Private Sector Ethical Conduct - Case Study Example

Evaluate Ethical Conduct in Public Sector Abstract The paper presents the private sector ethical conduct of Johnson and Johnson. It evaluates the company’s conduct and operations, individually and in relation with other Fortune 500 companies. Ethics in the field of business and management is a new subject of practice; nevertheless, the insights the field have gleaned provides businesses with rules on how to carry out sustainable and successful business in the short and the long term. The paper also touches briefly upon the topic of social equity in the company and how the management makes room for fair and equal opportunities for women and ethno-racial minorities. In addition, the paper also introduces the concepts of globalization and the ethical constraints and benefits of engaging in trade integrations. Key words: Johnson and Johnson, public sector, social equity, ethics, ethical business conduct, globalization, trade integration, female, minority groups, women, Fortune 500 Table of content S. no Topic Pg. no 1 Introduction 4 2 Social equity and company’s attitude towards females and minority groups 5 3 Broader ethical conduct of the company 7 4 Ethical management theories practiced by the company 8 5 Comparison with recent ethical breaches of Fortune 500 companies 8 6 Globalization of and for Johnson and Johnson 10 7 Benefits of trade integration 11 8 Challenges of trade integration 12 9 Business decisions 13 10 Recommendations A. Operational level 15 11 Recommendations B. Ethical level 16 12 Conclusions 17 13 Definition of key terms 18 14 References 19 Evaluation of Ethical Conduct in the Public Sector The paper aims to evaluate the ethical conduct and practices of a publicly listed company, Johnson and Johnson, that provides services on a national level. The paper will briefly introduce the company, highlighting its public image. It will then shed light on its social equity practices of the company, aiming to understand its conduct towards women and minority groups. The paper will then engage in a comparison of the ethical practices of the company, in context with the company’s ethical management theories, with recent ethical breaches within Fortune 500 companies. The paper will then turn its focus on the company’s involvement in the processes of globalization, and the challenges it faces in doing so. The paper will also examine the opportunities and difficulties the company faces in trade and integration in the processes of globalization. The paper will then evaluate the business decisions that the company takes, utilizing key strategic management tools in doing so. Lastly, the paper will provide recommendations at two levels: firstly, to enhance operational performances to meet public service obligations more effectively; and, secondly, to enhance and improve the ethical conduct and standing of the company. Introduction to the company The company selected for the purpose of the paper is Johnson & Johnson. Johnson and Johnson is the world’s largest and most comprehensive manufacturer of health care products, serving the consumer, pharmaceutical, diagnostic and professional markets. Headquartered in the USA, with an employee base of 40,799 people, the company manufactures and provides more than 90 products. Competing largely with Merck & Co., Novartis, Procter & Gamble, the company earns an annual revenue of approximately $61.1 billion. In addition, the company carries out around 60 operations on a global scale, and involves 120,000 employees from various regions to channel and create promotion and awareness programs, as well as normal business activities such as production and sales. The awareness programs are held largely in third world countries, provided to rural areas and poor populations through the support of midwives as well as through providing Johnson and Johnson employees, so as to increase the company's credibility and public relations. Social equity and company’s attitude towards females and minority groups To understand the ethical conduct of Johnson and Johnson as regards minority groups and women, it is important to comprehend the concept of social equity, as is applied in the current context. Social equity can be seen as a value commitment that aims at “implementing targeted programs as a way of bringing about 'equality of results' as opposed to 'input equality'—treating every resident, consumer or client the same. Social equity also involves procedures or process, access and quality in public service delivery’ (Svara and Brunet, 2003). Social equity aims not only at enhancing diversity in an organization’s workforce, but also to include a diversified outreach for the company’s products and services. Johnson and Johnson reflects the concept of social equity and ethical practice through the company’s diversified workforce and its explicit policies to include minority and women as employees, as will be detailed shortly. Johnson & Johnson also expresses social equity in its global operations, which allow and are designed to a diversified range of populations to benefit from its products. This will be detailed in the later sections of the report. Focusing on the earlier part, Johnson and Johnson celebrates diversity on a global scale through the designing and implementation of a uniform labor policy and employment guidelines, which allows the company to maintain uniformity and standardization in operations, processes and rewards. The labor policy and employment guidelines, located at the company’s website, state clearly that the company does not hold any discriminatory practices at the operational or strategic level against its employees, based on “their ideological views, race, color, religion, gender, sexual orientation, national origin, age, disability, or any other status protected by law”. In doing so, it uphold the rights of the minority populations employed as well as women. Further, the company also upholds an equal opportunity policy, whereby employees are not barred access to job openings or positions on basis of any of the statuses mentioned earlier. The company states that in the policy that, “Affirmative action will be taken to ensure that all employment decisions, including but not limited to those involving recruitment, hiring, promotion, training, compensation, benefits, transfer, discipline, and discharge, are free from unlawful discrimination”. This signifies the value that Johnson & Johnson places on equal opportunity in employment and fair job practices in conduct for its employees. To increase female job opportunity, Johnson & Johnson has an on-site day care centre, providing services for their employees with children, and provides for flexible work hours. In addition, it appoints supervisors that help women who are also mothers in planning and organizing tasks and assignments, as well as supports a cognizant pipeline for support. These management practices have allowed Johnson and Johnson to retain a high female population in its employee base: in 2009, diversifying posted women to be 31 percent of the most senior-level executives, according to CEO and direct reports, and 47 percent of the company's top ten percent highest-paid employees. The company follows a similar line of policies for its minority populations, whereby equal opportunity is given to all minority groups at time of recruitment. Further, on-job discriminatory practices are strictly disallowed, and management takes strict action to prohibit instances of its occurring. The diverse employee base of the company is reflected in the company’s board of directors that is 9 percent Black, 9 percent Asian, 9 percent Latino and 27 percent female. Broader ethical conduct of the company Having reviewed the company’s stance for employing female and minority groups without discrimination, concluding that these policies are ethical, we now turn our attention over to the broader ethical conduct of the country, linking it with ethical theories of management to be compared with ethical breaches which have recently occurred in the Fortune 500. Johnson and Johnson’s Credo, i.e. their Policy on Business Conduct and their Health Care Compliance Guidelines, guides employees to conduct company business by the highest ethical standards. The credo is written in first-person plural, and recognizes the company’s obligations to its stakeholders. This guideline is made available in over sixteen languages, so that employees worldwide may benefit from and comply with the regulations set by the company. These ethical guidelines pivot on the business practice of accountability, where employees at all levels are held accountable for their actions and the company is held accountable to all stakeholders. It is because of the importance placed on accountability that the company had a mass recall of the drug Tylenol in 1982, following the famous crisis which caused 8 deaths. The recall's imposition was immediate, as is required by rules defined in the company’s credo. The company places high importance on ethical behavior, and has a hotline program for employees, accessible by telephone or online at www.credohotline.com. The credo is also accessible by non-employees, customers and vendors of the Johnson & Johnson Family of Companies to report any concerns and to facilitate anonymous whistle-blowing. As per the credo, and the company’s values, Johnson and Johnson takes as their responsibility providing customers with high quality drugs that are produced in an ethical and a safe environment. Further, Johnson and Johnson promises health care, and transparency of business activities and operations is provided to all stakeholders through the company’s websites and other resources like annual reports. In addition, the company fulfills its stance of social equity by not only incorporating a diverse workforce, but also by making available its drugs and products across a number of countries. For many poorer countries, these drugs are provided at low cost or gratis to save patients’ lives. Wellness, prevention and healthcare programs sponsored by the company in third world countries aim for the same objective: To provide information and drugs at a lower cost to improve health situations in third world countries. Johnson and Johnson’s work in providing global access to medicines focuses on HIV/AIDS, tuberculosis (TB) and other diseases that affect the developing world is laudable and shows their commitment to these practices of social responsibility and transparency. Ethical management theories practiced by the company The company’s ethical conduct is grounded in the ethical principles and theory of ‘Kantian deontology’ (Brady & Dunn: 1995), whereby an action is judged not by its consequences, but rather by the morality of the action itself. This theory claims that the rightness or the wrongness of the actions cannot be evaluated based exclusively or even primarily based on consequences, but rather must be evaluated by the innate nature of the act. Some actions are inherently wrong, such as telling a lie or committing a theft. Kant's maxim was that any behavior that would lead to logical inconsistency were it universally practiced is unacceptable. If theft were universal, no one could own property; therefore, theft must be wrong. In this view, immoral actions are be morally suspect even if they cause no harmful consequences or lead to later benefits. The acceptance of this philosophy is seen in Johnson and Johnson’s behavior, in its mass recall of Tylenol and in its activities in the Third World. The company does not profit or collect direct benefits from this practice, but adopts moral behaviours because it ought to. Comparison with recent ethical breaches of Fortune 500 The company enjoys a strong ethical reputation because of its practices, compared to other Fortune 500 companies that have been involved in frauds and other ethical breaches that are aimed at hoodwinking important stakeholders like the customers and shareholders. Breaches of ethical conduct are largely based on transgressions such as overstatement of net profit or the use of company funds for personal benefits. Companies like Xerox, Enron, Dynergy, Reliant Resources, El Paso, CMS Energy, and Duke Energy all had inflated stated profits and incomes so that fraudulent activities could be conducted to avoid taxation, mislead trade contracts or to aggrandize individual executives. Apart from ethical behavioral and quality conduct, Johnson & Johnson has strict ethical codes for the financial activities of the company as well as a separate Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers. This code lays out explicit rules and regulations to guide senior level managers in their activities. Behavior of these managers is guarded and checked at various levels by supervisors, and transparency of data to consumers and mass markets alerts the company for any ethical breach conducted. Strong and explicit guidelines and rules for the company’s ethical conduct in all spheres and with all stakeholders provides firm ethical foundations for the company and prevents ethical breaches. Despite the strong grounding in ethical behavior evinced by the company's policies and actions, rumors of unethical conduct by Johnson & Johnson have found their way to popular media. These scandals include an allegation in 2006 by a former chief medical officer at Johnson and Johnson that he was fired in retaliation for raising safety concerns. Similarly, the company, like other Fortune 500 companies, has also been involved in scandals and rumors of bribery. In 2007, the company admitted that it had indulged in bribery in two foreign markets, bribery illegal under the Foreign Corrupt Practices Act. Internal memoranda serving to remind employees to suppress negative feedback of a drug or product over the internet have also not been uncommon. However, the immediate release to the press of the scandals and a probe into the situation by the company’s senior management, followed by immediate corrective measures and actions, has helped the company maintain its reputation and ethical public image. Further, the markets that the company admitted it bribed in were highly corrupt markets where bribery was required to accomplish basic business. The company's reputation and behaviour is favorable overall when compared to other Fortune 500 companies, who attempt to willfully neglect and overlook ethical breaches, who are without proper transparency to citizens and other stakeholders, and who do not or implement proper corrective measures. Globalization for Johnson and Johnson In evaluating the ethical conduct of the company, it is important to take into consideration processes of globalization and the companies' policies thereof. Having current operations in 250 companies and subsidiaries across 60 countries, the company is an active participant in the processes of globalization. Having capitalized upon the processes and phenomenon of globalization to expand into foreign lands, the company set up branches and subsidiaries at these locations and invited locals to participate in the workforce, headed by trained supervisors. With this expansion, the company also built upon e-commerce and its political and economic connections. These connections are largely reflected in the form of a transfer of goods, raw materials, finished products, and people across state borders. Through this free or low-cost transfer and mobility of resources, the company generated a pool of ideas and generated processes to enhance the company’s standing as well as allowed the introduction of rapid change, standardization and predictable business models across the company, world over. Globalization also allowed the company to benefit immensely from innovations in technology, which reduced its costs of production and increased profits and revenue levels, as well as improving the efficiency and productivity of the company. The company has also responded to the challenge of globalization by gearing up its technologies so that consumers worldwide can interact with the company through its website, and research their drugs or product according to these consumer requests and interactions. The company has maintained its ethical standards globally in its expansion by training employees extensively and socializing them into the company’s culture, teaching them the core values that the company promotes. This is also one of the major challenges which the company has faced. The cost and the effort spent in training and socializing a new employee, especially that from an alien culture in a foreign land is relatively high, and results deferred. The company has to be patient in this matter, so that the individual employee can merge his own goals with the company’s. Johnson and Johnson's “assume[s] that by advancing organizational interests, they advance their own and society’s overall best interests” (Giacalone & Thompson: 2006) and thus become more productive. The company does not push the employee for results, but rather teaches traits which later allow him to embody the company’s credo easily. The success of globalizing integrated processes at Johnson and Johnson is shown by the success of Hismanal, a non-sedating antihistamine that is the company's fastest-growing drug in the United States. The drug, discovered and developed at Janssen Pharmaceutical, the company's unit in Belgium, is now sold in 116 countries. Benefits of trade integration Johnson and Johnson has benefited from trade and integration in the global context. Investments in free trade zones like JAFZ and Ras al Khaimah have provided numerous cost advantages to the company, and have also allowed them to export and import with negligible duties and taxation. These benefits have been of great benefit in developing countries, where manufacturing costs have also reduced substantially for the company, through cheap labor and weak currency compared to Americans and European markets. Manufacture of products is comparatively cheaper in these developing countries, and investments in free trade zones likewise allows the company to export products which are made with the company’s promise of quality to developed countries at a lower cost, allowing the company to capture a high net profit. Global economic integration has also allowed the company to benefit by interacting directly with its customers, understanding their diverse needs and behavior, and thus channel efforts to personalize products as much as possible for greater profit and product quality. This has allowed the company to maintain its leadership in the industry across various countries globally. In addition to this, global business and integration has also prompted the company to improve and develop their communication and digital networking capacities. Johnson and Johnson works with transnationals around the world in order to ramp and gear up production on short notice, moving product lines and providing a more flexible inventory and supply management system. Johnson and Johnson has reaped these benefits through economic integration and global trade. Challenges of trade integration This integration, however, has not come without challenges and disadvantages for the company. Because operations have to be set up in a bevy of different countries and locations, understanding the cultures of different countries and integrating Johnson and Johnson operations with the specific social and political culture is cumbersome and time consuming. Similarly, finding and developing human resources to meet quality control and ethical standards is equally costly and time consuming. Less known and highly specific products for the company are also manufactured in third world countries; for example, blood glucose monitors are manufactured in Johnson and Johnson’s Flextronics International in the Guadalajara factory. Because of tight specifications and strictly guarded use of these products, consumers are reluctant to purchase them because of the manufacturing origin. Political regimes in countries other than the United States also offset the business cycle. A break in the supply and operation chain at one point has a heightened risk of affecting every other business operation along the chain, as well as the company’s global reputation. Johnson and Johnson have thus far been able to cope up with the challenges that globalization has dealt and has maximized benefits from it, while keeping in line with their ethical principles. Business decisions taken by the company In the highly globalized context of today’s world, “Winners in the [global] marketplace have been firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability to effectively coordinate and redeploy internal and external competences” (Teece, Pisano, Shuen: 1997). Johnson and Johnson demonstrates this in the development and execution of diverse and integrated programs aimed at employee enhancement, product innovation and improving customer relations on a global scale. Johnson and Johnson's management style is largely decentralized in all 250 operating locations across 60 host countries; with some exceptions, management is done citizens of the country where subsidiaries and branches are located. Strategy and vision for all operating units is the same: however, senior management groups, who are highly trained and skilled by Johnson and Johnson HR’s internal and external training programs, are given creative latitude to design various plans and devise paths to achieve the end visions and goals stated. These plans must, of course, comply with the company’s credo and its guidelines. Johnson and Johnson is in a continued process of revamping its business models and processes, in order to facilitate employee, customer and production processes. These changes, however, are not alien and are all implemented keeping in line with the company’s credo. Employees and especially managers don’t only know the company’s credo but also use it in routine tasks to make business decisions. “[T]he credo was cited, for example, as an important source of guidance during the Tylenol crisis. It was a foundational building block for the culture of the firm, and it helped define the shared identity of every member of the organization” (Perkins: 2000). The company’s business decisions, evaluated from a strategic standing, are grounded in the wish to “remain a broadly-based human health care company for the consumer, pharmaceutical and medical device and diagnostics markets.” Strategic planning at Johnson and Johnson is guided by the ethical principles embodied in the company’s credo, unifying diverse employees’ culture worldwide behind a set of common values and is undertaken under a constant reminder of the Company's responsibilities to all of its stakeholders. Because the company has found its strategic and competitive advantage in its ethical conduct, and has enjoyed higher profitability as well as consumer retention by practicing ethical behavior, the strategic focus and capabilities of the firm emphasize ethics. The company invests continually in its R&D capabilities and human resources, to give itself a strategic and competitive edge in the industry, innovating constantly to remain the number one health care brand based on the core designing of policies and execution of programs based on the company’s credo. Business decisions are also rooted with an aim to achieve comparative advantage, by operating in a diversified environment across the globe as well as by ensuring that the number and size of operations carried out are sufficient to meet the demand globally. The company’s decision to create in various CSR programs showcases this strategic focus. The beginning of the company's worldwide philanthropy programme officially dates to 1906, when Johnson & Johnson sent medical supplies to aid the victims of disasters the San Francisco earthquake and fire. This has now expanded to providing direct health care, awareness and education programs, disaster relief and other services to countries and communities in need, and charity has become a part of the company’s strategic mission. To put it briefly, the strategic evaluation of all decisions at the company, is to be grounded in the ethical code of conduct and credo of the company, as reflected in these clauses of the credo: “1) responsibility to doctors, nurses, patients, mothers, father and all others who use their products; 2) employees throughout the world; 3) communities and 4) stockholders”. This prioritization of ethical behaviour and the transparency of all information to all stakeholders prevents the company from taking any business decision based on profits alone. Transparency is also a means of encouraging ethical business decisions, as demonstrated by a recent infringement of regulations by one operating units of the company, reported in New Jersey Business by Susan Todd on December 22, 2010: “[T]he shareholders allege the board of directors ignored a whole host of 'red flags’, including warning letters from federal regulators, subpoenas and two criminal plea agreements for violating government regulations that go to the heart of the company’s business: marketing prescription medicines”. This may seem bad, but the fact that the information was available even at cost to the company shows their commitment to transparency. Information of the same nature, available to everyone, to report and assess allows the company to maintain credibility for its customers. Recommendations A. Operational level The paper will now provide a number of ways through which the company can improve its operational level programs and processes, so as to serve the public sector. The company should make allowances for further improvements at the human resource department, focused on implementing more diversified programs to include further minority groups as well as disabled people. In addition, the company should also improve its financial accountability in order to meet public expectations and save itself from various scandals that have bubbled over in the past at the company. By implementing strict quality control checks that are standardized globally, the company can also improve its operations by ensuring that all products and drugs manufactured are in compliance with the rules and regulations. In addition, this will also save the company from mass recalls, saving additional cost and effort on its part. B. Ethical level The company can improve its ethical conduct by improving innovative qualities at the company. This can be done by investment in R&D. By innovating, the company will be able to maintain its leadership without acquiring other companies or investing company money in the process, thus avoiding competition. In addition, the company should also improve its technology at various levels to prevent crises both internal and external. By publishing warning on OTC products, the company can also ensure that consumers are aware of potential risks, and thus stand on the moral high ground. The company should also engage more with customers, instead of relying on the built image alone. It should try to add to this image, through new policies and programs, involving employees and customers, and other stake holders at all levels so that they are aware of what’s going on, and who will benefit from it in the short and the long run. It should remember the core values that framed its operations, knowing that “sound ethics is good business” (Lewis: 1985) Conclusion The paper has highlighted the importance of ethical conduct for a public sector company by providing the example of Johnson and Johnson. Like many other companies, the company has a formally written code of ethics which it uses to make key business decisions as well as to carry out routine tasks,. All of the policies at the company are designed and managed under this credo. The ethical practices of the company also allow it to be successful in maintaining a credible public image, and immediate accountability for any unethical conduct keeps the company and its employees worldwide on constant guard. Johnson and Johnson's success demonstrates that ethics, far from being a constricting straitjacket, are useful guides to successful business, especially for companies serving the public sector to improve their customer and community relations. Definition of key terms Ethics: an enterprise of disciplined reflection on the moral institutions and moral choices that people make (Veatch: 1997). Ethical business conduct: business behavior where a company expects its directors, officers and employees to observe the highest standards of integrity and fair play and refrain from relationships that may become detrimental to the business of the company or the organization. (Krauss & MacGahan: 1979) Globalization (or globalisation): describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence (Wikipedia) Social equity: a value commitment that aims at ‘implementing targeted programs as a way of bringing about “equality of results” (outcomes) as opposed to “input equality”—treating every resident, consumer or client the same. Social equity also involves procedures or process, access and quality in public service delivery’ (Svara and Brunet, 2003) References Brady, N.F. & Dunn, C.P. (1995) business meta-ethics: an analysis of two theories. Business ethics quarterly. Vol 5 (3) Giacalone, R.A (2006) & Thompson, K.R. (2006)Business Ethics and Social Responsibility Education: Shifting the Worldview. Academy of Management Learning & Education, Vol. 5, No. 3, 266–277. Krauss & MacGahan (1979) computer fraud and countermeasures. Prentice-hall, USA. Lewis, P.V. (1985)Defining 'Business Ethics': Like Nailing Jello to a Wall. Journal of Buslness Ethics 4 377-383. Perkins, D.N.T. (2000) Leading at the Edge : Leadership Lessons from the Extraordinary Saga of Shackleton's Antarctic Expedition. Amacom, USA. Svara, James and James Brunet (2003). “Filling in the Skeletal Pillar: Addressing Social Equity in Introductory Courses in Public Administration.” A paper presented at the National Academy of Public Administration Social Equity Symposium (February). Teece, D.J., Pisano, G. & Shuen, A. (1997) Dynamic Capabilities and Strategic Management. Strategic Management Journal, Vol. 18, No. 7., pp. 509-533. Veatch, R.M. (1997) medical ethics. Jones barlett publishers inc. USA http://www.nj.com/business/index.ssf/2010/12/njs_johnson_johnson_facing_sha.html http://www.jnj.com Read More