Evaluation of a Business Code of Ethics - Essay Example

? Evaluation of a Business of Ethics The IWAY Standard Ivan Iliev IKEA is a worldwide operating furnishing company with more than 300 stores in more than 35 countries (IKEA website). IKEA is not a public company. It is believed that the Swedish entrepreneur Ingvar Kamprad, the man who created and developed the company and the brand is still the sole shareholder. As such, it is a very interesting example for the link between ethical conduct and business success. This link is first recognized in IKEA’s mission statement “Affordable solutions for better living”. This concept is further developed by messages like “To create a better everyday life for the many people” (IKEA Group, 2004) and “The aim is to make products which have a minimum impact on the environment. And to manufacture them in a socially responsible way” (IKEA Services, 2004). Locally and globally the company does not hesitate to declare its devotion to values like trust, integrity and honesty. Another plausible statement can be found in IKEA’s Code of Conduct, the IWAY Standard (IKEA Supply, 2008). It is firmly stated there that “we can do good business while being a good business”. Thus, within the business environment and activities of the company one can find ethical messages like “better living” and “socially responsible way” while in its ethical code (the IWAY) the message is about being and doing a good business. The IWAY is based on international conventions and declarations like the United Nations Universal Declaration of Human Rights (1948), the Fundamental Principles of Rights at Work, ILO declaration (1998), the Rio Declaration on Sustainable Development (1992) and the Ten Principles of the United Nations Global Compact(2000). Marcoux (2008) agrees that a “common approach in international business ethics is to refer to or to construct lists of norms that ought to guide transnational business conduct”. My personal impression is that the fundamental values proclaimed by the international community serve as a purpose oriented ethical system. The “IKEA’s policy in all countries where the company is active is to take the national level of legislation and remuneration standards as a starting point”(Wilke, Sobczak and Schomann, 2008) diversifies these principles by adding the features of a duty-driven ethical system to the code of ethics Following IKEA’s business operating network structure the IWAY is a Code of IKEA directly with its suppliers (contractors). It is about what a supplier should do in the right way. Suppliers are responsible for communicating the content of the IKEA code of conduct to sub-contractors and workers. Relations to applicable law and regulations are at the core center of the subject. Workers or as Ikea familiarly calls them “co-workers” and managers are not directly addressed. Trade unions are only mentioned, while nothing is related to civil groups and voluntary organization and to religious topics. The development of a company’s code of ethics can be motivated by the sole requirement of life and human experience or by personal moral values and national cultural traditions. Working in favor of social responsibility can be a basic value in the behavior of groups and individuals. Prior to the current state of affairs Friedman in his article “The Social Responsibility of Business Is to Increase Its Profits” (1970) rigorously raises a discussion on the topic of the "social responsibili­ties of business". He argues that social responsibilities are of the individuals and not of the business. There he reminds about his book “Capitalism and Freedom” (1962), where the author postulates that "there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits". Amazingly contrasting to this position appear IKEA’s guiding principles for working in the interest of the child, the worker and the environment. Implementation of a Code of Conduct may be driven by international agreements and by the actions of international organizations and NGOs. It is still largely discussed whether the so-called sweatshop labor—the hiring of workers in less developed countries, usually at wages and under work conditions prevailing in those countries, to manufacture products for the developed world is a force for the better or for the worse. Denis and Bowie (2003) argue that “multinational enterprises are properly regarded as responsible for the practices of their subcontractors and suppliers” and further that “multinational enterprises have the following duties in their off-shore manufacturing facilities: to ensure that local labor laws are followed; to refrain from coercion; to meet minimum safety standards; and to provide a living wage for the employees”. The IWAY addresses most of the specific business topics of IKEA. The company works with a huge number of suppliers, where many workers are involved in difficult, risky and hazardous operations. The code saves time and money for the company since the introduction of the IWAY has been forced by problems that have appeared during the years. Formaldehyde emissions problems in Denmark and Germany – two very important markets for IKEA have caused the implementation of “action plans” (Wilke, Sobczak and Schomann, 2008) and laid the basis for the development of the Code of Conduct. The prevention of the company from lawsuits and market failures is not only a matter of control. It is a matter of doing business in the proper way. Let us recall again Friedman’s attitude towards limited involvement in social activities at the expense of chasing a profit. In his paper (1970, p2) he partially admits that an entrepreneur can get involved in such activities if he or she is working with his or her own money. This seems to be the case with IKEA - the individually owned company. Then, formally the social responsibility of the company can be justified. Then we can ask “Is this ethical behavior of IKEA as a MNE profitable”? And if it is profitable enough (for which we should not doubt) then these IKEA’s competitors who can decide to follow strictly Friedman’s directions can loose market positions. Then, in order to cope with the leading competitor (IKEA) the other companies would be forced to undertake socially responsible initiatives. An important part of the Code are the “ IWAY Musts” which have to be met by a possible supplier before signing the business contract. At the next step, after signing a business contract and during operational partnership the Code is extended over a number of fields of high interest to IKEA like Environment, Worker Health and Safety, Child labor, Forced and bonded labor, Discrimination and others. Wilke, Sobczak and Schomann (2008) share that “given the large number of products and suppliers, it was not possible for IKEA to introduce the IWAY standards immediately. The process continues with nearly 100.000 corrective actions since it commenced. For some of the suppliers it is a big challenge”. If we agree with Friedman, then the IWAY can be modified in the direction of limiting the commitment of the company in socially responsible activities. The minimum requirement of following the applicable laws and regulations at the supplier’s side can be considered suitable to be “ethical enough”. In fact, the sign for larger commitments are the company’s everyday ethical behavior and investments in fields and business operation for improvement of any current status. Initiatives and socially responsible business investments driven by agreements with humanitarian organizations (IKEA’s donations to UNESCO) or large business initiatives (IKEA’s Better Cotton Initiative) make the difference between the formal approach to codes of ethics and the active ethical and socially responsible behavior. One would not believe that IKEA and its management team can make a step back lo limiting their commitment to worldwide moral obligations. At the same time, if the concept of “socially responsible initiatives” is to be discussed as a new value to be introduced in the IWAY that has to be done carefully. Such a discussion can help answer questions like “Is a Code of Conduct an objective or a means”? Are these minimum requirements from the IWAY the true objective of IKEA and its contractors or it is just the means by which IKEA gets a better quality at low delivery prices and is prevented from lawsuits and the criticism of different stakeholder organizations? The IWAY itself has been established to give answers to such very important questions about business ethics and doing business in general. The Code makes the IKEA position clear to suppliers and their co-workers, as well as any other parties. The recognition of the Ethisphere Institute (2010) placing IKEA in its “World’s Most Ethical Companies ranking” for five consecutive years (2006 - 2010) is one of the answers. The Institute states “The World’s Most Ethical Companies designation recognizes companies that truly go beyond making statements about doing business “ethically” and translate those words into action” (Ethisphere, 2011). May be in the close future we shall get confirmations for the business ethics concept as the business behavior which promotes human welfare and the good. And may we can get one difficult answer to a major question: Are multinational corporations going to compete in the field of business ethics and social responsibility? References Denis, A. G. and Bowie, N. E. (2003). Sweatshops and Respect for Persons. Business Ethics Quarterly 13(2): 221-242 Ethisphere Institute. (2010). World’s Most Ethical Companies ranking 2010. Ethisphere Magazine. http://ethisphere.com/wme2010/ Ethisphere Institute. (2011). World’s Most Ethical Companies. Ethisphere Magazine. http://ethisphere.com/wme2011/ Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine, 122-125. Friedman, M. (1962). Capitalism and Freedom. Chicago, Il. USA: University of Chicago Press. IKEA GROUP. (2004). Social and Environmental Responsibility. Report 2004. http://www.emu.dk/erhverv/merkantil_caseeksamen/doc/ikea/soc_environ/soc_environ_report_04 IKEA Services AB, PR & Communications. (2004). The IKEA Way - Social and Environmental Responsibility, 2004, http://www.ikea.com/ms/en_AU/about_ikea/pdf/ikea_se_report_2004 IKEA Supply AG. (2008). IKEA IWAY Standard, Minimum Requirements for Environmental and Social & Working Conditions when Purchasing Products, Materials and Services. http://www.ikea.com/ms/en_US/about_ikea/pdf/SCGlobal_IWAYSTDVers4.pdf Inter IKEA Services B.V. (2011). Welcome to IKEA.com. www.IKEA.com Marcoux, A. Business Ethics. The Stanford Encyclopedia of Philosophy (Fall 2008 Edition), Edward N. Zalta (ed.), http://plato.stanford.edu/archives/fall2008/entries/ethics-business/. Wilke, P., Sobczak, A., Schomann, I. (2008). Codes of conduct and international framework agreements: New forms of governance at company level - Case study: IKEA. European Foundation for the Improvement of Living and Working Conditions (Eurofound). http://www.eurofound.europa.eu/publications/htmlfiles/ef07927.htm. Read More