Maximising Business Income and Ethics - Essay Example

?Maximising Business Income and Ethics Business ethics are “principles and standards that determine acceptable conduct in business organisations In part, business ethics can arise from corporate social responsibility or it can also be the other way around.2 Are maximising business income and operating ethically compatible? One may argue that they are not because maximising income involves maximising sales and minimising costs. This can imply that we have to sell the goods no matter and we have to reduce costs. On the other hand, if we care about ethics, we will have to be very careful in what we say and what we do: we create an unnecessary baggage for us to carry when the most important things are to sell the product and reduce costs. Selling the product may have to imply that we have to lie a bit so our products can have a broader appeal. If we become too truthful, sales may dwindle. Putting ethics into a company’s business life may allow good income but it would not maximise income. Companies who adopt ethical behaviour lose flexibility. They are unable to adjust inputs consistent with the least cost combinations and use ethics instead choosing inputs. Thus, ethics and maximising business income are incompatible. Against the position, I submit six key points. First, today’s businesses are being conducted in a situation wherein consumers are more careful of what they buy and are looking into the ethical conduct and the environmental and social impacts of business corporations. One can identify at least two concerns that emphasises the importance for businesses to adopt a code of ethics. One concern pertains to the environment. Consumers are increasingly being concerned that what they consume are causing impacts on the environment. It was even anticipated that ethics, including environmental ethics, would constitute as a key concern of businesses in the current millennium.3 Consumers are also concerned that the businesses from which they are getting their products and services are not causing much destruction on the environment and preferably even protecting the environment. Consumers concern on the matter is so intense that oftentimes they have called for boycotts on businesses that they believe to have damaged the environment. A second concern pertains to “male oppression” and “sexual harassment.” Feminists among the consumers are also ready to call for boycotts once they perceive that a particular business is tolerating acts within workplaces that are considered “sexual harassment.” There are other concerns, of course, like employment of child workers, union-busting, and the like but the first two concerns are those which appear to have a relatively large following today. Perhaps, it needs no elaboration that when businesses commit acts that damage the environment or are perceived to be gender oppressive, consumers are agitated and hit back at businesses through various ways. Second, ethical business promotes happy employees as well as employee retention and employee productivity. Although research results are not immediately available, it appears reasonable that ethical business can promote employee retention and productivity (Coldwell and colleagues attempted to work on the link between ethics and retention in 2008). Ethical business operation can boost employee morale and becomes a source of pride for employees. It appears reasonable that the ethical operations can promote retention and employees with longer work experience in the company can be retained in the company. The retention of experienced employees will in turn promote business organisation productivity. Especially as company business ethics are transformed into company reputation, work morale is also boosted and this can likely improve employee productivity. Third, there are laws that obligate business to be ethical in their business conduct. For example, for contracts to be valid, enforceable, and legally binding, some of the requirements that can also involve ethical conduct in a contract is that the contract must not be contrary to law, parties must have the legal capacity to enter into a contract, and “each party’s consent to the agreement must be genuine.”4 Unilateral contracts, on the other hand, may compel a business to honour her promises and commitments.5 Under unilateral contracts, for example, a business company who offers to reward customers to perform certain things, within the context of promotions or contests, becomes legally bound to pay the reward they have promised when the act has been performed before the promise is revoked. Paying customers is no longer an option but a legal obligation. Unilateral contracts provide a compulsion for businesses to be true to at least some of their words or promises. Businesses must therefore be ethical with regard to their statements, words, claims, and promises. Businesses must be aware for example that in the New South Wales, “a person has full capacity to enter into contract when they reach 18 (the age of majority).”6 Certain conditions have to be met when contracts are transacted with people below 18 years old under the Minors Act of 1970.7 The laws on contracts imply that business operations guided by ethics consistent with the laws will be very important towards sustainable business operations. Otherwise, business operations can be hampered by legal suits that can constrict business growth. Without a code of business ethics that are consistent with country or local laws, business operations can be subject to several suits and this can lead to a paralysis of the business. For example, a lack of business ethics can result into a contract that lacks genuine consent, valid representation (as opposed to fraudulent, negligent, and innocent representation), and adequate consumer protection.8 Illegal contracts are not enforceable and, thus, a code of ethics that limits business activity into those that are legal is important for business survival and sustainability. As pointed out by Penfold, “as a matter of public policy, the courts will not enforce contracts that are illegal.”9 Based on Penfold, some of the examples of illegal contracts in Australia are contracts to commit a crime, a civil wrong, a fraud on third persons, contracts leading to fraudulent tax payments, contracts that are harmful to public safe and those that prevent the administration of justice. Australia has a section on corporate criminal responsibility in its criminal code.10 Australian corporate criminal responsibility “applies to bodies corporate in the same way it applies to individuals.”11 In line with the principle, corporate bodies like individuals can be meted the punishment of imprisonment if found guilty for offence under the Australian corporate criminal responsibility.12 A corporate body can be criminally liable in Australia for “failure to exercise due diligence as may be evidenced by the fact that the prohibited conduct was substantially attributable to: (a) inadequate corporate management, control, or supervision of the conduct of one or more of its employees, agents, or officers; or (b) failure to provide adequate systems for conveying relevant information to relevant persons in the body corporate.”13 In aligning corporate ethics with Australian laws, it must be pointed out that “based on the British legal system, Australia has two sources of law: statute (legislation enacted by different levels of governments) and common law (decisions of judges made in various levels of courts.”14 Business corporations must bear in mind that Australia is “a federation comprising six states and two territories with “key powers” set out in a written Constitution vested in the Commonwealth and residual powers vesting in state and territory parliaments.”15 The “key powers” pertain to statutes covering the “corporations, trade, foreign affairs, social security, finance, taxation, communications, banking and intellectual property.”16 On the other hand, the residual powers pertain to statutes covering “education, health care, housing, transport and police.”17 The Australian legal system “exists at a State and Commonwealth (or Federal) levels.”18 The Federal Court decides on matters assigned to it by the Commonwealth Parliament.19 Among the Australian laws that are important for business are the Corporation Act of 2011 and the Trade Practices Act of 1974.20 All the states and territories have their own Supreme Court.21 Business have to note that in Australia, copyrights have no registration process “as copyright which satisfies the requirements under the Copyright Act will subsist automatically.”22 “An infringing party can be subject to an injunction, restraining them from doing a particular act, or ordered to pay compensation to the injured party.”23 However, “artistic creations, mathematical models, plans, schemes or other purely mental processes cannot be patented.”24 Further, although trademark registration is not compulsory, “there is protection against misrepresentation under the common law and trade practices or fair trading legislation” in Australia.25 Fourth, ethical business is now the trend in Australia and to deviate from the trend will be bad for business image. The work of Simon Longstaff in 2009 is an important material on how the notion of business ethics has been gaining wide support among businesses in Australia. The Longstaff study covered 15,000 respondents covering “virtually all levels of seniority in all professions and industries in Australia.”26 Relative to business ethics, there are at least seven important findings from the Longstaff study. The first finding is that 89% of the respondents believe that organisations must act with integrity with the clients whom an organisation serves. The second finding is that only less than 1% of the respondents believe that businesses have no ethical obligation. The third finding is that 88% of the respondents agree that treating employees well is among the ethical obligations of business. The fourth finding is that around 84% of the respondents believe that business must respect the fundamental human rights of their employees. The fifth finding is that 83% of the respondents believe that businesses must be responsible environmentally. The sixth finding is that only 40 respondents out of the 15,000 respondent expressed a belief that legal compliance is the ONLY ethical obligation for businesses and other organisations. Finally, the seventh finding is that about 42% of the respondents expressed belief that business ethics can be lived better by “choosing only to work with partners in the supply chain who have complementary values.”27 Moreover, Longstaff reported that world businesses have united around ten principles under the United Nations Global Compact. The first principle is that businesses must respect human rights. The second principle is that they must refuse to be party to any abuse of human rights. The third principle is that businesses must recognise employees’ right to collective bargaining. The fourth principle is that businesses must condemn forced and compulsory labour. The fifth principle is that businesses must abolish child labour. The sixth principle is that businesses must wipe out discrimination in employment and occupation. The seventh principle is that businesses operations must be green. The eighth principle is that businesses must be environmentally responsible. The ninth principle is that they must “encourage the development and diffusion of environment friendly technologies.”28 The tenth principle is that businesses must not be a party to corruption and must work for the elimination of corruption. In sum, the UN Global Compact for businesses “ask companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption.”29 In general, majority of the 15,000 respondents of the Longstaff study believe that businesses “have an obligation to act ethically, even if it occasionally harms their profits.”30 In particular, around 93% agreed with the statement, 77% strongly agreed and only 3% disagreed.31 In other words, what is indicated is that there is a strong and intense perception that on the crucial and important role of ethics in doing business. The work of Holm and Lillywhite in 2002 indicated that the top 100 companies of Australia have subscribed to ethical ways of doing business. At minimum, the work of Holm and Lillywhite strongly indicated that being ethical in one’s business is not an obstacle in making one’s business very profitable. If it is, the top 100 companies in Australia could not have subscribed to business ethics in doing business. Holm and Lillywhite discovered that 91% of their respondents from the top 100 companies of Australia had a code of ethics or a similar company document.32 This is significant by itself even if only 56 companies out of the top 100 companies in Australia responded to the Holm and Lillywhite survey. Even if we exaggerate and assume that those who did not respond to the survey were not doing ethical businesses, the data of 91% of 56 respondents from the top 100 companies in Australia indicated that they have a code of ethics adequately indicate that code of ethics are not obstacles to being profitable or maximising profit in business. In Australia, some companies even have three categories of business ethics documents: code of ethics, code of practice, and code of conduct or behaviour.33 The code of ethics states the values and principles of an organisation in Australia.34 The code of practice guides decision-making.35 Finally, the code of conduct or behaviour prescribes certain behaviour consistent with the code of ethics in Australia.36 However, the US Department of Commerce noted that many companies in Australia have “an organizational culture that does not tolerate or encourage misconduct.”37 Ethics is imperative in businesses in Australia as the Trade Practices Act of 1974 prohibits price fixing, abuse of market power, misleading or deceptive conduct, unconscionable conduct, deception, false advertising, mislabelling the country of origin, and there are Australian standards that must be complied.38 In addition, Australia has laws against unfair contracts as well as laws against bribery.39 Fifth, business ethics is actually a tool for corporate governance. It is an important instrument to keep the organisation intact. Without it, dangerous decisions can be made similar to the mistakes that the US companies have made that precipitated the ongoing crisis.40 Finally or sixth, one must consider between short-term and long-term income. Although living a set of business ethics can imply costs, the costs can be treated as a form of investment that yields returns for the company as business ethics promote consumer patronage and employee retention and productivity. Thus, while there may be costs in the short term, there can be substantial gains in the long term. In conclusion, we can say that business ethics will likely lead to long-term maximum income as the effects of business ethics are felt in market share, employee productivity and retention, saves the company from costly suits and litigation, and enable the business to do business correctly. Most importantly, business ethics are important tools for corporate governance that can keep a company intact and avoid the business mess that is responsible for the ongoing global crisis. Thus, the perspective of this work adopts the view implied in the work of Altham that business and ethics are not really competing but they are fundamentally complementing concerns.41 In a way, acquiring and implementing a set of business ethics is also a way of both external and internal branding that differentiates a business from the competition.42 Reference List Altham, Juliet. “Business ethics versus corporate social responsibility: Competing or complementary approaches.” International Business Ethics Review 4, no. 1 (2001): 10-12. Centre for Australian Ethical Research. Just How Business is Done? ACT: Centre for Australian Ethical Research, 2006. Coldwell, David, Jon Billsberry, Nathalie Van Meurs and Philip Marsh. “The effects of person-organization ethical fit on employee retention: Towards a testable explanatory model.” Journal of Business Ethics 78 (2008), 611-622. CPA Australia Ltd. The Social Responsibility of Corporations. Victoria: CPA Australia Ltd., 2011. Ferrell, O.C., Geoffrey Hirt, and Linda Ferrell. Business: A Changing World. McGraw-Hill Irwin, 2009. Holm, Sonya and Serena Lillywhite. Doing Business Responsibly: Perceptions of Ethical Practice and Governance of Australia’s Top 100 Companies. Fitzroy: Brotherhood of St. Laurence, 2002. Holding Redlich. Doing Business in Australia. Melbourne, Sydney & Brisbane: Holding Redlich Lawyers, 2011. King, C. and Grace, D. “Internal branding: Exploring the employee’s perspective.” Brand Management 15, no. 5 (2008), 358-372. Longstaff, Simon. The 2009 Annual Business and Professions Study: Business Ethics Study. Victoria: St. James Ethic Center, 2009. Penfold, Carolyn. The Law Handbook. 11th ed. Sydney: University of New South Wales, 2009. Toffler, Barbara. Ethics in the New Millennium. International Business Ethics Review 4, no. 1 (2001): 1-9. US Department of Commerce. Business Ethics: A Manual for Managing Responsible Business Enterprise in Emerging Market Economies. Washington: International Trade Administration, US Department of Commerce, 2004. Read More