The Challenges Of Businesses Ethics Policies Commerce Essay


Business ethics is the appliance of ethical values to business conduct. It applies to all aspects of business affairs, from policy making to sales issues and accounting practices. Ethics entails beyond the legal compliances for a company and is, therefore, discretionary. Business ethics applies to the behaviour of individuals and to the behavior of the organization as a whole. It is about how a company runs its business, how it behaves inherently.

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 work in an idle situation, but are part of society. Just as society expects a certain standard of behavior from individuals, it also expects businesses to abide by similar standards. According to MORI research in July 2002, 80 % of the UK public believe that "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". People think that companies would look after their emplyees and tell customers the reality. They also want companies to be caring about their environmental concerns and make sure that the people who act for the company are treated fairly, wherever the company operates.

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A company's core principles and codes of ethical behavior should emphasize everything that the business undertakes. How a company then chooses to interact with its world and local communities in the light of its standards and ethics is often known as Corporate Responsibility or Corporate Social Responsibility (CSR). Generally, there are five main stakeholders for the company as those with whom it has a economic relation. They are employees; shareholders; suppliers; customers; and the community. Other interested parties who may have influence over the company's conduct of business would include the media; campaigning NGOs; competitors and the regulators, although these latter might be financial stakeholders if they have power to regulate prices.

Comparative Study:

Business ethics as a discipline of professional ethics can be defined as a code of conduct for business that is based on the understanding of what is wrong or right. Therefore business ethics may be described as a set of 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 acceptable business ethics is based on the perception that a reciprocally suitable code of ethics improves productivity and minimizes employee complaints.

A business organization that practices good moral standards usually wins the efforts of the worker. There are less employee complaints 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.  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 of 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.

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One [3] may argue that "business" and "ethics" do not inevitably go together. Succeeding in business is mainly about materializing our own interests--aggressively competing against other people, throwing them out for the same prize, and having undue ambition for money, position, and power. On the other, the moral life insists on our duties to others--not to affect anyone (intentionally or not), to give priority other's interests ahead of our own when it's called for, and always to treat others with the dignity and respect. Yet honesty and caring attitude in our business dealings with others can sometimes result in decreasing our deals, sales, promotions and money. 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 in contravention with the moral life. It seems, then, that indulging ethics seriously in business costs a price and may make success more difficult to achieve. But if this is true, why should any of us make the effort to do what's right? In particular, what would be the response to the question, "Why should I be ethical? 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, to have an ethical policy is the practice of good governance and is one of the features of a well-managed business. Besides providing a license to operate, having an ethical policy can also help to protect and increase corporate reputation; can stimulate and encourage reliability in staffs' beliefs towards the company. 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 make the companies to stand in good stead with indices such as the FTSE4Good or the Dow Jones Sustainability Group. [4] 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 with a code of ethics for at least five years outweighed a similar sized group of companies without such 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 its "ethical and ecological positioning makes a sizable contribution to the bank's profitability". The bank's 2002 Partnership Report claims that, "for 2000, the profit attributable to ethically motivated customers was stated at between 15 % and 18 % of the bank's profit before tax." [5] 

Case Study:

A number of external and internal issues are putting pressure on companies to address ethics. These include the expanding pressure of Non-Governmental Organizations (NGOs); a all-encompassing media in search of breaking news; the knock-on effect of corporate governance scandals such as Enron and WorldCom; increasing legislation and the rise of Socially Responsible Investment (SRI) and the varying customer and workforce impression. In 1977, when a series of scandals offering bribery by U. S. firms abroad including the Lockheed $12 million bribery case (leading to the fall of the Japanese government at the time) was reported, the U. S. government passed the Foreign Corrupt Practices Act. The Act was a milestone because it was the first piece of enactment that prompted to control the actions of U.S. companies in foreign countries. The Act prevented U. S. companies from paying huge amount of money (or their equal) to high rank government employees of other countries to gain undue favour.IBM was known for observance of this policy, as was Motorola. The Act prompted all companies to follow the ethical principles. However, the act was criticized to put U. S. companies at an awkward position vis-à-vis foreign companies that were not restricted to pay bribes. But the U. S. government continued pressurizing with application of the above act provisions and took lead to encourage other countries to follow and finally after 20 years the OECD countries consented to pass the similar statute.

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By the 1980s many companies had started responding to ethical concerns, and more and more started institutionalizing ethical codes and undertaking ethics training for their employees. Each period of scandals, which deemed to happen every 10 years or so, generated more pressure for companies to adopt ethics into their administration. Bhopal tragedy 1984 where thousands of people were killed and several hundred thousand injured, attracted world attention on the chemical industry. This forced the chemical industry's materializing a voluntary code of ethical conduct known as Responsible Care.

In the passage of time, the ethical issues have got institutionalized and been incorporated in the companies' code of conduct. The most recent legislative inducement to adopt ethics in the corporation came forth in the Sarbanes-Oxley Act of 2002, which was passed as a response to the load of scandals involving Enron, WorldCom, Arthur Andersen and other prominent corporations. The Act requires, among other things, that the fairness and accuracy of corporate financial statements (with criminal penalties for knowing violations) should be certified by the CEO and the CFO and a code of ethics for the corporation's high ranked financial officers be adopted thereby opening up a great deal of information for public access.

Following the above movements, corporations have reacted to various legislative and popular demands in a variety of ways. The concept of social responsibility rather than explicitly ethical language is still probably the most commonly applied with great success. Self-monitoring system of observance to a corporation's stated values and self-adopted standards is proved to more effective and therefore become more common, and some companies have willfully incorporated supervising of their practices, policies and plants by independent private firms and auditors. The notion of a Triple Bottom Line, which involves financial, social and environmental corporate rassessment, 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. [6] 


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.