Ethics in Business11 min read
Sustainable advantage of an organization can be determined by its ethical capability. Ethical capability of an organization is its duty to do what is right. Some organizations such as Enron, Sathyam, and Tyco etc have made false statements in their accounts and cheated both the stakeholders and government. These kind of issues gave rise to the importance of business ethics in business schools all around the world.
Sustainable advantage can be defined as the beneficiary element that determine the long term objectives of an organization, where objectives would be the economic development that generates wealth and meets the needs of the current generation while saving the environment, so future generation can meet their needs as well. There are number of factors that determine the sustainability of an organization, which are its ethics, strategy, employees, financial capital etc. in present scenario, human resource of an organization considered to be its competitive advantage, but it will not provide sustainability. Sustainability of an organization will depend on the impact it has on the people, in the form of trust, honesty, integrity, respect, quality and responsibility. Organizations with poor sustainability will fall back as happened in case of Enron and Sathyam.
Enron was an American energy company founded in 1985 by Kenneth Lay after merging Houston natural gas and internorth( citetation). In early 1990’s Enron sold electricity at market price. At around the same time US congress passed a bill regarding the deregulation sale of natural gas which favored Enron to sell energy at higher prices. In 1992 Enron was the largest merchant of natural gas in North America. Online trading model developed in November 1999 known as Enron online has developed and extended the abilities to negotiate and manage its trading business. By 2001 Enron had both owned and operated gas pipe line, pulp and paper plants, broad band assets, electricity plants and water plants internationally. Enron stock was priced at US $ 83.13 and market capitalization exceeded US$60 billion, and Enron was rated the most innovative large company in America in fortunes most admired companies survey. By the end of 2001 the Enron scandal was revealed. The CEO Jeffrey Skilling with some of the executives have hidden billions in debt from failed deals and projects. Chief financial officer Andrew Fastow and the other executives were able to mislead the board of directors and audit committee by presenting them psydo account statements. Once the scam was published the Enron stock priced at $90 per share in 2000 plummeted to less than $1 by the end of November 2001. This fall in stock value has caused at $11 billion loss for its share holder. The employees of the organization received a limited amount of their salary and pension when it was bankrupted. Several law suits were filed against the company CEO and other executives.
Similar is in case of Sathyam computers, which is termed as the Indian Enron scandal. Sathyam computers were an information technology company which produces software’s headquarters at hyderbad, India. Its chairman Ramalinga Raju produced an account sheet which has a 7000 crore fraud. The chief auditors were also not able to identify this adjustment. As a result of this scam the employees lost their job and chairman was jailed for fraud.
These two cases throw a light on how an organizations as well as economy of the country or in large the world can be impacted with their unethical practices. That, if the organization does not practice ethics will not have sustainability.
Need for the business ethics: for the following
1. Business operates with in the society
2. Every business irrespective of size exists more on ethical mean or in total regard to its social concern to survive long.
3. Business needs to function as responsible corporate citizens in the country.
Business is a part of subsystem of a society, therefore its functioning should contribute to the welfare of the society. If the business earns social sanction of the society, where it exists then it would be able to survive, develop and excel in activities, because only through earning social sanction the business can get loyal customers. Loyal customers are sustainable advantage and therefore can survive in market without which it will collapse and die away. Large organizations put more interest on public, the managers are eager to have public opinion and always seek to maintain a proper image of company in their minds.
Now a day’s minimizing profit is not the only priority of business, it should have sustainability, which can only be achieved through ethical practices. Any organization big or small should follow ethical practices as it brings in a sense of social responsibility which eventually provides sustainability to the organization. Business should also be a responsible corporate citizen which does not allow narrow mentality goals and motives.
Cross culture variability
Ethical practices in a country or society will depend on various factors such as religious, beliefs, historic, traditions, social customs, and existing political and economic rules or policies. For example in Asian countries such as Japan, China etc loyalty to work groups and corporations has strong ethical values. This kind of ethics has been brought down through centuries long traditions, therefore one does not think of oneself but rather think of family, government and others involved with him, thus providing social responsiveness.
Nature of ethics
The concept of ethics deals only with human beings, as they only have the freedom and means to choose free will. Human being can distinguish between good and evil, right and wrong, and just and proper. For example a Japanese employee believes that it Is unethical on his part to attend an interview with other company when he is still with the current company. So human can fix a goal and the means to achieve it. Ethics is also science that nowadays has become a set of systematic knowledge about moral behaviour and conduct. Ethics deals with human conduct which is voluntary and not forced by any person at any circumstances.
Business ethics and profits
The cases of Enron and Sathyam makes a point that ethics and profits are opposed to each other, as when an organisation is ethical it makes short term profit and if the organisation is unethical it makes huge profit. The same cases prove us one more thing that is it makes huge profit unethically but will not sustain in the market. Ethical companies not only make profit but also overcome their competitors and other turbulent changes happening through out the years and have contributed to social welfare. Ethical companies have social responsibilities which allow them to flourish undiminished and make profit. Tata group of companies is one company which follows ethical practises. It is said that the chief executive officer of Tata is also its chief ethics officer. Some of the ethical policies followed by the company include national interest, support from open market economy, gift and donation for social cause, political non alignment, health safety and environment care, quality product and service and regulatory compliance etc. Ratan Tata the present chairman of Tata group has declined from airline industry because he was told to bribe then minister to enter the business, which he claimed to be unethical and against the policies the group follows. His predecessor JRD Tata had set up the first commercial airlines ‘Tata Airlines’ in India which was later overtaken by the government of India and named it as Indian airlines. So besides being a pioneer in airline industry they were not able to procure it because they felt it would not sustain them and it would bring a bad image for the company. This is the reason why people have great respect for Tata group and their ethical practices and policies have created brand loyalty which has helped them to survive in market even though many competitors came.
Cross cultural contradictions
Ethical policies become a problem when the companies are not able to do business at home, therefore the other societies where the ethical policies are liberal or works in their favour. At home they are not allowed to sell products because it is unethical to use unsafe products but they may sell it in other countries where the ethical standards allow them to sell these products. It happens especially with pharma products. Some factories which emit pollutant gases are set up in neighbouring countries because ethical standards at home do not allow the factory to run business. These pollutant gases emitted are dangerous for people and the environment. Still it is ethical in certain countries. These kinds of issues give rise to cross cultural contradiction and exploitation. These issues which arise become difficult for the managers and firms to solve. Therefore the business has responsibility for their country but to four major groups they are society, employees, customers or consumers and investors.(example drugs)
Factors influencing business ethics:
Leadership, strategy and performance, individual characteristics, corporate culture and environment
Leader is a person who leads the people towards achieving a common goal. Leader can be good or bad, great or small they arise out of the needs and opportunities of a particular time and place. Not all leaders are considered to be perfect in their decision making because each and every decision they make will depend upon the character of person which differ from person to person. Character of a person includes their inborn talents, learned and acquired traits which were imposed upon them by life and experience. Leaders are models and mentors to their followers therefore they follow the path way set by their leaders. In a large organisation the top level managers or CEO are considered to be the executive and supervisory leader. The CEO should have strong commitment towards ethics and ethical conduct and should give a constant leadership in renewing the values of an organisation. They play a key role in creating, maintaining and changing the ethical culture. It is necessary for the leader to set good examples, and follows ethics. One such good leader is JRD Tata who set a good example for his successor and they still follow it. Where there are good leaders there will be good ethical practices in business.
Corporate governance: is the set of systems and processes that a company follows to ensure that it is in the best interest of the stake holders. Stakeholders are the shareholders, employees, customers, creditors and the community.
Sustainability has three components according to john elkington’s triple bottom line concept they are economic, social and environmental. According to elkington the business does not have one single goal of attaining profit but to extend the goal set by adding environmental and social values. Thus sustainability has become the new goal set by the organisation.
Environmental perspective: natural resources.
Economic perspective: about the future generation.
Social perspective: over exploiting of employees and not providing equality in gender employment, caste creed and religion based employment employing child labour.
Organisational culture: is the set of shared values, beliefs, goals, norms etc that prevails within an organisation. The organisational culture emphasis on ethics but as it grows it may change, as in the case of tyco where its organisational culture supports unethical practices. If the company makes huge profits in unethical way then individual who joins the organisation would also have to practice unethical things to survive in the company. As in the case of enron where many executives and managers knew that the company was following some illegal and unethical practices, but the executives and the board of directors did not know how to make the ethical decisions and corporate ethical culture. Thus they fall back and managers have to pay in the form of fines and imprisonment.
Business ethics is the application of ethical principle in the organization or business. An organization should produce or make its own ethical cultures, but this ethical culture formulated should be drawn from the concept of what is ethical to all and not what is right for the organization itself. The employees of the organization, also has to follow the same ethical principles. The organisation being ethical will provide certain social responsibilities such as they do not harm the stake holders, the general public and the society as well. “business that treat their employees with dignity and integrity reap rewards in the form of high moral and productivity” (Frederic, Post and Davis).
There are three major types of ethical issues that arise in a business they are, face to face ethics, corporate policy ethics and functional area ethics. Face to face ethical issues happen between the employees of an organization in their day to day organizational life. the employee face these ethical conflicts when their personal standards differs from what their job demands. Corporate policy ethical issues happen in the basic operations of a company. The top level management including the board of directors and CEO’s are responsible for ethical practices of the organization. Functional area ethics issues arise at all functional levels of the organization. For example in the accounting department, if unfair pressure is put on employees to deliver an audit report which has been altered or not showing current accounts of the organization would be un ethical, as it does not follow the standards and policies set by the organization.
Causes for unethical issues:
There are many reasons for an organization to follow unethical practices they are personal gain and selfish interest, competitive pressures on profits, business goals and personal goals, cross cultural contradictions. When an employee gives more importance to his greed or concern for his personal gain rather than any other concerns, irrespective of the harm it can bring to the organization is termed as unethical practices that arise due to personal gain and selfish interest. When a company has tough competitors in a limited or static market; it may engage some unethical practices just to be in business or to protect their profits. If the organization uses some unethical means to achieve its goal that is unaccepted by its stakeholders will give rise to ethical issues under business goal and personal goal. Here the organisaiton has set a goal that would conflict with the personal goal of its stake holders. Under such conditions the individuals involved have two choices either to follow the ethical ways of the organization or “blowing the whistle” on organization.
Environmental perspective relates to the exploitation of natural resources in business. The company should make sure that the natural resources are not exploited; it should sustain the resources so that the future generation can also enjoy them as we did. One such example is the restriction of fishing in the North Sea, to sustain the availability of diminishing cod fish to the consumers.
Economic perspective of sustainability relates to the economic growth and fall in the society. The short term adjustments made by the companies such as bribes and cartels will only be for a short period of time, it will never achieve a long time sustainability the organizations attitude towards the environment in which it is embedded. If the organization does not pay taxes are said to behave unethically similar in the case of organization that does not give donations to public institutions such as schools, hospitals, police and other justice systems.
Social perspectives of sustainability refers to the social future of an organization which it is able to give.
Business ethics if practiced properly in an organization would provide scope to its stakeholders (which includes employees, customers, shareholders, bank and other lending institutions, government), personal policy level, social level and internal policy level.