Should Legally Enforceable Codes of Business Ethics Be Mandatory for Every Business - Coursework Example

Should Legally Enforceable Codes of Business Ethics be Mandatory for Every Business? Name: Institution: Should legally enforceable codes of business ethics be mandatory for every business? Annotated bibliographies Waagstein, P, C 2010, ‘The Mandatory Corporate Social Responsibility in Indonesia: Problems and Implications’ Journal of Business Ethics, vol. 98, no. 3, pp. 455-466. According to this article, the introduction of the Indonesian Law No. 40 in 2007 continues to cause conflict of understanding of whether Corporate Social Responsibility (CSR) should be mandatory or voluntary. This legal framework introduced a representation of a legal recognition to CSR existence. The article notes that the proponents of the law argue that making CSR mandatory to every corporation is essential in ensuring that all business entities understand the legal concepts, responsibility and obligations they must ensure in order to carry businesses in Indonesia. However, according to the article, the introduction of the law has also caused confusion, especially concerning its procedures and substance. The article also discusses the voluntary versus mandatory dichotomy with a conclusion that the introduced law is legitimate and encouraged. However, it also notes that the mandatory nature is problematic in practice since a definite understanding of CSR and recognition of beneficiaries and duty bearer must be mandatory alongside the mechanisms for effective implementation. Gilley, K, M, Robertson, C, J & Mazur, T, C 2010, ‘The bottom-line benefits of ethics code commitment’ Business Horizons, vol. 53, no. 1, pp. 31-37. This article indicates that the creation of a detrimental firm value critically depends on the financial performance of that firm. However, the Ethics Code Commitment (ECC), especially in relation to the top management behaviors significantly leads to an increase in financial and psychological commitments. The ECC also plays a significant role in empowering the organizational culture. Through this article, the authors develop the various benefits ECC has on stakeholders and competitiveness. According to the article, the focus in ensuring and effective ECC is through including employees and key community leaders in the development process. The authors, therefore, indicate that there is need to move away from the legalistic approach to inspiring stakeholders. This portrays the connection between the managerial approaches to the ethics of strategy in ensuring effectiveness of codes of ethics in an organization. Therefore, the relationship between stakeholders and the firm is the most essential aspect of the ECC. Kaptein, M 2011, ‘Toward Effective Codes: Testing the Relationship with Unethical Behaviour’ Journal of Business Ethics, vol. 99, no. 2, pp. 233-251. This article indicates that business code of ethics is essential in dealing with unethical behavior in organizations. The article puts more emphasis on the factors that play a critical role in determining the impact of code. The article also discuses the five critical factors that play a vital role in determining the business code of ethics. According to the author, frequency of communication code, code content, code embedment, and communication activity quality are the most essential aspects to consider when considerations are made to enact a business code of ethics. The article includes a research conducted that revealed that close a modest code of conduct in businesses existed with up to explainable 32% possible unethical behavior. The study, therefore, revealed when codes are effective and when they develop into counter effective. Kaptein, M & Schwartz, M, S 2008, ‘The Effectiveness of Business Codes: A Critical Examination of Existing Studies and the Development of an Integrated’ Journal of Business Ethics, vol. 22, no. 2, pp. 111-127. According to this article, the authors indicate that business codes are vastly used concept as a management instrument. It also indicates that the effectiveness of the business codes is a factor that differs in different organizations. According to the research in the article, the effectiveness of the business codes has conflicting results based on various aspects of organizations. According to the divergent findings, the authors found out that these codes depend on the various key terms that define various aspects of different organizations. The key terms indicated in the research were the deficiencies in terms of the methodologies and empirical data that were used and the specific lack of theory. The article, therefore, presented a prospered integrated research model and suggested various aspects that should be considered during future researches. According to the authors, the effectiveness of business codes depends on various aspects of an organization reveals that organizations should consider what aspects to prioritize while implementing business codes. Cohen, J & Holder-Webb, L 2012, ‘The Cut and Paste Society: Isomorphism in Codes of Ethics’ Journal of Business Ethics, vol. 107, no. 4, pp. 485-509. This article analyses the regulatory response conducted between 1998 and 2001 based on business failures, which framed everything as an ethical failure alongside poor governance. Regulatory responses included Section 406 of Sarbanes-Oxley Act in the U.S. alongside the requirement for organizations to have code of ethics. However, the article notes that due to unavoidable institutional pressures, there is need to decouple and change regulatory aspects of the responses based on organizational actions. According to the research conducted on the 75 firms in the U.S. indicated that it was difficult to develop a common language and content regulation since most organizations used language that minimized constraining of organizational behavior and code of ethics. However, the research also indicated that despite this difference in these aspects, one single aspect showed a positive aspect when regulated. Financial reporting gave a positive response to need for regulation. The article suggests that the legalistic aspect of financial reporting maintains integrity since it was realized that the understanding of sources of failure in corporate perspective played a significant role in tackling deceitful financial reporting. In addition, the regulation response in this article, exclusively indicated that codes of ethics should be relative to a specific firm and, therefore, different firms should have different codes of ethics. The study also indicated that the failure of the regulatory efforts in instigating corporate change based on enforcing higher ethical standards by different corporate players. Lere, J, C & Gaumnitz, B, R 2007, ‘Changing Behavior by Improving Codes of Ethics’ American Journal of Business, vol. 22, no. 2, viewed September 16, 2013 < http://www.bsu.edu/mcobwin/ajb/?p=532> According to this article, every organization should have the mandate to come up with its own modification of the code of ethics depending on the goals. It recommends two tools as the vital aspects in educating decision makers and creating disincentive that will ensure the decision maker is discouraged from taking unethical actions. The authors indicate that these tools play a significant role in helping a decision maker faced with two difficult situations to choose an ethically oriented option. As evident, the article indicates that the first tool works from the code’s perspective while the other works from the enforcement mechanism perspective. The article also indicates that development of a common code of ethics for all organizations is difficult because most of them have not come up with mechanisms that can support such actions. The article advocates for the need for organizations to develop mechanism that help them adopt influential code of ethics. Analysis on whether a legally enforceable code of business ethics should be mandatory The main purpose of this essay is to determine in depth analysis concerning whether the legally enforceable business ethical codes should be mandatory for all organizations or not. Answering this question needs significant in depth look at the various aspects of the organization, especially in relation to what the organization does, and the cultures, its beliefs and more importantly, the significance of these business ethical codes to the organization. It is evident that these factors perform crucial functions in determining the prosperity of an organization. Another aspect that must be given consideration while discussing this issue is the concept behind the modernization of business organizations. Kaptein & Schwartz (2008, p111) indicated, “Business codes are a conspicuous feature of modern business organizations”. It is also essential to note that currently, organizations are either forced by law requirements or by their stakeholders to develop and adopt a business code of ethics. These two factors have played a significant role in defining organizational view on business code of ethics. The reasons behind an organization developing and implementing business code of ethics vary based on different scholars’ perspectives. There are those scholars who simply indicate that organizations should have a business code of ethics because it is “the right thing to do”. This perspective creates different dimensions in understanding the legalistic aspects that can make such actions mandatory. On the other hand, some scholars argue that developing and implementing a business code of ethics is the moral responsibility of organizations especially in contributing to solving social problems within the environment under which the firms operate in. However, one aspect that has been evident in various scholars is that most organizations focus on implementing business code of ethics with the sole reason of benefiting the company. This is because business code of ethics significantly improves or preserves the reputation of the organization. In the process of doing this, the organization avoids unnecessary legal fines especially when it is faced with transgressions. The aspect of business code of ethics helps organizations in avoiding unnecessary legal fines such as when faced with transgression indicates that in every country, there are laid down parameters that the organizations are to operate within. However, with business code of ethics, organizations cannot operate beyond these parameters. In this sense, it is deducible that even without the mandatory requirement that organizations must operate within a specific code of ethics, there are laid down parameters that enable organizations operate within required aspects. This does not give the view that the organizations should incorporate the business codes for their own benefit, but as a requirement of law (Mann 2013). This aspect, therefore, tends to argue that even without having a mandatory law, various organizations still are constrained to a defined standard of the law that ensure they operate within some business code of ethics perspective. Therefore, in this aspect, the business code of ethics, do not need to be mandatory for all organizations, as they are already bound to come up with mechanisms to develop these codes. As evident in Cohen & Holder-Webb (2012) analysis that the company’s business code of ethics and conduct acts as the ethical standard guide to decision making, these standards base on laws. Therefore, the standards that determine these codes are legally founded. However, as is evident in most of the analysed articles above, having mandatory regulations pertaining to enforceable business code of ethics might not be as effective as it is when they are not bound based on mandatory law requirements (O'Toole & Mayer 2013). This is because organizations are forced to go beyond these mandatory standards in order to ensure that the business code of ethics and conduct fit into their operational requirements. This is supported by the research carried out on the 75 U.S. firms, which were found to have diverted from the language and content of the mandatory responses created to the various business failures experienced in between 1998 to 2001 (Cohen & Holder-Webb 2012). This simply indicated that though these codes of ethics are mandatory in every organization, having a common enforceable mechanism for all organizations would not be achievable, especially based on the diversity of these firms. The implementation of some aspects of the business code of ethics and conduct depends on the policies of various corporate organizations and, therefore, it becomes a personal responsibility of every organization to ensure that the actions and decisions made by or taken by these organizations comply with the code (Waagstein 2010). In order to understand this aspect, it should be clear that a company develops and comes up with its own business code of ethics and conduct based on the laws of operation. These laws might vary from different countries and, therefore, organizations can develop different approaches to this code. Hence, based on the changes that various industries face today, it is understandable that a specific set of or part of the code as a final word defining all the circumstances under which organizations are expected to operate within should not exist (Michael 2006). Therefore, every organization should be given the chance to come up with its own definition of code since in developing this code; the organizations must consider the legal aspect that governs its operations. Hence, mandatory legal definitions of business code of ethics of conduct cannot be used as a universal to all organizations. As is evident in every organization, aspects such as Corporate Social Responsibility are essential. However, the parameters defining how these organizations approach such issues depend on various aspects within the organization. A quick analysis of various organizations in case matrix reveals that priority differs in various organizations. While some organizations, such as Google Inc (Wulf 2012). Focus on stakeholder relationships as the primary focus, other such as Conrad Black considers stakeholder relationships as a secondary priority. This significantly depends on the purpose of the organization (Gilman 2005). While organizations such as Google Inc. Serves a variety of customers with various reasons, it is evident that in such companies, even the organizational culture is diverse and opens to inclusion. Such organizations tend to have a business code of ethics and conduct that are likely to subject to mandatory regulation, as evidenced in the China’s legislative requirement to Google Inc. to regulate phonographic sites or face countrywide closure. However, specific organizations with specific customers have defined organizational culture that is specific. This aspect significantly affects the implementation and adoption of a business code of ethics and conduct (Steve 2008). This is because while organizations such as Google Inc. Focus on including every person using the internet despite of their view, beliefs and culture, companies Wal-Mart would focus on prioritizing corporate culture as a primary issue since it has a defined range of customers. In such aspects, companies such as Wal-Mart would have their own defined business code of ethics and a more focused concentration on issues such as Corporate Social Responsibility, which is very different from that of Google Inc (Wulf 2012). In such examples, it is evident that, although various legislative aspects must be defined to ensure effectiveness of business code of conduct, it is tricky to have the legally enforceable codes be mandatory for all organizations. In determining and evaluating business code of ethics, it is essential to note that not all of them are the same. In order to understand this aspect, it must be clearly stated that one of the essential ways of dividing codes is through analyzing whether the code is inspirational or prescriptive (Waagstein 2010). This is because the prescriptive business code of ethics and conduct is a subject of the law since it contains written imperatives comprising of the do’s and do not’s. Therefore, it should be understood categorically from this aspect that it is only such prescriptive business code of ethics that can be mandatory when they are legally enforceable. However, the inspirational codes only provide the ideals that act as guidelines to the targeted aspects. In this approach, the code of ethics and conduct does not dictate specific actions to be taken when certain situations are reached, but rather provides options as per the present situation (Ioannou & Serafeim 2011). This indicates that, though different organizations might be faced with the same situation, it is likely that they might have different approaches towards tackling the same issue and still stay within the requirements of the business code of ethics and conduct. The fact that an inspirational code of ethics requires that any action taken within the code require the need to weigh the ideals and take a favorable approach in contrast to having the situation evaluated based on only one camp, it's essential in understanding whether legally enforceable codes should be mandatory (Gilman 2005). The significant aspect of understanding code of ethics is the need to recognize that the code of ethics is just a set of guidelines that help organizations tackle difficult situations rather than looking at it as rules that require a rigid form of application. This is because ethical issues facing different organizations are diverse. This analysis, therefore, does not look at the code of ethics as an enforceable aspect since it simply provides options to organizations to deal with difficult situations rather than giving them mandatory actions to take (Wulf 2012). Therefore, in whatsoever situation, enforcing a code of ethics might put organizing situations in a quandary. However, the issues behind enforceability of code of ethics are also an aspect that cannot be fully denied. It is essential to note that the enforceability of business code of ethics and conduct is much evident in the medical and legal professions. This indicates that legal institutions or medical organizations are subjected to legal enforceability of business code of ethics and conducts compared to other organizations. The basic reason for mentioning these two professions is that they are entirely governed by business code of ethics and conduct that they have to oblige to law. Therefore, medical and legal institutions code of ethics carries the full force of the law. In such institutions, violations of the code ethics subject the organization or the individual to sanctions, which might include criminal or civil liabilities or even loss of license. Therefore, in developing the legal or medical code of ethics or conduct, the full force of the law plays a critical role since every aspect is pegged to the law. The penalties for violations in these institutions and professions are specific and have no variance from organization to organization. However, it is understandable that other professions or organizations have varied degrees of violation penalties. An example for this would be the variety of code of ethics that archivists are subjected to yet they have no specific legal requirement that they must adhere to (Gilman 2005). They are, therefore, only subjected to reputational or financial consequences if they fail to comply with certain principles existing in the code. With such professions and related organizations, there is no way any code of ethics can be legally enforced on them. Therefore, this point proves that profession or the field of focus for the organization also plays a critical role in determining whether an organization can be subject to a legally enforceable code of ethics or conduct (Cross & Miller 2011). In such situations where the code is not pegged on the law, the organization only requires to better its operation through adhering to the code of ethics it deems fit to operate within, especially in ensuring its prosperity and growth. However, despite an organization’s lack of restriction to a legally enforceable and mandatory law, it is evident that no organization can operate in violation of essential aspects of the code of conduct and ethics just because there are no legal requirements defining its parameters of operation. Since growth and development is an essential aspect of every organization, it has to have serious considerations to the business code of ethics and conduct. Modern organizations’ responsibility goes beyond profit maximization. This is because the perception or image that an organization creates, especially in relation to its contribution in dealing with social problems plays a significant role in ensuring growth and prosperity (Michael 2006). Modern organizations put as much effort in tackling social issues through strategies in the Corporate Social Responsibility just as focusing on profit maximization. In addition, since most of the business code of ethics base on certain principles driven from the law, it is possible to make some of the legally enforceable business code of ethics mandatory for every organization. This is applicable to all modern organizations because they have shown a trend of moving towards focusing on social responsibility just as they focus on other corporate issues. In addition, most organizations define stakeholders as comprising of employees, shareholders, customers, local or global community and the management. All these five aspects of an organization have significant input to the success of the organization. In determining a relationship to balance these five organizational aspects, it is inevitable to include social responsibility (Michael 2006). In fact, in most countries, foreign organizations are forced to determine and come up with strategies on how their operation within these countries will benefit the local community they operate in. Such requirements, therefore, champions for the need to have some aspects of the legally enforceable business code of ethics made mandatory. This is not only evident in the foreign companies, but also in the local organizations. In addition, before the establishment of any organization, there are legal bindings that it has to conform to thus providing the allowance of the need for mandatory legally enforceable business code of ethics. Every organization, whether profitable or non-profitable, with financial records should be subjected to tax returns despite any incentives on levies that they might face. One critical aspect of all organizations is the method and the need to keep financial records. Every organization must always have financial records (Mann 2013). In fact, according to Cohen & Holder-Webb, the research conducted indicated that the only consistent aspect in all the 75 U.S. firms was practices of integrity behind financial reporting. Therefore, the ethics defining financial reporting require the need to have a mandatory enforceable business code of ethics. This would provide an effective way for organizations to conduct or carry out financial reporting, which requires emphatic language and guidance to ensure integrity (Kobrin 2009). Therefore, from the financial reporting perspective, enforcing a mandatory legal business code of ethics will be helpful to organizations. In conclusion, it is evident that the diversity of organizations plays a significant aspect in understanding the legalistic aspects of the business code of ethics. It is visible that though some organizations based on certain professions such as medical and legal institutions might require the need to constitute a mandatory legally enforceable business code of ethics, other organizations do not. As discussed, organizations such as Google Inc. are faced with the need to embrace a diverse perspective towards the same issues and thus subjecting them to such mandatory actions would comprise several aspects of their existence and operation. Therefore, it is clear that from the above discussions, there is no specific and definite answer to this question. Determining whether a legally enforceable business code of ethics should be mandatory depends on the type of organization and in what professional line the organization stems from. The aspect of modern organizational requirements and trends also creates complexity since such organizations though embracing diversity tends to focus on social responsibility as mentioned above. References: Waagstein, P, C 2010, ‘The Mandatory Corporate Social Responsibility in Indonesia: Problems and Implications’ Journal of Business Ethics, vol. 98, no. 3, pp. 455-466. Gilley, K, M, Robertson, C, J & Mazur, T, C 2010, ‘The bottom-line benefits of ethics code commitment’ Business Horizons, vol. 53, no. 1, pp. 31-37. Kaptein, M 2011, ‘Toward Effective Codes: Testing the Relationship with Unethical Behaviour’ Journal of Business Ethics, vol. 99, no. 2, pp. 233-251. Kaptein, M & Schwartz, M, S 2008, ‘The Effectiveness of Business Codes: A Critical Examination of Existing Studies and the Development of an Integrated’ Journal of Business Ethics, vol. 22, no. 2, pp. 111-127. Cohen, J & Holder-Webb, L 2012, ‘The Cut and Paste Society: Isomorphism in Codes of Ethics’ Journal of Business Ethics, vol. 107, no. 4, pp. 485-509. Lere, J, C & Gaumnitz, B, R 2007, ‘Changing Behavior by Improving Codes of Ethics’ American Journal of Business, vol. 22, no. 2, viewed September 16, 2013 < http://www.bsu.edu/mcobwin/ajb/?p=532> Steve, B 2008, ‘Corporate Ethical Codes: Effective Instruments for Influencing Behavior’ Journal of Business Ethics, vol. 78, no. 4, pp. 601-609. Kobrin, S, J 2009, ‘Private Political Authority and Public Responsibility’ Business Ethics Quarterly, vol. 19, no. 3, pp. 349-374. Ioannou, I & Serafeim, G 2011, ‘The Consequences of Mandatory Corporate Sustainability Reporting’Harvard Business School Research Working Paper, no. 11-100 available at < http://dx.doi.org/10.2139/ssrn.1799589> Cross, F, B & Miller, R, L 2011, The Legal Environment of Business: Text and Cases: Ethical: Text and Cases: Ethical, Regulatory, Global, and Corporate Issues. Cengage Learning, Stamford. O'Toole, J & Mayer, D 2013, Good Business: Exercising Effective and Ethical Leadership. Routledge, London. Mann, R, A 2013, Business law and the regulation of business. Cengage Learning, Stamford. Wulf, K 2012, Ethics and compliance programs in multinational organizations. Springer, New York. Michael, M, L 2006, Business Ethics, Viewed September 16, 2013 < http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_19_michael.pdf> Gilman, S, C 2005, Ethics Codes and Codes of Conduct as Tools for Promoting an Ethical and Professional Public Service, Viewed September 16, 2013 < https://www1.oecd.org/mena/governance/35521418.pdf> Read More