intrinsically.
The philosophy behind ethics' having relevance to business is based on the fact that company, like an individual, is an important factor in society. Companies do not operate in a vacuum, but are part of society. Just as society expects a certain standard of behaviour from individuals, it also expects businesses to abide by similar standards. According to MORI research in July 2002, 80 % of the UK public believe thatÂ "large companies have a moral responsibility to society". But people no longer trust business to do the right thing. In the same survey, 61 % of people thought "large companies don't really care about the long-term environmental and social impact of their actions". Companies require what is often called 'a license to operate'. In other words, they need the approval of society in order to continue doing business. People expect companies to look after their staff and tell customers the truth. They also increasingly expect companies to address their environmental impacts and make sure that the people who make their products are treated fairly, wherever the company operates.
A company's core values and codes of ethical behaviour should underpin everything that the business does. How a company then chooses to interact with its global and local communities in the light of its values and ethics is often known as Corporate Responsibility or Corporate Social Responsibility (CSR). Generally, a company has five principle stakeholders as those with whom the company has a financial relationship. They are shareholders; customers; employees; suppliers and the community (through the payment of taxes). Other interested parties who may have influence over the company's behaviour would include the media; campaigning NGOs; competitors and the regulators, although these latter might be financial stakeholders if they have power to regulate prices.
Ethics can be defined as a code of conduct that is based on the understanding of what is wrong or right. Therefore business ethics may be described as a set or informal code of conduct that may be displayed between the employees and the employer, company and the clients, as well as an organization to its neighbors and business associates. The need to display acceptableÂ business ethicsÂ is based on the perception that a mutually acceptable code of ethics improves productivity and minimizes employee complaints.
A business organization that embraces good moral standards usually wins the efforts of the worker. There are decreased employees complaints and increased morale whenever the ethics applied are acceptable by the workers. Poor ethical presentation signifies compromised product and service delivery. For instance, if a company uses unacceptable recruitment procedures, this may result to subordination by the staff through poor production. This may lead to reduced revenues. In addition, an organization may have a sound ethics presentation system such as through right recruitment channels and procedures, rewarding of employees, and reprimanding of workers.Â This creates a favorable working environment for the employee. This impacts on the production and general income levels of the company. Therefore, if a company sets good ethics frameworks and its implementation, this significantly improves on its performance.
When the tool of ethical presentation is misused by a company, this brings in confrontations between the staff and the management. There is reduced concentration in duty execution. At the same time, poor application of work ethics drives away customers especially when the element of customer care is not applied responsibly. Poor employee-customer communication may result to dissatisfaction of the external customer resulting to withdraw ofÂ consumption behavior. Positively, ethical presentation can create and strengthen clients-company bond thus nurturing loyalty within the clientele. Ethics presentation can also impact on the competitiveness of the company to the business community. A company that practices sound ethics usually triumphs over the employees' and clients' needs and expectations which are the greatest tools of success of an organization. There is increased productivity, diversification of skills through innovation and creativity. On the other hand, there is improved buying behavior from the customers. This drives the company to profitability hence assuming the advantage of market leader and corporate ethics. Ethics presentation instills discipline in work place transforming to high performance through efficiency, concentration and respect. A company earns recognition and pride hence influencing the prospective customers. A company that receives confidence from the workers succeeds in growth and has a competitive edge.
One may argue that "business" and "ethics" doÂ not necessarily go together. Succeeding in business is largely about advancing our own private interests--aggressively competing against other people, beating them out for the same prize, and having unlimited ambition for money, position, and power. The moral life, by contrast, focuses on our duties to others--not to hurt anyone (deliberately or accidentally), to place other people's interests ahead of our own when it's called for, and always to treat others with the dignity and respect they deserve. Yet being scrupulously honest and caring in our business dealings with others can sometimes cost us sales, deals, money, and promotions. Refusing to go along with other people's unethical behavior can even cost us our jobs. When taken too far in business, even healthy self-interest, competitiveness, and ambition can go turn into selfishness, aggression, and greed--traits that are clearly at odds with the moral life. It seems, then, that taking ethics seriously in business extracts a price and may make success more difficult to come by. But if this is true, why should any of us make the effort to do what's right? In particular, what would we say to someone who asks, "Why should I be ethical?Â What's in it for me?". The most suitable response to this argument is to draw an empirical scenario of business world in 21st century where news is accessible and reachable by virtue of information technology all over the world. Nowadays, companies are open to public with loads of information regarding their business conducts and products. And any unfair business practice can badly affect the company reputation and destroy it completely. So it is for the sake of business itself to operate within a fair and ethical way. Moreover, having an ethical policy is good governance practice and is one of the hallmarks of a well-run business. It can reassure investors and other stakeholders about the company's approach to its non-financial risks. Besides providing a license to operate, having an ethical policy can also help to protect and enhance corporate reputation; can motivate and encourage loyalty in staff and can be useful in terms of risk management. The Institute of Business Ethics analyses the relationship between ethics and reputation risk management. Ethics policies are also an important aspect of Socially Responsible Investment (SRI) and can stand companies in good stead with indices such as the FTSE4Good or the Dow Jones Sustainability Group.Â In addition, another research shows that from three of four measures of corporate value (EVA, MVA and P/E ratio), it was found that, during 1997-2001, those companies in the sample that had had a code of ethics for at least five years outperformed a similar sized group who said they did not have a code. A number of companies have publicly claimed that ethics is good for their business. Well known for its ethical stance, The Co-operative Bank claims that itsÂ "ethical and ecological positioning makes a sizable contribution to the bank's profitability". The bank's 2002 Partnership Report claims that,Â "for 2000, the profit attributable to ethically motivated customers was stated at between 15 % and 18 % of the bank's profit before tax."
A series of external and internal factors are putting pressure on companies to address ethics. These include the increasing influence of Non-Governmental Organisations (NGOs); a pervasive media in search of stories; the knock-on effect of corporate accountancy scandals such as Enron and WorldCom; increasing legislation and the growth of Socially Responsible Investment (SRI), as well as changing consumer and employee expectations. In 1977, following a series of scandals involving bribery by U. S. firms abroad including the Lockheed $12 million bribery case that led to the fall of the Japanese government at the time, the U. S. government passed the Foreign Corrupt Practices Act. The Act was historic because it was the first piece of legislation that attempted to control the actions of U.S. corporations in foreign countries. The Act prohibited U. S. companies from paying large sums of money (or their equivalent) to high level government officials of other countries to obtain special treatment. A number of companies prior to the Act had already adopted the policy of refusing to pay bribes as a matter of ethical principle. IBM, among others, was known for adherence to this policy, as was Motorola. The Act forced all companies to live up to the already existing ethical norm. Its critics complained, however, that it put U. S. companies at an unfair disadvantage vis-à-vis companies from other countries that were permitted to pay bribes. The U. S. government applied what pressure it could to encourage other countries to follow its lead, and finally twenty years later the OECD countries agreed to adopt similar legislation.
In 1978 General Motors and a group of other U. S. companies adopted what are known as the Sullivan Principles, which governed their actions in South Africa. The signatories agreed that they would not follow the discriminatory and repressive apartheid legislation in South Africa and would take affirmative action to try to undermine apartheid not only by not following the existing South African apartheid statutes, but also by lobbying the South African government for change. Adherence to the Principles was seen as a way by which American companies could ethically justify doing business in South Africa. They were adopted in part as a response to public pressure on the companies to leave South Africa. The Principles have become a model for other voluntary codes of ethical conduct by companies in a variety of other ethically questionable circumstances.
By the 1980s many companies had started reacting to calls for ethical structures, and more and more started adopting ethical codes and instituting ethics training for their employees. Each wave of scandals, which seemed to occur every ten years or so, resulted in more pressure for companies to incorporate ethics into their structures. In 1984 the Union Carbide disaster at its plant in Bhopal, India, which killed thousands of people and injured several hundred thousand, focused world attention on the chemical industry. This led to the chemical industry's adopting a voluntary code of ethical conduct known as Responsible Care, which became a model for other industries. In 1986, in response to a series of reported irregularities in defense contracts, a special Commission Report on the situation led to the establishment of the Defense Industry Initiative (DII) on Business Ethics and Conduct, signed by thirty-two (it soon increased to fifty) major defense contractors. Each signatory agreed to have a written code of ethics, establish appropriate ethics training programs for their employees, establish monitoring mechanisms to detect improper activity, share their best practices, and be accountable to the public.
The DII became the model for what has been the most significant governmental impetus to the business ethics movement, namely, the 1991 U. S. Federal Sentencing Guidelines for Corporations. That law took the approach of providing an incentive for corporations to incorporate ethical structures within their organizations. If a company could show that it had taken appropriate measures to prevent and detect illegal and unethical behavior, its sentence, if found guilty of illegal behavior, would be reduced considerably. Appropriate measures included having a code of ethics or of conduct, a high-placed officer in charge of oversight, an ethics training program, a monitoring and reporting system (such as a "hotline"), and an enforcement and response system. Fines that could reach up to $290 million could be reduced by up to 95 percent if a company could showÂ bona fideÂ institutional structures that were in place to help prevent unethical and illegal conduct. The result was a concerted effort on the part of most large companies to incorporate into their organizations the structures required. This led to the development of a corporate position known as the Corporate Ethics Officer, and in 1992 to the establishment of the Corporate Ethics Officer Association.
The most recent legislative incentive to incorporate ethics in the corporation came in the Sarbanes-Oxley Act of 2002, passed as a result of a rash of scandals involving Enron, WorldCom, Arthur Andersen and other prominent corporations. The Act requires, among other things, that the CEO and CFO certify the fairness and accuracy of corporate financial statements (with criminal penalties for knowing violations) and a code of ethics for the corporation's senior financial officers, as well as requiring a great deal more public disclosure.
Corporations have responded to legislative and popular pressure in a variety of ways. The language of social responsibility rather than explicitly ethical language is still probably the most commonly used. Self-monitoring of adherence to a corporation's stated principles and self-adopted standards is becoming more common, and some companies have voluntarily adopted monitoring of their practices, policies and plants by independent auditors. The notion of a Triple Bottom Line, which involves financial, social and environmental corporate reporting, has been adopted by a number of companies. Other popular reporting mechanisms include corporate environmental sustainability reports and social audits, which vary considerably in what is reported and how it is reported. Ethical investing is another aspect of the movement, and mangers of ethical investment funds have begun proposing stockholder proposals as a means of encouraging more ethical behavior on the part of corporations in which they own stock.
The above discussion reveals that ethics is must to do business well and to maximize profit. However, it is not so smooth as selfishness and unfair market completion creates obstacles in the way and encourages people to resort to unethical means to get the best out of it. But in the long run only that business remains profitable which continuously provides good quality products and keeps following fair policy.