business world is a separate sphere that often lives by its own norms and rules. In the past, the laws of this area were often the laws of the jungle. Today, following accounting scandals and high-profile bankruptcies, many businessmen have begun to attach great importance to ethics. At the same time, maintaining ethics in the business world may not always be that easy as an executive and a rank-and-file employee will be pressured to act under the influence of many factors that can contradict ethical considerations. With this said, more and more companies recognize that violation of ethical norms can cost them too much to be a viable option. This paper will explore whether it is realistic to hope that business can maintain strict ethical standards and outline possible ways to do it.
1. Ethics versus Profits
Contradiction between business reality and ethical requirements arises out of the ultimate goal of business – generating a profit. In many cases, the attainment of this purpose will become easier if a company violates ethical rules. Thus, it may be more profitable to sell cherry-flavored products using artificial flavors instead of real cherries, and pass them off as natural products. It may be more profitable for an insurance broker to direct customers to those insurers that give one a kickback. Hunkin (2002) also notes that among the main reasons for ethical degradation in companies is that “there is mounting pressure on boards and CEOS to increase earnings on a quarterly basis — to “beat the street”.
The linkage between profits and a fall in business standards is noticed by the general public as well. A recent poll by CNN demonstrated that “72 percent of consumers see a pattern of deception by large corporations, rather than isolated incidents” (Ahuja 2005). People are worried about sharp growth of executive compensation and believe that the fact that “corporate executive compensation has grown 400-fold during the past 20 years” makes corporate officers focus on their own goals rather than ethical principles (Ahuja 2005).
However, perceptions of business executives tell a different story. Many of them are ready to cite cases when ethical behavior actually contributed to the profits of a company. This is topical for a business entity that faces the need to recall products in which life-threatening defects have been revealed. Johnson & Johnson set an example, rushing to take Tylenol off store shelves when the product was found to be tampered with. This time the company benefited from the recall because “although the removal cost the company $100 million, Johnson & Johnson recovered from the loss, rewarded by customers who remained loyal to the company and continued purchasing Tylenol once the scare had ended” (Ahuja 2005). The reverse happened when Firestone and Ford were obliged to recall Ford Explorers with defective tyres. The two companies kept blaming each other for the fault, unwilling to recognize their guilt, which tainted their corporate images.
2. Consumers and Community as Active Agents
The upshot of the above examples is that companies are induced to take ethics into the picture when they think about their image in the eyes of external stakeholders – employees, customers, and community. Customers as people who support the business with their funds have the greatest power to influence companies and inspire them to be ethical. Ethical consumption is now becoming a strong trend in many communities, and customers often connect their decisions about purchasing certain products with their perception of the ethical standards of the producing company.
Nowadays, consumers often conduct actions directed against specific companies, trying to undermine their revenues if companies are suspected or openly accused of unethical behaviors. The Nestle Boycott was directed at the Swiss multinational company that marketed its artificial baby milk in an irresponsible manner. Its critics insisted that Nestle’s ads communicated “the impression that the use of breast milk substitute would be the best option” and did not make any mention of breastfeeding, which is actually best for the child (Megone & Robinson 2002:143). Lack of adequate instructions in the third-world nations led mothers to apply artificial milk they received in free samples when they had their own. This caused their natural milk to dry up, and when they ran out of Nestle milk, they often had no funds to buy more, and their babies were left to starve. The company was accused of violating the World Health Organization’s Code on marketing, and participants of the boycott stopped buying its products. Although many people still maintain boycott of all Nestle’s products, the company has tried to air its views on the subject, as its representatives meet with students at universities and other people.
Nestle’s painful experience demonstrates that consumers’ opinion of the company’s ethical standards is an important factor to consider. This is why 63% of corporate officers, politicians and educators assembled by the Business Roundtable agreed that “a business enterprise actually strengthens its competitive position by maintaining high ethical standards” (Ahuja 2005). If a company fails to maintain a positive corporate image because of ethical violations, consumers may abandon it in large numbers, certainly an unwelcome opportunity for any CEO.
3. Ethical Relationships with Employees and Shareholders
The company is also forced to maintain positive relationships with other stakeholders, of which employees and shareholders are the most important groups. The success of a business depends on their efforts, and this is why managers make an effort to “attract capable people into the business, keep their turnover low, secure their loyalty to the company and its objectives, and maintain and increase their productivity wherever possible” (Williams 1992:41). Attractive compensations levels, fringe benefits, pension plans, educational opportunities – all these tools are used to impress and retain employees.
However, a single mistake in ethical treatment of employees can spoil the chances to keep their loyalty. A case of sexual harassment in the workplace or racial discrimination can ruin the employee’s motivation and decrease it dramatically. This is why companies are motivated to place emphasis on ethics in relationships with employees.
In managing the workforce, corporations will have to deal with very different and complex cases in which they will be challenged to determine which action is ethical and which is not. There are many controversial issues that will end in lawsuits to be considered by courts. In many cases, discrimination lawsuits, for example, will be ungrounded. An example of a complex case is the story of “Virginia Rulon-Miller, an IBM sales manager who was demoted for dating a sales executive of a competitor” and later “resigned and sued IBM for invasion of privacy and wrongful discharge” (Manley & Shrode 1990:35). It is important to preserve clear understanding of ethical principles and behaviors in complicated cases, and maintain ethical stance in all relationships with employees.
Investors are another important group whose relationship with the company is affected by its ethical standards. In the post-Enron world, too many investors are scared of unethical accounting and business practices that can exist in corporations. Discovery of accounting tricks can repel shareholders like nothing else, especially when a large restatement of earnings can mean the crash of a reputable company like Enron or WorldCom. A company willing to attract investors has to preserve a spotless ethics record.
4. Strengthening Corporate Ethics
To this point, it seems clear that corporate ethics helps a business be successful. This is especially true when businessmen target long-term, not short-term profits. A company can improve its market position and profits when it has a good reputation with customers, a strong attraction for investors and workable relationships with employees. This is why businesses around the world are trying to strengthen their ethical standards.
There are a number of ways to improve the situation. Training in ethics should certainly begin in the early stages of a career. Today, business schools have begun to pay increased attention to teaching Business Ethics as a subject and integrating it in other areas of the curriculum. Ahuja (2005) states that “Top business schools, including Harvard Business School, Northwestern (Kellogg), and Berkeley (Haas), currently require that students in their Masters of Business Administration (M.B.A.) programs take a business ethics course”. Although there disputes concerning the way to best integrate business ethics into curriculum, there is little doubt that this subject is going to take on increasing importance in the years to come. Gabel (2005) indicates that “virtually every traditional area of business-related scholarship works in tandem with a related legal or ethical standard”, which makes study of business ethics a necessity in business schools.
To improve corporate ethics, many companies take action to communicate to employees the need to maintain ethical standards. One of the most common tools to achieve this purpose is the Ethics Code. The establishment of a corporate code of ethics should involve a meaningful discussion of issues involved. This process allows employees to contribute their ideas and views and get a better understanding of what ethics means in their organization.
After the company has developed a code of ethics, “the second step is to have high level personnel responsible for ethics compliance programs” (Fadil, Robertson 1998:454). These people can be grouped in ethics committees, ethics oversight boards, or appointed as ethics officers. In any case, their duty is to track down instances of violations of the corporate ethics code and to promote its observation. Many companies are willing to introduce such employees and units in their organizations because they understand that investing in ethics can have a long-term positive effect on their business.
To strengthen ethical standards, the company should understand to whom it gives control. Thus, “individuals with a propensity for misconduct are not to be given any discretionary authority” (Fadil, Robertson 1998:454). This would give the management greater certainty that individuals in leading positions will not do anything unethical that will put the company’s existence and success in danger. Finally, “standards and procedures are to be effectively’ communicated via ethics training programs” (Fadil, Robertson 1998:454). These trainings can become the foundation of a corporate ethics compliance program that will also include procedures for punishing misconduct and measures for improvement of ethical guidelines.
Although many businessmen and public representatives see a conflict between ethics and business drive for profit generation, this contradiction can be resolved. In contemporary environments, many agents put pressure on businesses to behave ethically. A company cannot survive and achieve its goals without the support of its customers, shareholders, employees, and other stakeholders. These individuals and groups will only give their support to companies they believe to be ethical. Therefore, the company should strive to improve its ethical standards in every possible way. It can achieve this goal by creating an effective code of ethics, implementing it through ethics committees and ethics officers, delegating authority to the right kind of employees, and communicating its requirements to employees.
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