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In the 21st century the Corporate World is an integral part of the world, generating large revenues for almost all countries on the globe. Businesses are not the same as in the past; there influence in a society has increased to a far greater level. In return of their massive influences in a society the public has developed concerns on the impact of their operations.
Recent history is proof that allowing business's to operate outside ethical boundaries has been disastrous in many perspectives. Distrust in the actions of businesses has increased; research indicates that many Americans disagree that the ethical standards of business are same as those of society (Hoffman/Moore, 1990). In such a climate Business Ethics has become top priority for many executives as it reflects a great deal on the revenues of a company.
Business Ethics Defined
In the Oxford dictionary of economics Business Ethics is defined set of rules and principles a business should follow in compliance to their dealings. This covers all aspects that are related to its customers, labourforce, suppliers and competitors. And the impact of their activities on their surrounding environment and society (Oxford 2011).
Business ethics defined by authors Drummond and Bain in the book managing business Ethics as "The study of how personal moral norms apply to the activities and goals of commercial enterprise. It is not a separate moral standard, but the study of how business context poses its unique problems for the moral person who acts as an agent of this system".
Business ethics in business means making suitable decisions from the management at every stage of the organization and being accountable of their actions that meet standards of proper conduct. Although Business ethics falls under a wide aspect of moral business, but it basically falls under a basic understanding of a managers decision making skills. It relates to all the choices and judgments the manager makes in business environment under different conditions. It depends on how he/she operate under legal restriction? Does he comply with the law or not. How does the manager react to different aspects of society that are beyond the reach of law? These areas are mostly described as Grey Areas. These areas are those that are mostly unclear, the tangible and intangible categories in a community that include honesty, fairness, avoidance of wrong etc. lastly the sense of Greater good comes in where a manager has to decide whether his/her own self-interest is greater than the interest of those p[people who are affected by a business activity directly or indirectly (Drummond and Bain ,1994).
An ethical performance of an organization is not just reliant on individual decision making but also relates to an organizations culture and traditions that are followed. For businesses to accomplish ethical standards, it must configure its resources and actions in an ethical manner.
The main objective of this report is to debate on the given topic that "There is no such thing as an ethical business". To undertake such an investigation, where in the current global environment businesses have evolved into such powerful entities who affect various elements in a society, many questions come to mind, like;
Do businesses operate simply to make profits?
With all this power do businesses have other obligations to the society?
How should businesses act to best reflect the expectations of the society?
Many authors have researched on the area that what is the responsibility of a business to a society. In the 1970's a famous economist Milton Friedman, was of the view that the "Social responsibility of Business is to increase Profits" (Friedman 1960).He argues that business men are not taught in the field of sociology and the only thing that they know is to make money. And until they do this subject to the law and rules of the society they are ethical. Albert Carr's also argues that ruse is a legal part of the business (Carr 1968).In his famous essay, he connects the practices in a business just as a card game. Until or unless you do not break the rules one is permitted to delude others.
So taking the above two famous views, we shall consider recent examples of business and analyze that are they operating ethically or not in the current existing regulations.
Energy Resource Industry
The start of the 21st century audience the biggest audit failure in American History (William 2002). It was an Energy Trading Company formed in 1985 and by mid 2001 it had been reported to have employed 21,000 employers (Copp, 2002). Hence showing the extreme success of the company in merely a decade. By launching projects globally also, mainly in India. Due to all this Enron stock rose by 311%, increasing by 57% in the year 1999 and a further 87% in 2000.By the end of 2000, its stock price was $83.13 and its market capitals were more than $60 billion. (Paul and Pauleapu, 2003).Therefore in the same year Enron was rated as the 7th largest company in America (BBC 2002).
Amidst all this Cinderella Story the clock struck twelve and the company filed bankruptcy within a year. The year 2001, in the month of August a rain of scandals appeared on the scene. Alarms of threats in accounting irregularities had already been communicated to Kenneth lay, the chairman of Enron. It involved a number of debts that worth $ 1 billion, it also included a rapid growth in investments of partners from $25,000 to $4.5 million in a matter of weeks (Telegraph 2002). Before the end of November 2001, Enron announced losses $638 million and a reduction in shareholder equity. The stock price plummeted to less than 1$ each. The U.S Justice Department filed a law suit against the company and was accused of changing financial records in a federal inquiry to dupe shareholders (Daniel and Aiyesha and Thomas, 2005).
Isn't it surprising to see the 7th largest company in America to have crumbled down into ruins in a matter of months? Well there were serious problems and they are related to both within and outside the company. This involved the- Shareholders, Auditors, creditors, directors, regulators, employees everyone. The culture that had developed in the organization was at the edge , Employees whose performance were high according to a certain scale they were given really high bonuses and those who came low on the scale were fired (Broughton 2002) and there were also reports that every year Enron fired bottom 15% of its employees as per performance scale(Broughton 2002).The finances were also a major cause in these scandals as the board of directors were accused of suspending the code of ethics of the company to approve off-balance sheet partnerships several times (Copp 2002 ref/ not finalized*). The finance department took full liberty of it and used accounting limitations to adjust company accounts and show encouraging performance to attract more shareholders. But all of this got out of hand and the disaster struck eventually.
The aftermath was horrible for the management, officials were convicted of crimes like money laundering, inside trading and sentenced to jails along with heavy fines (The Wall Street journal 2006).Shareholder had lost $ 74 billion and Enron owed $ 67 billion that it owed it owed to the stakeholders and shareholders of the company(Fraud magazine, 2007).
Wealth and voracity are known to be potent forces; occasionally influencing even the most honest people to commit atrocious acts, Enron executives are a very good example. No doubt managers are required to maximize returns of shareholder investors, within the regulatory boundaries but the neglect of Moral Ethics was one of the root cause of Enron Managements failure. There is always a limit to everything, managers although think that their actions are permissible but there is always a chance that those actions are morally questionable, these type of factors involved in certain actions always lead to legal litigations in the future (Paine 1994).
The above case represents the profile of a company belonging to an energy resource sector. To make the debate for the topic "There is no such thing as an ethical business" another case needs to be studied of a company in a different business sector.
The pharmaceutical industry is a renowned sector which has made prominent contributions to humankind for decades. There ground breaking developments for mankind in creating cure medicines for extreme diseases like Aids, cancer and heart have not gone unnoticed. With millions of individuals from families, medicine, government and social welfare, I think it is not an exageraration when it is stated that this industry practically involves every person's life on this world. But along the years public has developed a doubt and is questionable that has this Multi- Trillion industry has been operating ethically or not? Pharmaceutical companies have been accused of selling medicine under the name of science and health but time has told the world the real truth that the main purpose to enter this segment is to earn huge amounts of profit. In the current time public mistrust in the industry is running vehemently high. They have been in an unflattering limelight for more than a decade where major controversies, court cases and fine's of various medical manufacturing companies are explicitly being broadcasted in the media and are under the scrutiny of high public notice. Many are of the view that the large profits of this industry do not match their efforts for a healthy society.
Many of the reviewers of this industry question the tactics and resources used by the industry to influence goverment reforms. There approach in the federal government has not gone unnoticeable where they have put many resources to make favorable operating conditions. Pharmaceutical companies have been stated to have spent approx $900 million for lobbying between 1998 and 2005 in USA (Washington post, 2007). The reason for this much heavy investment in the congress was to influence the decision of the government to negotiate terms in lowering medicine prices. The pharmaceutical Industry has also been accused by U.S committee of Finance to influence educational institutions by giving them grants to encourage physicians to prescribe specific drugs and eventually increase their sales. They have termed to abuse the use of educational grants. Companies have paid $430 to $704 million for claims to give grants on autonomous educational programs that served the function for off-label promotion for their specific drugs (U.S committee of Finance, 2007). In the U.S , according to a poll conducted by Harris interactive which stated the percentage of U.S public trust in the pharmaceutical industry has declined from 79% to 44 percent between 1997 and 2004 (CBS News, 2004). The main issue with this industry comes to this census that the only core objective of this industry is to maximize their profits with exploiting public health needs. This industry invents "miracle drugs" and many individuals in the third world countries cannot afford them. Media is chock-full off ads of medicine by this industry , every time you switch the television on .Hence a proof that the main cost of these advertisement budgets is covered from deprived customers who will pay any amount to save there or their loved one's life. In America alone the drug industry has spend $ 3 billion in 2003 on advertising (CBS News, 2004).
The two above cases that have been picked represent major industries that are a viable representation of a corporate industry in the 21st century. By viewing the text one feels' that is this bitter truth of a very integral part of the world? Has the business sector developed into such an entity that feeds on the public and the only purpose if its existence is the maximize profits no matter what the cost? The literature also give support to Friedman school of thought that by maximizing profits businesses are fulfilling the responsibility to the society. But many economists have contradicted this statement. They argue that maximizing profits is not the only purpose of a business as eating is not the sole purpose of life (Ferrell, 2008).
Many authors are divided on this view that social responsibility of a business in only making profits. Authors argue that due to the nature of businesses and the people running them , the only ethical responsibility of businesses is the maximize profits no matter what the cost as long as it is done under the legal free-market laws and the basic rules of the society. The argument carries on that if companies stress on ethics at every level of their operations and objective than it will tend to temper the main rationale of the business. Ones who are for the argument the profit maximization is not the only objective of a business argue that for businesses to operate in a healthy climate for a long period of time, it must operate to ethical standards so that to ensure its long- lasting capability (Carroll and Buchholtz, 2008).
Now I present the case of two companies of the corporate industry which are a proof that businesses can maximize profits while operating under ethical standards and as well as benefiting the society at the same time.
Marks and Spencer
It is one of Britain's biggest retailer brands widely known as M&S. With a total revenue of £ 9.3 billion by the end of April 2010, the business runs a chain of 700 stores in the United kingdom and 300 stores worldwide (Marks and Spencer, 2011). Marks and Spencer celebrates the title of the known brands on the British high street. In the year 2004 critics were of the skepticism that the prospects of a takeover would be inevitable but due to appropriate strategies and leadership the business go back to its feet and was awarded with the honor at the Institute of Practitioners in Advertising's annual effectiveness awards in 2006 (Guardian, 2006). Analysts had stated this recovery clearly as an Advertisement led success, a strategy that was devised by executive Marketing Director of Marks and Spencer Steve Sharp who brought in his close business partner Rose and paved the yellow brick road for M&S success (Guardian, 2006). By including clever topics in advertisements which boosted its market share increase to 10% in a matter of 12 weeks in September 2006. They campaigns increased their sales of basic items like T-shirts and children wear which was a major portion of their sales and this in turn led to an increase in volume of sales from 9.1% to 9.4% in the year 2004-5 (Telegraph, 2006)
But amidst all this success M&S has shown that maximizing profit is not the only purpose of a business. The company in 2008 declared to give back to the community in the most generous way, where it will help to give a better quality of education to 15 000 children in Uganda. This initiative saved up to 55, 000 tones of Co2 and with the scheme that recycled 48 million hangers and converting 20 million garments to fair trade cotton (The Economist, 2008).
The ethical initiative taken by M&S to portray the image of the most sustainable retailer by 2015, the company has devised a plan on achieving ethical standards and fair trade initiatives (CSR360, 2010). Its drive to tackle low wage problem in developing companies, it introduced sustainable solution to establish "Ethical Model Factories" that ethically look after labor rights and other ethical aspects.
Before I analyze this case of an ethically conscious business, another case needs to be discussed in this stand.
Is a very good example to be quoted in this paper, the financial might of this company is more than imaginable. It is an American public multinational company that is involved in developing, licensing and supporting a wide range of products and service relating to the field of computer and technology. A company built by Bill Gates, a young computer programmer at the time, dominates the computer industry with the introduction of software technology like MS-DOS and followed by a line of Microsoft Windows operating systems.
With its financial revenue touching up to $62.484 billion and total assets of $86.113Â billion in 2010, this company surely know how to maximize its profits (Microsoft, 2010) This company is a multinational corporation operating globally and assisting developing economies in whatever way possible to make lives of less fortunate a little more fortunate. This company has taken dozens of initiatives and launched program's that assist governments and welfare organizations in educating, providing health and other facilities in developing countries. Microsoft has been rate amongst the top four companies in a CSR (Corporate Social Responsibility) index. (BCCCC, 2010). On several numerous occasions this company has given large amounts of money for charity.
In Pakistan, Microsoft has launched a range of initiatives to help the citizens of the country to look forward for a better future. The program's range from computer training centers and also setting up computer labs across the country from which 3 million students are taking benefit currently (Microsoft, 2010). Also in India Microsoft has partnered with many welfare organizations and assisting them in creating computing and life-skills in enhancing employability chances for deprived pubescent youth. The company gave a grant of Rs. 7.12 Million for the purpose of benefiting many children in India (Smile Foundation, 2007).
Ethics basically involves an understanding as what is the best way to live . It concerns with an individual's goals and does he achieve them without affecting other people in the community in a negative way (Rainbolt and Mclnerney, 1994).
The two above mentioned companies are a testimony to the statement that "profit maximization is not the only purpose of a business and involving ethics in one's operations business can also achieve their objectives as eating is not the only purpose of life. In this era of mass communication and the world developing into a global village, corporate might has developed to a much greater scale and businesses have revolutionized into debatably as one of the most powerful institutions on the Globe (Visser, 2008). With this understanding developing economies are reluctant to invite these corporate giants so to raise the standards of living through their investment in the economical sector of a country. In some countries the companies are more powerful than the local governments itself. With this type of supremacy companies should realize that they have a certain responsibility towards the stakeholders that are involved and affected by the business. Making profits should not be the only perspective of these companies but also to realize that their actions can unswervingly affect many individuals of the society.
When business in companies is profitable many companies will tend to exaggerate there ethical standards that they have adopted but the real test is when companies make this an inert part of their operations no matter what the situation. History is full of reminders that big companies who have acted unethically have failed whereas companies who have chosen an ethical path have succeeded (Forbes, 2008). Companies tend to gain competitive advantage against their competition and the individuals involved tend to develop loyalty toward the company when acted as ethical.
Business Ethics in Educational Institutions
Scandals at companies like Enron, WorldCom and elsewhere have created a sense of caution in the atmosphere towards businesses. Hence the demand to edify future business individuals in the field of business has increased and many educational institutions have started to incorporate the topic of Business Ethics in there syllabus and promote its importance (Financial Times, 2009). Education is the best way to make an impact to make future corporate understands the importance of Ethics in business. Making them understand that profit-maximization is not the only goal in life and getting away with it by hiding from legal restrictions is not a ethical aspect of a rationale human being. Many educationists have found out efficient ways to increase the interest of
Demands of companies acting on the ethical perspectives have grown to such a level that future business students have been started to be taught in this field at their undergraduate and postgraduate levels. Many teachers are of the view that codes of Ethics in business should not just be taught to student but should help them understand and help them make their own individual codes so that they should carry them in the practical world (Rollert, 2011). These way students are bound to understand the propinquity of ethics in a manager's responsibility in a business environment. Individuals learn valuable truths that a manager should be always that there are always limitations to self- desire and under no circumstance an individual has the right to exploit certain limitations to quench one's worldly wants.
Business Ethics in Religion
I don't think there a requirement of a reference to make in this statement that every religion has addressed the importance of ethics in business. Every scripture, Holy book and sayings of religious preachers highlight the importance of ethics and preach almost the same fundamental teaching that without ethics in business society is bound to be affected negatively.
The pope Benedict XVI on many occasions has explained that Christianity understands that earning profit for business is its right and can be termed as it ultimate objective of its activity but the church puts extreme emphasis that this activity is limited when the a human beings dignity comes under question (Catholic, 2011). Even in the past church has notably stressed that the material world of the modern consumer should be replaced by a more humanistic approach. This concern was addressed by the Pope Paul IV, he stated that:
"The superfluous wealth of rich countries should be placed at the service of poor nations . . . otherwise there continued greed would bring upon the judgment of God and wrath of the poor. . ."
Christianity has for long understood the evil of greed and acknowledges that in order to evade it one should refrain from extreme worldly desires (Fernando, 2009).
Islam takes a similar pattern and the life of the Prophet of Islam Muhammad (P.B.U.H) is full of examples where ethics has been stressed. At a very young age he was involved in the field of commerce and because of his reputation of being a meticulous and honest businessman, he was trusted by many in the Land of Arabia. An Islamic scholar has reported to have quoted one of Muhammad (P.B.U.H) saying that went:
"No fraud or Deceit: The Prophet said, "When a sale is held, say- there's no cheating."(Al- Bukhari 1974)
The Prophet laid extreme stress on Honesty and trust in business dealings. His teachings cover a wide range of aspects where Ethics being core fundamental aspect of business. He highlighted that businesses should encourage ethics in their operations and should follow sincerity, honesty and implementation of trust and obligation, while eliminating scam and deceitfulness (Fernando, 2009).
Business Ethics in Modern Era
Due to the aspect of globalization many companies, governments and other stakeholders have come really conscious of this aspect and have started to bring it to their foremost consideration.
United Nations is one of the top world organizations that have addressed this topic on several occasions, on the Global summit platform in 2010 many leader stressed that ethics is the main solution to overcome the current global crisis. The summit outlined that negligent behavior of corporate individuals and companies towards maintain ethical standards brought the current economy to a stage that we are in today (United Nations, 2010). Other global organizations like OECD (Organization for Economic Co-operation and Development) and many governments of developed countries have involved in the mission to maintain ethical standards in the corporate arena.
A main motivator for the involvement of business ethics is the growing power of media and pressure groups. Businesses have started to feel conscious of public shame that will eventually lead to a decrease in trust of the company's product and services. Some companies have learn it the hard way , where within a short span of time media sources like internet and television have broadcasted stories behind the unethical practices of certain companies that lead to global ignominy (The Economist). One of the biggest player that had played major role in creating a global attention toward the topic of ethics in business has been Hollywood. In the 21st century the industry has launched many films based on corporate failures and basically educating the world about its negative affects it can have on the society and itself. Michael Moore is one of the leading critics where his recent documentary on the Health care system in 2009 touched many aspects of ethics. The internet and the printed media is also full of articles, journals and magazine that are particularly addressing Business ethics and many companies have also felt the need to address it as top matter of concentration on there operations.
Every aspect towards ethics is the same where every institution, individual and belief on the globe disagrees to the aspect that the only purpose of business is to earn profit. There is more to life than fulfilling self interest. And businesses have started to realize that "doing good- Makes good business" (Business week, 2005). Moving away from the primitive purpose of business which is just related to achieving financial goals but to be uphold ethical standards that is related to everything from being honest in dealings, giving back to society and many more.
Business and Society are two inter-reliant entities. Societies look at businesses for creation of wealth whereas the business is dependent on the society to meet the requirement of earning that wealth. Until or unless both do not function in harmony irregularities are bound to occur. Businesses should realize this bond shared between them, where their actions can have a sundry effect not only on themselves but also on all the stakeholders involved. In order to ensure commercial success businesses have to refrain from abusing their dependency on the society. Businesses should devotedly exercise their influence in a society and foster enhanced conditions for wealth creation.
Well I think everybody is well versed with the quote that "Black Sheep's are everywhere". This doesn't mean that the above literature strengthens the position of the main topic which is "There is no such thing as an Ethical Business". But if this was the case by now the world would be subjected to the might of corporate giants and digesting whatever they do or say.