What Is Ethical Business, Ethical Issues Surrounding the Banking Sector - Essay Example

? Ethical Business Number: What is Ethical Business? Ethical business is also variously referred to as corporate ethics. Ethical business is defined as the constant application of various moral codes of conduct to both an organization’s operational and strategic management practices. It can thus be seen that general business morality that is practices by a particular business enterprise is mainly dependent on an individual’s own moral standard as dictated by the cultural and political environment in which the business enterprise is currently operating (Chryssides and Kaler, 1993). Levels of Business Ethics Ethics in business can be categorized into three levels so as to be able to classify the various diverse elements that are contained within the concept of business ethics. These levels are: The Macro Level: This level of ethical business is primarily concerned with ascertaining the main role of business in society as well as establishing the best governance model that can best be effectively used so as to ensure the delivery of most of the benefits in a manner that can be perceived as being the most responsible and moral. Morality in business is a concept that can be interpreted in a variety of ways key among them being that it alludes to “proper behavior” as well as “The ability of an individual to know what is the main difference between what is considered to be generally wrong and what is presumed to be right”. It is suffice to presume that morality is the main element that helps in setting the stage for ethics and it should therefore be considered as the main code of conduct by which various business activities can be able to be successfully carried out and allowed to be effectively carried out in a manner that can be perceived as being allowed by the various international and national standards and rules (Applied Corporate Governance, 2013). The Corporate Level: At the corporate level, the interpretation of ethical business is the sets of various standards and rules that help in successfully defining business ethics. These rules and standards are affected by the socio-cultural context and specific circumstances in which the public sector organization or business enterprise is operating. While most of the corporate entities are usually directly influenced by personal ethics and morality, it sometimes happens that there is often a relatively huge discrepancy between an individual’s behavior within the business environment and outside it. This gap is arguable one of the major causes of the mistrust of big businesses, where the separation that exists between the management and ownership is great and hence open to abuse. Although an organization’s senior management team and directors might not be acting in an unethical manner, it stands to chance that they would probably act in a different manner if the decisions they were making were affecting their own companies and money (Applied Corporate Governance, 2013). The Individual Level: At this level, the separation between an individual’s personal ethics while within the business environment and outside it is seen to be greatly influenced by factors such as peer pressure, the individual’s personality, and the current social-political environment. As such the business ethics can either be similar to or vastly different from an individual’s own ethical code of conduct. Limited liability essentially protects individuals in business and as such, the consequences of an individual’s action’s can have a greatly reduced impact on their own personal circumstances. It is evidently clear that all corporate entities are directly affected by the ethical and moral stance exhibited by individuals and any difference that may exist between personal ethics and business can be arguably perceived as being an indictment of that particular individual’s stance, since it implies that the individual exhibits some level of double standards (Applied Corporate Governance, 2013). Ethical Issues Surrounding the Banking Sector Various financial institutions inclusive of banks, insurance companies, pension funds, credit agencies and private equity firms have for long been considered by mot people to be the most suitable entities to work with in the creation of wealth. The performance of these financial institutions is therefore mostly assessed on their capacity to maximize an individual’s financial assets. Gradually over time, financial institutions have gradually become more sophisticated and complex in their operations offering more complicated products and services to their consumers. The manner in which these financial institutions design, promote, invest resources and implement various credit facilities is evidently becoming less and less evident by the year and the speed at which these services are evolving is constantly accelerating (Fidelis International Institute, 2010). It is proving to be rather difficult for regulators and government institutions to be able to successfully cope with this high rate of evolution. The speed at which banks are evolving is proving to be too fast for governments and other organizations to be able to successfully keep the banks in check; this trend has resulted in the overlooking of many important issues. Some of the main ethical concerns regarding banks and other financial institutions include: 1. Usurious Practices Banking as a business is mainly concerned with enhancing the growth and protection of people’s money. As such, the creation of wealth is considered to be one of the principal purposes of banks. To create wealth, banks offer financial returns for their shareholders. Similar to any industry, it is both acceptable and understandable that banks attempt to maximize their investments by logically charging various interest rates on the various financial activities and loans that they offer to their clients. However one of the frequent ethical concerns is that some banks charge some rather abusive commissions, excessive interest rates or ultra-profitable credit charges that can be considered to be well beyond what can normally be considered to be reasonable standards for securing extra benefits from the given situations. This is done mostly to the detriment of bank customers, and as such these banks can be considered to be guilty of usury. Usury is defined as the demanding of significantly more money back from an entity’s own customers that can be considered to be fair and just. Banks are expected to act in a moral manner in respect to lending practices that happen to be practiced within their organizations and can potentially become usurious. Banks should ensure that they implement various polices that any sort of abusive practices inclusive of usury (Ciacchi and Weatherill, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment When financial institutions in the banking sector practice usury by encouraging various customer’s and business entities to take irresponsible credit at excessively high interest rates, these businesses and individuals can eventually end up getting into excessive debt. Some credit customers are frequently being subjected to various excessive marketing pressures by banks. These pressures eventually end up driving these small businesses into credit at what can be considered to be advantageous interest rates for the banks. These interest rates are usually what can be considered to be customary in the banking industry. 2. Speculative Banking The assets that banks invest and lend should be handled in a responsible manner, this is even more so, when it is taken into account that banks mostly lend and invest money that usually belongs to other institutional investors and individual’s whose money they manage. The engagement by banks in various irresponsible lending practices and speculative investments is not only not good for business, but is also morally unacceptable. Banks are encouraged to take a responsible approach in the lending and investing operations of their customer’s money. The practice by banks of investing in risky securities with the aim of securing good short-term returns should be cautiously considered. This is especially in light of the massive wealth losses that were witnessed as a result of the recent global financial crisis. When banks choose to engage in risky investments, they intentionally choose to ignore a crucial ethical element in regards to the handling of their client’s money. The situation is further compounded due to the fact that bank clients rarely receive detailed and necessary information that shows them the exact type of investment that their bankers happen to be undertaking with their money. Another key ethical aspect as pertaining to speculative banking is the fact that during the recent financial crisis, most of the financial institutions that happened to be involved in various risky investments that resulted in the massive losses for their customers, still continued to pay their executives excessively large compensation packages and bonuses in the range of millions of dollars. While it is generally understood that the banking profession has traditionally been able to generate excessive wealth for its executives, it becomes a critical ethical concern when these executives continue to receive excessive bonuses despite their having destroyed their client’s wealth as a result of their decision to engage in speculative investment practices (Vasudevan, 2003). Impact of this practice on Businesses Operating in a Capitalistic Environment The financial loss that is a result of unauthorized speculative investment by most banks has had the effect of not only adversely affecting the operations of the concerned business, but also in some cases resulting in the total closure of the affected business enterprise due to the constant inability of the business to afford to effectively run its operations. 3. The Financing of Arms Manufacturing and Trade It has been proven that most banks are actively financing the operations of the military industry all over the world. While it is morally acceptable for banks to help various countries in defending and caring for their population by helping them invest in the manufacture and purchase of weapons. It stands to reason that these practices end up resulting in a violation of various human rights. When countries develop and deploy cluster munitions, these weapons not only end up destroying the intended military targets, they also end up frequently killing innocent civilian victims in their thousands (Thachuk, 2007). Cluster-munitions are specially designed to destroy large areas and their use usually results in the inadvertent killing of millions of innocent individuals. Cluster-munitions are also notorious for causing critical damage after a military attack as some of their explosive components might not act immediately at the moment of attack. These explosive components remain active and eventually end up exploding afterwards (Borrie and UNIDR, 2009). Although it has been established by several studies that most of the deaths attributed to the use of cluster-munitions is usually civilian, most of the manufacturing companies manage to easily secure credit facilities form banks. It has been shown that in excess of 60 financial institutions are widely involved in the financing of these companies. This business has become so lucrative that it is estimated that over ten billion Euros were successfully channeled to six companies producing cluster-munitions between the period ranging between 2004 and 2007. Some of these companies have been able to successfully obtain credit facilities in the range of billions of dollars from banks. Some of the banks have also resorted to owning some of the shares in these companies, a practice that is perceived as having both moral and ethical implications. The money secured as credit form banks by these institutions also serves to finance their operations, a factor seen as having various ethical repercussions. By owning considerable equity in such companies, banks are showing an interest in secure the progress and growth of these companies (Fidelis International Institute, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment By financing not only the manufacture but also the sale of various dangerous arms, businesses operating in war affected countries stand to gain massive losses as wars generally cripple a country’s economy. This in effect results in causing massive losses for these business entities and in some cases extensive losses in the event that one of these weapons happens to be deployed near the business premises. Arguably, some of the businesses that provide various support goods for the military such as vehicles and uniform stand to make increased profits in a capitalistic environment. 4. The Financing and Support of Totalitarian Regimes Banks frequently provide various loans to companies operating in countries controlled by totalitarian regimes such as Sudan, Burma and North Korea. The corrupt government authorities that frequently operate in these countries usually require that these companies provide bribes so as to be allowed to operate. The money eventually flows into these totalitarian regimes that use this money in the further strengthening of these repressive systems in these countries. Although these banks may not have a physical presence in these countries, their practices nevertheless, perpetuate these repressive regimes (Fidelis International Institute, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment By propping up these regimes, banks make it increasingly difficult for businesses to be able to successfully expand their operations into these countries. The substantial bribes required so s to be allowed to expand into these countries is often prohibitive to most businesses. Financing Companies with Relatively Little or No commitment to Social Responsibility Banks usually grant a numerous of credit facilities to all companies. This is seen to help in the raising of capital in the various financial markets; this capital is indiscriminately made available to some of the companies that happen to be operating without what can be considered to be a socially-responsible agenda or even with relatively little commitment to one. Some of these companies operate in third world countries and allow child-labor, black economies and extensive environmental pollution. Some of these companies have relatively little regard for the works they employ in addition to their consistently violating labor laws (Habisch, et al. 2005). Most of the banks rarely question the social-impact and human rights agendas of their customers and instead concentrate on the risk-return ratio’s of their investments which they use as the sole basis for establishing the suitability of granting the company a loan. This raises various ethical questions on the part of banks (Fidelis International Institute, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment By providing credit facilities to businesses operating with questionable commitment to social responsibility, companies maintaining good social responsibility practices stand to be greatly disadvantages when competing with companies with questionable social responsibility agendas. While unscrupulous companies can be able to employ child labor and violate labor so as to cut costs and maximize profits. Ethical and credible companies cannot be able to do this and as such face unfair competition. 5. Ecological Impact Banks should take a close look at the ecological damage that happens to be generated by their clients in the event that they provide financing to these clients. Some of these companies engage in activities such as releasing diverse toxic chemicals in to the seas, or produce products linked to major health concerns. It should be considerably difficult for companies engaging in activities which can be deemed as having dangerous effects on the world’s natural environment to be able to successfully obtain financing from banks and other financial institutions. Such companies should be encouraged to try and balance their activities so as to ensure that they affect minimal damages to the environment during their operations (Sadgrove 2005). These concerns should also extend to companies engaged in the unsustainable harvest of various natural resources inclusive of resources such as lumbering and fishing. By investing in these environmentally unfriendly financial institutions, banks provide these companies access to important finances that these companies use to increase their capital resulting in larger environmental damages. Impact of this practice on Businesses Operating in a Capitalistic Environment The ecological impact of harmful business practices affects all businesses in general as damage an ungoverned depletion of various natural resources will eventually translate into larger operating costs as the natural raw materials become more scarce and expensive. Financing, Sponsorship, and donations that are contrary to the good of the Family Unit Due to the fact that financial institutions handle relatively large amounts of capital, the impact that the various sponsorships and donations that they give can be rather substantial and hence the money that they happen to channel by giving these donations can have a colossal importance impact on society. It is found to be in this regard that it becomes an ethical issue of concern when banks happen to provide active support to various organizations that are known to actively oppose accepted family values and the family institution. Banks should not support initiatives that attack family values or affect the general integrity of the family (Fidelis International Institute, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment By investing in organization’s that actively oppose family values and ethics, businesses that produce services and goods that are family oriented such as family entertainment companies stand to incur huge losses as the family unit begins to crumble. 8. Involvement in Social Enterprise The banking sector is seen to play a key role in the overall development of the markets within which it operates. Some of the activities that banks engage in such as their raising and lending money can help banks in effectively developing a community. Banks are expected to actively take parts in and support the general development of the community in which they happen to operate in. It has been noted that banks are increasingly receiving various accolades as they are now progressively more involved in supporting various organizations such credit unions, cooperative unions as well as in the financing of an assortment of community initiatives. Banks generally stand to benefit more from the increased financial resources of a community; it is evidently concerning when some of these banks tend to openly neglect assisting the communities within which they conduct their business operations (White and Kotval, 2012). Impact of this practice on Businesses Operating in a Capitalistic Environment When banks support and invest in the economic development of a given community, the area within which the community exists stands to gain from accelerated development and larger economic growth. The various business enterprises that operate within this environment therefore stand to gain more profits from their operations within these areas as the economic capabilities of these areas become more and more enhanced. Ethical Issues in Retailing In business, ethical issues are widely considered to be a strong determinant in dictating the patronage enjoyed by a store. Retail customers tend to shop in places where they find that they are at comfort with the various ideals and policies that are held by the given retail organization (Newman and Cullen, 2002). In the analysis of the ethical issues in the retail sector, it is often found that most of the ethical issues facing the retail sector are somewhat similar to those that face the banking sector although there are a few major differences. Some of the Unethical business practices that are common in the retail sector include: 1. Unethical Use of Company Resources The improper or unauthorized use of various company assets is considered to be one of the most common ethical issues in retail trade. The unethical use of various company resources usually results in the loss or damage of these resources and companies need to ensure that a proper business policy is drawn up that will ensure that all such vices are effectively curbed. The misuse of company owned vehicles is considered to be one of the most common forms of this unethical behavior. The misuse of company vehicles is prevalent in various forms such as employees using company vehicles for personal use or other employees underreporting the vehicle millage that they have used so as to keep from paying the extra money. Employees who improperly use the various resources that a company has entrusted to them raise various ethical issues. Companies are encouraged to ensure that they have in place policies that are designed to protect the company against suffering various losses due to this vice. The employment of various surveillance and monitoring equipment can also help to further discourage the unethical use of these company resources (Sennewald and Christman, 2008). Impact of this practice on Businesses Operating in a Capitalistic Environment In the event that a company’s employees happen to be inappropriately using the company resources, the damage or theft of these resources can result in added costs for the company as it attempts to repair the damaged resources or replace the ones that have been stolen. 2. Employee Theft The theft of assets and good by employees is a common occurrence in retail trade. Theft by employees causes most retailers to suffer heavy financial losses as they struggle to replenish the supplies that have been stolen by employees. Ethical issues arise when employees opt to steal products and assets from their employer. Frequent theft by one’s own employees can in certain given extreme cases, even result in the closure of a business enterprise due to the inability of the business enterprise to be able to have enough monetary resources to successfully sustain its various operations. Some of the techniques that can be effectively employed so as to help curb this trend include the use of peer reporting where a retailers employees are encouraged to monitor each other and report any unethical behavior, suspicious, or illegal activities on the part of fellow employees to the employer. In the event that a theft case is successfully proven, the reporting employee can be rewarded with an appropriate financial incentive (Dempsey, 2010). Impact of this practice on Businesses Operating in a Capitalistic Environment Theft by a company’s employees can result in a business enterprise facing constant and unwarranted expenses as it attempts to replace the stolen commodities. This can have the effect of adversely affecting a company’s profit margin. 3. Pricing Constraints Various unethical price fixing mechanisms are sometimes used by the different players in the retail sector. Some of these include horizontal price fixing whereby a given group of competing retailers establish a given fixed price that will be used for the sale of certain service or product offerings. Sometimes retailers engage in vertical price fixing where they actively collaborate with certain wholesalers or manufacturers and agree to resell an item at an agreed-on price. By engaging in deceptive pricing strategies, retailers unethically set misleading prices for their goods or services usually by employing the use of direct marketing. This is normally done to help lure customers into the store where they often find that there are several hidden charges involved or in extreme cases the product might even not be available in stock. Predatory pricing strategies are commonly employed by large retail chains with the aim of fighting or totally eliminating the competition in a given state. This is done by setting different prices on popular goods based on the geographic location of the shop and depending on the price that other stores in the area are selling the good or service. These price fixing constraints are considered to be unethical as most of them fix the prices of goods and services well above the current market rates resulting. Impact of this practice on Businesses Operating in a Capitalistic Environment Price fixing can adversely affect a business and especially so in the case of predatory pricing. Predatory pricing can result in a business enterprise losing its customer base. As soon as the business is forced to close down, the remaining business immediately increases the price of the good or product to well above the current market rates with the aim of recouping the losses previously incurred. This is easily done since any competition has been successfully eliminated. Similarity in Ethical Considerations within Different Sectors of Business From this analysis, it evidently clear that different sectors of business are similarly affected by unethical business practices. These practices usually result in losses for the company due to bad publicity and other related losses. Some of the common ethical considerations between the banking and retail sector include factors such as ecological impact and usurious business practices. It can therefore be derived that different sectors of business mostly exhibit similar ethical considerations. The Current State of Business Ethics in Relation to the Well Publicized Corporate Failures Seen over the Past 10years In light of the recent publicized failure of various corporations over the past 10 years, there has been reducing optimism in the success of some corporations especially after the international financial crisis. It is evident that most of the failed corporations opted to relentlessly pursue risky short term investments that promised huge returns while starkly disregarding the potentially adverse long term consequences that they might face. The self interest exhibited by most of the key management in these corporations was seen to heavily trump responsibility, a factor that has caused the failure of these corporations. The Ethics and Compliance Officers Association Executive Director Keith Darcy, is adamant that the lack of proper business ethics is partly to blame for the current financial woes that are facing various corporations. Due to the unethical lack of trust that exists in the current business environment, the United States government had to physically step in so as to force a merger between JPMorgan Chase and one of the earliest victims of the international credit crunch Bear Stearns. JPMorgan Chase was widely thought to have been apprehensive of the merger not as a result of lack of enough financial resources by Bear Stearns, but because there was a perpetual lack of confidence and trust in the business environment (Thomas, 2013). Darcy further points out the inability of regulators, depositors and investors to believe in the overall good intentions of most of the financial and banking institutions has been seen to result in a damaging effect as well as increased levels of toxic debt. This has resulted in a business environment where most consumers can be perceived as being unusually attentive to any uncertainty or wrongdoing (Thomas, 2013). Any hint at impropriety by a firm normally results in a reduction in the company’s market capitalization. The approach favored by most organizations particularly in the financial sector towards ethics training is blamed for this distrust. Most organizations in the financial sector concentrate on maximizing profits at the expense of proper business ethics (Thomas, 2013). To What Extent is Business Ethics Taught in Most University Business Courses? Although most of the schools have not been able to infuse the study of ethics in the various courses that they offer, there have been various positive developments over the past decade that have served to help in the promotion of the study ethics in most schools. The study of corporate responsibility has been seen to begin featuring more prominently in the prospectuses of more business schools as compared to how they appeared several years ago. Questions still linger not only as to how to best integrate the study of business ethics into the general curriculum but also as to whether if exposure to the subject happens to have any effect on the various decisions that are made by managers (Crane and Matten, 2007). Will the Inclusion of Business Ethics Material be of any Benefits to the Students or the Wider Business World? According to (Swanson and Fisher, 2011), the love of money that is currently being witnessed in most business studies students is similar to that exhibited by numerous white-collar criminals with business degrees. As such it is vital that business ethics studies are offered so as to provide a successful intervention to this problem. The study and application of business ethics principles will serve to help in improving the reputation of existing business enterprises as well as change the perspective and outlook of the individuals undertaking to study the course. Bibliography Applied corporate governance. 2013. 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