Business Ethics

Business ethics is the behavior that a business adheres to in its daily dealings with the world. The ethics of a particular business can be diverse. They apply not only to how the business interacts with the world at large, but also to their one-on-one dealings with a single customer.

Many businesses have gained a bad reputation just by being in business. To some people, businesses are interested in making money, and that is the bottom line. It could be called capitalism in its purest form. Making money is not wrong in itself. It is the manner in which some businesses conduct themselves that brings up the question of ethical behavior.

Good business ethics should be a part of every business. There are many factors to consider. When a company does business with another that is considered unethical, does this make the first company unethical by association? Some people would say yes, the first business has a responsibility and it is now a link in the chain of unethical businesses.

Many global businesses, including most of the major brands that the public use, can be seen not to think too highly of good business ethics. Many major brands have been fined millions for breaking ethical business laws. Money is the major deciding factor.

If a company does not adhere to business ethics and breaks the laws, they usually end up being fined. Many companies have broken anti-trust, ethical and environmental laws and received fines worth millions. The problem is that the amount of money these companies are making outweighs the fines applied. Billion dollar profits blind the companies to their lack of business ethics, and the dollar sign wins.

A business may be a multi-million seller, but does it use good business ethics and do people care? There are popular soft drinks and fast food restaurants that have been fined time and time again for unethical behavior. Business ethics should eliminate exploitation, from the sweat shop children who are making sneakers to the coffee serving staff who are being ripped off in wages. Business ethics can be applied to everything from the trees cut down to make the paper that a business sells to the ramifications of importing coffee from certain countries.

In the end, it may be up to the public to make sure that a company adheres to correct business ethics. If the company is making large amounts of money, they may not wish to pay too close attention to their ethical behavior. There are many companies that pride themselves in their correct business ethics, but in this competitive world, they are becoming very few and far between.

 

Sources of Business Ethics

Ethics in general refers to a system of good and bad, moral and immoral, fair and unfair. It is a code of conduct that is supposed to align behaviors within an organization and the social framework. But the question that remains is, where and when did business ethics come into being?

Primarily ethics in business is affected by three sources - culture, religion and laws of the state. It is for this reason we do not have uniform or completely similar standards across the globe. These three factors exert influences to varying degrees on humans which ultimately get reflected in the ethics of the organization. For example, ethics followed by Infosys are different than those followed by Reliance Industries or by Tata group for that matter. Again ethical procedures vary across geographic boundaries.

Religion. It is one of the oldest foundations of ethical standards. Religion wields varying influences across various sects of people. It is believed that ethics is a manifestation of the divine and so it draws a line between the good and the bad in the society. Depending upon the degree of religious influence we have different sects of people; we have sects, those who are referred to as orthodox or fundamentalists and those who are called as moderates. Needless to mention, religion exerts itself to a greater degree among the orthodox and to lesser extent in case of moderates. Fundamentally however all the religions operate on the principle of reciprocity towards ones fellow beings!

Culture. Culture is a pattern of behaviors and values that are transferred from one generation to another, those that are considered as ideal or within the acceptable limits. No wonder therefore that it is the culture that predominantly determines what is wrong and what is right. It is the culture that defines certain behavior as acceptable and others as unacceptable.

Human civilization in fact has passed through various cultures, wherein the moral code was redrafted depending upon the epoch that was. What was immoral or unacceptable in certain culture became acceptable later on and vice versa.

During the early years of human development where ones who were the strongest were the ones who survived! Violence, hostility and ferocity were thus the acceptable. Approximately 10,000 year ago when human civilization entered the settlement phase, hard work, patience and peace were seen as virtues and the earlier ones were considered otherwise. These values are still pt in practice by the managers of today!

Still further, when human civilization witnessed the industrial revolution, the ethics of agrarian economy was replaced by the law pertaining to technology, property rights etc. Ever since a tussle has ensued between the values of the agrarian and the industrial economy!

Law. Laws are procedures and code of conduct that are laid down by the legal system of the state. They are meant to guide human behavior within the social fabric. The major problem with the law is that all the ethical expectations cannot be covered by the law and specially with ever changing outer environment the law keeps on changing but often fails to keep pace. In business, complying with the rule of law is taken as ethical behavior, but organizations often break laws by evading taxes, compromising on quality, service norms etc.

 

Business Ethics and Organizations

Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.  Business ethics can be thought of as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organization’s culture sets standards for determining the difference between good and bad decision-making and behavior.

As in other social entities, ethics are inevitable in organizations. Research has already shown that ethics do pay. Since unethical practices cost industries billions of dollars a year and damage the images of corporations, emphasis on ethical behavior in organizations has increased over the recent years. Societal expectations, and pressures from legal and professional bodies have forced organizations to be more concerned about their social responsibilities and ethical practices.

In the mid-1990’s Shell faced one of its worst public relations nightmare due to its unethical business practices in Nigeria. In 1997 the Financial Times in its annual survey of Europe’s most respected companies identified Shell’s ethical problems as the key reason for the company’s dramatic drop in rankings. Shell turned upside down in the aftermath of these unfavorable experiences and thus started correcting itself for sustainable growth. Like Shell, many other organizations whose business practices are perceived to be unethical and their products are considered to be harmful to the consumers (e.g. cigarettes) face strong social condemn. In recent corporate history, the Enron and Arthur Anderson episodes, stress the importance of ethical practices in business.

Ethical problems are problems of choice. Ethical problems arise not because of people’s tendency to do evil, but because of the conflicting nature of standards and interests, which are valid in themselves. Problems in ethical decision-making and behavior occurs only when individual interests and social norms conflict with each other.

Every organization has its own accountability towards its stakeholders — employees, capital investors, consumers, government, competitors, suppliers, and other community members. In most situations the organizations are able to balance its obligations towards these varied stakeholders. However, sometimes conflicts do arise between the interests of two or more stakeholders. In such situations the more influential and powerful group could gain precedence over others, to protect their own interests.

For example, though maximizing financial returns is an organization’s obligation towards its shareholders, it could be at the cost of the ecological system or legal business practices. Managers under these situations face the dilemma of protecting long-term interests of the organizations and short-term profits. Recent thrust on high output driven performance and reward linkages in organizations is driving to short-term interests. It might adversely affect the adherence to ethical norms in organizations.

In order to ensure ethical business practices of an organization, it is important to ensure ethical orientation of the people who own, manage, and work for it. Adopting proper structures and practices could ensure it. Structure, policies and practices of an organization influence ethical behavior through flow of communication, reinforcements for ethical behavior etc.

There are two ways that companies can approach and implement the concept business ethics. These two approaches are based on two schools of thought, each providing a different definition for ethics business. The first school of thought is shareholder-focused. It maintains that ethical business decisions can be made when individuals within the organization and the company as a whole always keep the best interest of the owners in mind. For those who see business ethics from the shareholders’ perspective, actions and decisions should be geared towards generating more profit. On the other hand, the stakeholder-focused approach puts premium on corporate social responsibility. Under this concept, ethical companies are those that act and decide with the interest of all stakeholders not just the owners in mind. ethics business means striking a balance to service all groups that have an impact on, or are impacted by the company’s decisions and actions. These stakeholder groups can include the employees, the supply chain, the end consumers, relevant government and non-government organizations, and the community where the company operates, among others. Given this, the stakeholder perspective emphasizes the need to make business decisions that will work well for all the stakeholder groups.

 

Ethical Behavior in Business

Ethics in business is not a new trend. In fact, it is already present for over four thousand years now. With the changing trends in the business world, the society is getting more concerned about the corporate responsibility of businesses. Debates have also been conducted focusing on the social issue of poverty among the workers and the corresponding responsibility of the employers about the issue. Even in the ancient times, issues on ethics in business can be observed just like in the teachings of Aristotle about the harmful effects of the gaps that exist between the economical utilization of goods and the profit making objective of many merchants. At present, the rise of the concept of corporate social responsibility among the business sector constitutes corporate initiatives of integrating several ethical aspects such as establishment of codes of conduct, environment management system measures, health and safety in the workplace, compliance to financial reporting standards, certifications schemes, company partnerships with community groups, and support for projects that are aimed for community development.

There are several factors for the demand of the society for business ethics as a corporate responsibility. Some of these include the changing social role of corporate entities, globalization, developments in technology, and moral authority democratization. In the past, the responsibility or regulating all aspects of social life rests in the hands of the government. However, with the evolution of time, some duties are being moved from the government to the other sectors of the society including the individuals, the social groups, and the business sector. With this trend, corporate entities are required to establish their own self-regulation policies especially that the government has recognized the fact that fully controlling the business sector is not always an efficient way of influencing corporate behavior. Increased pressure is put on the business sector about the possible consequences of their policies on the society.

Globalization is another driving factor for the society’s demand of business ethics among the business sector. Currently, many businesses enter the international market and corporations tend to invest worldwide since this gives them more opportunities to grow. However, with the trend of entering in different foreign markets, there are complex things to consider including ethics. Customs and traditions in foreign lands differ from each other and some business practices that may be acceptable to one nation may not be accepted in the same sense in another. Businesses are often expected to adapt with the customs and values of the foreign land that they are trying to penetrate. Pressure on company’s corporate social responsibility is high since there is still no firm and effective supervision governing the international business behavior.

Developments in technology seem to be a great source of questions of morality. Technology at the current time is considered advanced and it provides a way for people to experience things that are thought to be impossible before. Technological development brings convenience to the society and contributes to the establishment of a kind of life that is better than before. Ethics come to picture as the society examines the real consequences of technology to the way of life. The effect of technology to the world is complex and the government has not enough capacity to handle the issues accompanying it which makes it necessary for the business sector to take actions on whatever consequences their own technology may bring.

In the past, moral authority often rests among a few groups in the society including the Church, the government, and the theorists. At present, the opinions of the mentioned authorities are now considered as a regular opinion which can be aligned with the opinions of a regular entity. The power and control they once had over judging and handling ethical issues has faded and now there is a democratization of moral authority. This again puts pressure on the business sector to manage their ethical affairs seriously since everyone seem to have the authority to criticize their business practices are compliance to ethical standards. Businesses are compelled to open their policies to the public when questioned about their business ethics. Moreover, with the intrusion of media, the businesses are more exposed to public which makes them susceptible to any ethical criticism.

The relationship of a business to its stakeholders is the primary concern of business ethics. Stakeholders may include all the entities that have interest on a company or are influenced by the company such as the shareholders, the customers, the employees, suppliers, competitors, the government, and others. Seeking business strategies that will consider the interest of all the stakeholders is not an easy task for a company but an important mission of every manager and all the high ranking company officials.

 

Examples of Business Ethics

Here are a few examples of business ethics at work as corporations attempt to balance marketing and social responsibility. For example, Company XYZ sells cereals with all-natural ingredients. The marketing department wants to use the all-natural ingredients as a selling point, but it must temper enthusiasm for the product versus the laws that govern labeling practices.

Some competitors' advertisements tout high-fiber cereals that have the potential to reduce the risk of some types of cancer. The cereal company in question wants to gain more market share, but the marketing department cannot make dubious health claims on cereal boxes without the risk of litigation and fines. Even though competitors with larger market shares of the cereal industry use shady labeling practices, that doesn't mean every manufacturer should engage in unethical behavior.

For another example, consider the matter of quality control for a company that manufactures electronic components for computer servers. These components must ship on time, or the manufacturer of the parts risks losing a lucrative contract. The quality-control department discovers a possible defect, and every component in one shipment faces checks.

Unfortunately, the checks may take too long, and the window for on-time shipping could pass, which could delay the customer's product release. The quality-control department can ship the parts, hoping that not all of them are defective, or delay the shipment and test everything. If the parts are defective, the company that buys the components might face a firestorm of consumer backlash, which may lead the customer to seek a more reliable supplier.

 

Business Ethics: A Successful way of conducting business

Business Ethics refers to carrying business as per self-acknowledged moral standards. It is actually a structure of moral principles and code of conduct applicable to a business. Business ethics are applicable not only to the manner the business relates to a customer but also to the society at large. It is the worth of right and wrong things from business point of view.

Business ethics not only talk about the code of conduct at workplace but also with the clients and associates. Companies which present factual information, respect everyone and thoroughly adhere to the rules and regulations are renowned for high ethical standards. Business ethics implies conducting business in a manner beneficial to the societal as well as business interests.

Every strategic decision has a moral consequence. The main aim of business ethics is to provide people with the means for dealing with the moral complications. Ethical decisions in a business have implications such as satisfied work force, high sales, low regulation cost, more customers and high goodwill.

Some of ethical issues for business are relation of employees and employers, interaction between organization and customers, interaction between organization and shareholders, work environment, environmental issues, bribes, employee’s rights protection, product safety etc.

Below is a list of some significant ethical principles to be followed for a successful business-

1.       Protect the basic rights of the employees/workers.

2.       Follow health, safety and environmental standards.

3.       Continuously improvise the products, operations and production facilities to optimize the resource consumption

4.       Do not replicate the packaging style so as to mislead the consumers.

5.       Indulge in truthful and reliable advertising.

6.       Strictly adhere to the product safety standards.

7.       Accept new ideas. Encourage feedback from both employees as well as customers.

8.       Present factual information. Maintain accurate and true business records.

9.       Treat everyone (employees, partners and customers) with respect and integrity.

10.    The mission and vision of the company should be very clear to it.

11.    Do not get engaged in business relationships that lead to conflicts of interest. Discourage black marketing, corruption and hoarding.

12.    Meet all the commitments and obligations timely.

13.    Encourage free and open competition. Do not ruin competitors’ image by fraudulent practices.

14.    The policies and procedures of the Company should be updated regularly.

15.    Maintain confidentiality of personal data and proprietary records held by the company.

16.    Do not accept child labor, forced labor or any other human right abuses.

 

References

https://www.smartcapitalmind.com/what-is-business-ethics.htm

https://www.investopedia.com/terms/b/business-ethics.asp

https://www.mbaknol.com/business-ethics/ethical-behavior-in-business/

https://www.managementstudyguide.com/sources-of-business-ethics.htm