Business Ethics And The Business Organization - Book Report/Review Example

Business Ethics And The Business Organization Table of contents 1.0 Introduction ……………………………………………… 3 1.1 Brief explanation of problem body ……………..……….. 3 2.0 Literature/ research data ……………………………..……….. 4 2.1 The profits and the business organisation …………….... 4 2.2 Business ethics and the business organization ……………..... 5 2.3 Consequences of unethical operations ……………………….. 6 2.4 Causes of unethical behaviours ………………………….…… 7 2.5 Benefits of behaving ethically ………………………..………. 7 3.0 Analysis ……………………………………………………… 8 4.0 Findings ……………………………………………………… 8 5.0 Conclusion ………………………………………………. 9 6.0 Recommendation ……………………………………………… 10 References and bibliography ………………………………..…….. 12 1.0 Introduction The debate between business ethics and profits continue to draw different reactions in the world. There are three types of views advanced by three groups of people in the world. The first group of people believes that business ethics are more important than profits while the second group believes that profits are important for survival of any business. However, the third group of people believes that both profits and business ethics are important for business sustainability (Groom 2010). Profits and ethics in business can co-exist. A profit is defined as the wealth created after deducting expenses and cost of production. Business ethics on the other hand are fundamentals of good conduct that govern business organizations in their operations (Ferrell et al 2009). Business organizations continue to operate because of the profits they make. Businesses are critical in the production and distribution of goods and services in the society. In addition, they improve lives of the members of the society through thousands of direct jobs and millions of indirect jobs they create in the society. In short, businesses facilitate life. On the other hand, business ethics are very important. Without ethics, bosses harass their employees. Business organizations lose thousand of pounds for damage they cause to members of the society because they fail to conduct themselves ethically. Lack of ethics in business environment hurt the consumers through sub-standard products, exploitative prices of products and incorrect weights. The list is endless. Both profits and business ethics are important for survival of the society (Collins 2009). 1.1 Brief explanation of problem body Can the two issues of ethics and profit be balanced against each other? Both business ethics and profits are equally important for any business. It is unethical for businesses to run into losses. This is because losses imply that natural and other resources are exploited inefficiently and the businesses will not be able to pay its vendors and reward its shareholders as expected. On the other hand, businesses should conduct their activities in a morally acceptable manner. This will enhance their networks and competitiveness in the environment in which they exist. Failure to accept that both business ethics and profits cannot coexist is not acceptable. This is because presences of profits do not necessarily cancel the presence of good business ethics. According to Ferrell et al (2009), business must balance the desire to generate the profits against the needs and desires of the community. Balance between making profits and maintaining good business conduct demand that trade offs must exist between profits and appropriate business ethics in the society. To address the issue of profits and business ethics, the business environment must develop and institutionalise rules of conduct in the business arena to prevent harm to the business and the society as a whole. 2.0 Literature/ research data 2.1 The profits and the business organisation According to Fernando (2009), the perception that companies generate profits by being unethical is flawed. The implication created but the flawed perception is that profitable companies must remain unethical in order to perform well financially. However, it is not morally acceptable for companies to make losses (Collins 2009). This is because companies that make losses misuse natural and man made resources. Unprofitable businesses do not pay creditors and they fail to reward shareholders (Allinson 2005; Hanekamp 2007). They also disturb the economy by encouraging inefficiencies during the production of products and services (Avery 2006). In addition, they cannot discharge their societal responsibilities and eventually endanger the future of employees. Such companies are a complete nuisance and burden to the economy (Conal 2006) . Such companies create economic insecurity and crisis. Loss making companies should not be allowed to exist. Groom (2010) states that the first ethical responsibility of any business organization is to make profit. This will enable the business to enough generate revenue for both the owners and the society in which they exist. The issue should not be whether it is ethical to make profit but instead should focus on the means and methods of generating profits. 2.2 Business ethics and the business organization Business ethics are fundamentals of good conduct in business operations. It states the best way of treating the stakeholders, employers, employees, vendors, the regulators and the society in which the business exist (Machan and Chesher 2002). Business ethics is about what is wrong and what is right in the business environment (Ferrell et al 2009). Businesses that are not built on the foundations of good ethics are victims of suspicion, doubt and waning reputation. In addition, they fall prey to investigators scrutiny (Conal 2006; Collins 2009). Business built on strong ethics will survive by maintaining profitably with strong network of relationships with owners and they become role models for business with long-term vision of successful survival (Howard and Korver 2008). Abusive behavior, accounting fraud, selling defective products, corruption, bribery and theft constitute unethical business behavior (Hanekamp 2007). Institute of Business Ethics (IBE) (2009) categorise business ethics into six broader categories. The first is ethics and society. This comprises issues of honesty and fairness when organization is marketing its services or products. It also covers use of animals for testing products, sell of addictive products such as alcohol and cigarettes, doing business with repressive regimes and trading in arms (Ulrich 2008; Weiss 2008). The second category arises from internal practices in the company. These include treatment of customers, gender disparities, employment of disabled persons, securing contract through bribes and child labour (Machan and Chesher 2002). The third category is marketing ethical issues (Collins 2009). They comprise unclear pricing, dumping, cartels, counterfeits and deceptive advertising. The forth issues of business ethics is related to products. They include failure to provide accurate information on product components, hazardous products, incorrect weights and sizes (Ulrich 2008; Weiss 2008). The fifth business ethical issue relates to supply chain (Allinson 2005; Hanekamp 2007). They comprise of child labour, sweatshops and unsafe working conditions. The sixth and the most common business ethics relates to bribery (Fernando 2009; Henn 2009). Include bribery to secure contract and avoid arrest (Howard and Korver 2008). 2.3 Consequences of unethical operations Corporations in America, Europe, Asia and other emerging economies demonstrated that lack of ethics can bring down the most educated, resourceful and business savvy individuals down (Collins 2009; Rae and Wong2004). The chairman of the South Korean automobile giant Hyundai, Chung Mong-Koo was arrested and jailed bribing government officials with over $1billion from the company. Former Chief Executive Officers of Adelphia (John Rigas) and World Com (Bernie Ebbers) are in prison. Chief Financial Officers Adelphia (Timothy), Enron (Andrew Fastow) are also in prison for breaching business ethics. Boieing paid a fine of $615 million for ethical lapses on government’s contracts while Royal Shell was fined $120 million for overstating reserves. PriceWaterhouseCoopers (PWC) was made to pay $97.5 million to settle a law suit for helping AIG to overstate company earnings. Others include AIG that was fined $1.5 billion for misstating accounts (Jennings 2008; Collins 2009). The companies that have been involved in ethical breaches have suffered massive financial losses as well as reputation. Ferrell et al (2009) stated that companies such as Arthur Anderson, Enron, WorldCom and Sunbeam made headlines due to wrongdoing and scandals. Ultimately, they became bankrupt and failed due to legal and financial repercussions of their misconduct (Fernando 2009; Henn 2009). 2.4 Causes of unethical behaviours Fernando (2009) explains that the following factors contribute to unethical behaviours. Pressure to balance work and family, poor leadership, extreme pressures to meet sales targets and non-recognition of achievements. Others are financial worries, few resources, competitive pressures and greed (Avery 2006; Conal 2006). The factors stated lead to ethical issues for managers and employee. 2.5 Benefits of behaving ethically According to Groom (2010), Institute of Business Ethics (IBE) claims that good business conduct pays. Research conducted on three hundred and fifty firms in the United Kingdom indicated that companies with code of business ethics performed above average as compared to the companies that do not have code of business ethics. Allinson (2005) asserts that trainings on Ethics promote business ethics awareness and development of skills that enhances moral reasoning. Avery (2006) said that ethics are important to leadership. This is because they oversee that resources are properly used. According to Conal (16.4.2006), a survey of one thousand three hundred customers conducted by the Fraser Consultancy ranked the United Kingdom and other international brands in accordance with ethical profile. The worst company rated as unethical was MacDonald. MacDonald was accused of promoting obesity epidemic in Europe and America through their burgers and fries. The other companies are Nike, Shell, Adidas, Barclays Bank, Coca Cola, Bp, Camelot, American express and the Nestle. Legal and institutional framework on ethical issues strengthens ethical behaviour and discourages wrong doings in business organizations (Conal 2006). 3.0 Analysis Concept of profits and business ethics take different views. The most outstanding and reasonable view is the perception that business ethics and profits are essential for survival of humanity. The main factors that cause unethical behaviour are the need to meet company sales targets, increasingly fierce competition and greed. The consequences of unethical behaviours such as overstating companies’ earnings and bribery are prohibitively high. It also comes with imprisonment and tainted reputation. The victims are usually top management such as the chief executives officers and chief financial officers. There are different ways of communicating favorable business ethics. The chief among them is published code of ethics. Ethical behaviour is a requisite for higher profits and sustainability of business enterprises. 4.0 Findings The businesses should conduct their affairs in an acceptable manner. Unethical business practices are total disregard to social concern. Sustainability occurs when businesses behave morally. No business should conduct itself unethically because it totally disregard. For business to be sustainable, it is important to conduct it affairs morally. Unethical actions and decisions produce profits in the shorter run. However, bad business practices make the companies to grow and die quickly. Business ethics is concerned about doing right and they guide behavior in the world of business. It protects the society from harm or destructions precipitated by misbehaving businesses. The evidence of declining business ethical standards are increasing cases of accounting frauds, bribes, defective products, harassment and conflict of interest in business enterprises. It is evident that those who behave unethical will always be found and farce the full law of the law. For example, former Goldman Sachs executive was sentenced to five years in prison for insider trading. Others are the Chief Executive Offices of WorldCom, Adelphia and Enron. Business ethics are implemented through publishing in-house codes of ethics, employing people with a reputation for high standards of ethical behavior at the top levels, incorporating considerations into performance reviews and rewarding ethical behavior. Business learning institutions are including business ethics courses in their curriculum. The institutions are Indian institute of management (IIMs), Institute of Business Ethics (IBE) and Xavier Labour Relations Institute (XLRI) (Fernando 2009). Code of business ethics enhances consistency in decision making, increase trust and confidence among employees and enhance business reputation. Business must act ethically because it exists in the competitive world. Good ethical behavior protects business and societal interest. As a result, the public is protected from harm, and stakeholder trust is build and enhanced. In addition, businesses are free from abuse from unethical employees and competitors. 5.0 Conclusion Business entities should be managed ethically where simple honesty and transparency to the stakeholders, customers and employees should be the guiding principle (Groom 2010). In addition, business should treat all stakeholders and competitors fairly by showing them respect. As a result, they will be able to save thousands of pounds that could have been spend on lawyers, fines and advertisements. In addition, business organizations should provide safe and good working condition for their workers (Henn 2009). Ethics and profits are essential for business survival. Ethics defines the behaviour of both top management and the workers of business enterprises. According to Ferrell et al (2009), high ethical standards require both businesses and individuals to conform to acceptable moral principals. However, profits must not be generated through misconduct because the life of the company will be shortened. Major evidence of deteriorating business ethics include inflation of earnings to enhance company’s profitability, lying, coercion, poor working conditions, harassment of consumers, insider trading, incorrect weights and bribery to get contracts. It is important to recognise that there are factors that lead to unethical behaviours. The factors may include pressures to meet targets, fierce competition or even limited resources. Such factors should not be a reason to defraud the stakeholders, employees or the customers in a business setting. The consequences of unethical behaviour are far reaching and destructive. The sustainability of the society and the businesses is possible if looters, polluters and those who offer and receive bribes are stopped. Good business ethics is a sign that the company is moving towards a correct path. 6.0 Recommendation 1. Statements of ethical practices in business environment should be issued annually. It should cover the customers, shareholders, employees, suppliers, government, local community, the environment, competitors’ relations, mergers and takeovers as well as compliances. 2. Ethical standards in the business environment must be clear, available to employees, reflected in the legal framework and must state the rights and obligation of employees in relation to exposure of real or suspected wrongdoing. 3. Institutions and urgencies that enforce standards on ethical issues should be supported with adequate resources and legal frameworks in order to enforce ethical rules and laws adequately when needed. 4. The management policies, procedures and practices should support ethical conduct. 5. Accountability and transparency mechanisms should be in place. 6. Sanctions should exist to deter bad behaviour in business operations. 7. Appropriate ethical incentives should be provided to encourage high ethical standards in business organizations. 8. The code of ethics should be well communicated and publicised. 9. Business organizations should conduct Ethics Audit annually and look for ways to improve their ethics. References and bibliography Allinson, R. (2005)Saving human lives: lessons in management ethics. The Netherlands: Springer. Avery, G. (2006) Leadership for sustainable futures: achieving success in a competitive world. London: Edward Elgar. Collins, D.(2009) Essentials of Business Ethics: Creating an Organization of High Integrity and Superior Performance. USA: John Wiley and Sons. Conal, W.( 16.4.2006) Big Mac tops 'unethical' poll. Available from: http://www.guardian.co.uk/business/2006/apr/16/theobserver.observerbusiness1[Accessed 26 February 2010] Cory, J. (2004) Activist Business Ethics. Germany: Springer. Ferrell, O., Fraedrich, J. and Ferrell, L. (2009) Business Ethics: Ethical Decision Making and Cases. 7th Edition. USA: Cengage Learning. Fernando, A. (2009) Business Ethics: An Indian Perspective. India: Pearson Education. Groom, B.(1. 2. 2010) Bank crisis hits public’s trust in business [online]. Available from: http://www.ft.com/cms/s/0/f8065bd2-f95d-11de-80dc-00144feab49a.html?nclick_check=1 [Accessed 26 February 2010]. Hanekamp, G.(2007) Business ethics of innovation. Germany: Springer. Henn, S.(2009) Business Ethics: A Case Study Approach. New Jersey: John Wiley and Sons. Howard, R. and Korver, C. (2008) Ethics for the Real World: Creating a Personal Code to Guide Decisions in Work and Life. USA: Harvard Business Press. Jennings, M.(2008) Business Ethics: Case Studies and Selected Readings. 6thEdition. USA: Publisher Cengage Learning. Machan, T. and Chesher, J.(2002) A primer on business ethics. Oxford: Rowman & Littlefield. Rae, S. and Wong, K. (2004)Beyond integrity: a Judeo-Christian approach to business ethics. 2nd Edition. Michigan: Zondervan. Ulrich, P.(2008) Integrative economic ethics: foundations of a civilized market economy. New York: Cambridge University Press. Weiss, J. (2008) Business Ethics: A Stakeholder and Issues Management Approach. 5th Edition. USA: Cengage Learning Read More