Nature of Business Ethics - Essay Example

?Global Business Ethics “If the firms that employ an increasing majority of the population are driven solely to satisfy the owner's greed at the expense of working conditions, of the stability of the community, and of the health of the environment, chances are that the quality of our lives will be worse than it is now”. Mihaly Csikszentmihalyi (2003) Introduction: The unethical employment practices of Nike as well as the retail giant Wal-Mart; the trading of ‘blood diamonds’ by De-Beers; or the Enron Scandal are all examples of companies and events wherein the businesses acted unethically. Needless to add that the consequences of such actions on the part of the management were met with widespread criticism and public outcry, with the result that the companies lost their brand image and reputation in the eyes of their consumers. Examples such as these, further tend to substantiate the above mentioned quote, and at the same time, illustrate the significance and impact of ethics and morality in business. The twenty first century is witness to a rapidly transforming business approach, which has popularized the concepts of ‘triple bottom lines’ and corporate social responsibility, making ‘green business’ an increasingly fashionable trend. The scope and extent of a company’s contribution towards social and environmental causes, almost guarantees successful results, which is why, every other company, today proudly flaunts its commitment towards such causes, in its annual reports. In today’s highly competitive world, coinciding with the emergence of a knowledge society, the awareness among the public regarding their rights and the availability of products has increased considerably. In such a scenario, any company which strives to maximise their profits without giving back to the society or with a total disregard for business ethics, would become a soft target for a strong public backlash. It is thus imperative for the global businesses to put the common global – social and environmental interests ahead of their own selfish motives, and strive for the betterment of the society we live in as well as the environment around us. The emergence of a new global information society driven by economies of cross-border trade, liberalization and globalization has led to the development of new business practices with a growing emphasis on the adoption and application of innovative business approaches such as the assimilation of morality and ethics with profit and protection of shareholder interests both at the same time (Nissanke and Thorbecke, 2005). This new philosophy or approach towards business has found greater public support and is being increasingly incorporated by giant multi-national firms world-wide. It is widely believed that, the assimilation of ethics and morality as well as corporate social responsibility by global businesses is a positive step towards building a better, safer and healthier business environment where organizations are taking conscious decisions to protect and preserve the larger interests of not only its consumers but also of the society at large (Brownlie et al. 1999). The significance of incorporating ethics and morality in ‘mainstream’ business has been argued and debated over the years, with the result that issue has gained widespread support among researchers, management professionals as well as the general public. It is on account of such growing popularity of the practice that has made it inevitable, for global businesses to adopt such strategies and policies within their corporate agenda, and rethink their global business approaches (Sheth and Sisodia, 1999). Business ethics refers to the ethics of power and deals with the manner in which companies acquire, enhance and implement it for the betterment of their own corporate agendas as well as of communities at large. The need for and significance of incorporating ethics in business is growing like never before (Mahoney, 1997). Nature of business ethics within national and international context: The term ethics is commonly used for describing the rules or principles followed by an organization to distinguish between the right and / or the wrong conduct. It is also closely associated with the term morality, and the manner which businesses as well as their employees, and the management staff are required / expected to behave and conduct business (Aldag and Stearns, 1991). According to DiPiazza (2002) ethics is a critical aspect of any business which is closely associated with the way businesses are conducted, the product development cycle as well as the distribution system and ensuring that the activities carried out are in sync with the larger interests of the society. However, it is also established through research, that establishing and following ethical policies in business, is a complex task and more often than not, the top management is highly ignorant of their activities or the impact of their business decisions, giving rise to serious ethical concerns (Sheth, Gardner and Garret., 1988). Furthermore, it is also observed that there is a significant amount of difference between the business practices followed by companies around the world. This is mainly because business practices differ from country to country, and there is a significant difference in the perception of right or wrong, in various markets. According to various studies carried out in the field of international business and ethics, it has been observed that addressing issues related to ethical challenges is an important part of any business and is highly complex and multifaceted in nature (Arthaud-Day, 2005; Buller and McEvoy, 1999; Falkenberg, 2004; Windsor, 2004). These challenges include differences in legal, political, economic as well as cultural conditions as well as difference in perception of moral expectations among the local public across different countries. Integrating such differences in a common corporate goal is a hugely complicated task for the management, and hence is a significant strategic decision for the companies. According to Bowie (1996) all countries do not have similar perception regarding morals and ethics and they differ greatly on various issues, thus indicating that there is or cannot be a single universal set of moral principles which can be applied commonly and expected to be accepted uniformly by the global public. Thus although, the definition, scope and interpretation of ethics may differ largely among countries, the fundamental moral principles are more or less the same, and can be applied universally. Relevance of ethics and morality in business In theory, the fact that moral reasoning combined with self-interest can go a long way in promoting ethical behaviour, is widely accepted, established and promoted; however, there are glaring examples in the real world, which suggest otherwise (Kupperman, 1983). The fact that the primary goal of any business is maximisation of profits and promotion of self-interest cannot be denied, however, the same can be done by incorporating ethical perspectives within the primary business goals (Fisher, 2003). Incorporating ethical practices within one’s business not only helps in promoting a good brand image, but also helps in avoiding legal and moral problems which may jeopardise the company’s efforts in attaining its key goal – that of profit maximization. The ethical and moral aspects can be used by companies to promote its basic goals. Businesses do not and can never, operate in a secluded environment. They are very much a significant part of a social environment where their activities have a wider social and / or environmental impact. Thus the ethical and moral issues, if not handled appropriately, may lead to serious repercussions and pose a grave challenge to their competitive positioning in the industry. Businesses today, have a dual responsibility – toward their shareholders and employees, and toward the society. Their decisions hence, must seek to protect the interests of all its stakeholders. Businesses which are driven by the need to protect and uphold public interests are widely accepted and enjoy a profitable position in the industry as compared to those which have a short term goal of profit maximization alone. The significance and relevance of ethics and morality within the corporate world, has assumed greater acceptance and acknowledgement over the years and hence it is imperative for businesses today, to implement ethically correct practices and include the same within their broader corporate goals. Critical issues and ethical dilemmas in the field of business ethics and management According to Spencer (2010) ethical dilemma refers to “a situation requiring a choice between equally undesirable alternatives” (Pp.135). Examples of such dilemmas often encountered in routine situations in companies include the dilemma of justice versus mercy; truth versus loyalty; individual versus community etc. among others. Ethical dilemmas often coincide with the individual's moral perceptions for instance, if an individual believes in protection of life at all costs, s/he would be said to be facing an ethical dilemma when s/he is caught in a situation where the only alternative available at their disposal is to kill or be killed. The choice of either alternative is not only undesirable but also defeats their moral standing. Similarly in case of companies, the employees might have to face ethical dilemmas with regard to disclosing / withholding crucial business information from their customers. If they chose to adopt the morally right thing to do and expose the company’s fraudulent business practices, which are in the best interest of the company but might prove to be harmful to the consumers or community at large, then it may result in huge amount of losses and serious legal consequences on the part of the company. On the other hand, if they withhold such crucial information then it may lead to serious environmental or social damage to the community at large, while the company continues to amass profits at the cost of the consumers and the society. The employees are responsible to the company – as they have a moral obligation to protect the interests of their employers and the company for which they work; and are also bound by moral and ethical responsibilities towards the society in which they live. Such ethical dilemmas are faced by businesses, on a day to day basis and entail critical decision making on the part of all those involved. Issues surrounding effective corporate social responsibility According to Kotler & Lee (2010) “Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources” (Pp.3). However, there are contradictory opinions put forward by various researchers, theorists and academicians alike, both for and against this phenomenon. According to the former CEO of Unilever Niall Fitzgerald "Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it... because it is good for our business", thus indicating that the ethical business practices adopted by companies is merely a business strategy to promote a good image of the companies and attract larger customer base. Contemporary multinational organizations today are caught in the middle of a heated debate, surrounding the legitimacy and credibility of their claims regarding their social and environmental commitments. In the process, they are being pushed towards including broader public good will, and beyond their conventional commitment towards their shareholders. However, incorporating environmentally sustainable practices within their corporate agendas and sustaining their competitive positioning in the market, at the same time, is a difficult task. Needless to mention, that not many can claim to have struck a perfect balance, without getting embroiled into controversies and their modus operandi being questioned or challenged. And the few that have managed to come close; continue to defend the righteousness of their actions (Crane, 2008). The Body Shop International Plc.,: Caroll’s (1991) Four-Part Model of Corporate Social Responsibility: Carroll’s CSR Pyramid According to Carroll (1983), “corporate social responsibility involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive. To be socially responsible then means that profitability and obedience to the law are foremost conditions when discussing the firm’s ethics and the extent to which it supports the society in which it exists with contributions of money, time and talent” (p.608). According to Caroll the CSR can be divided into four main classes or categories which signify the primary role of the concept within the field of business and management. These include philanthropic responsibilities, ethical responsibilities, legal responsibilities and economic responsibilities. Caroll presented his first CSR model in the year 1991 (shown in the figure below). He stated that all the elements included in the model have always existed as a part of business, however, lately the significance of ethical and philanthropic responsibilities have assumed a relative greater significance and become an integral part of all businesses. He further suggested that all these activities are inter-dependent and that economic performance can be ensured through non-economic activities (such as philanthropy or assuming ethical stance) as well. According to this model, the economic responsibilities are ranked last at the bottom of the pyramid suggesting that philanthropic and ethical responsibilities of an organization are of greater significance and hence must be ranked higher than the rest (Caroll, 1991). Nike Inc. Nike Inc is an international sportswear and equipments trading company headquartered in the U.S. with branches all over the world. Although it is among the most renowned brand names in the world of sportswear, it has, nonetheless, been in the centre of various controversies surrounding its questionable practices regarding employment of children in sweatshops. Such a practice is not only unethical but also against the human rights (Nike Inc., 2011). Nike owns and operates several sweatshops internationally, employing child labour, and was charged for deceiving the public with its false advertising and promotional campaigns, which were used to promote and endorse a good public image. The charges levied against the company were proved with the result that it was charged as guilty by the California Supreme Court (Laufer, 2008). Furthermore instead of defending the charges levied against it, Nike not only accepted its unethical employment policies as well as the use of child labour in its sweatshops but also argued that it had every right to ‘lie’ and deceive the public in order to promote a good public image, and equated it with the right to lie held by the public to protect their personal lives. The fundamental ethical dilemma in such a scenario, faced by Nike, is the use of dishonest and unethical means to uphold its public image, brand name and competitive positioning in the industry and to avoid bearing the consequences of its actions. The company clearly chose to protect and preserve the interests of the stock holders rather than the larger public interest. Although the apparent ethical and moral responsibility of the company in this case was to accept its mistakes, and take decisions which are in the interest of the community at large. Exploitation of children is a major human rights issue, and internationally reputed companies such as Nike, has the moral responsibility to ensure that it does not violate any such laws and conducts its business in the most ethical way possible. Furthermore, over and above the issues of child labour, the company has also been infamously in the news for its unethical treatment of its employees. It was reported that Nike is involved in workers abuse, where the employees were made to run without shoes, merely for their failure to wear proper / designated dress code assigned to them. It was also reported that the workers were hardly allowed enough breaks during their gruelling eight hour shift. The company allowed just one bathroom break and barely two drinks of water thus causing serious physical and emotional damage to the workers’ health (Carroll and Buchholtz 2008). Such atrocious labour practices not only tarnish a company’s brand image but also are highly unethical. Although, following public outcry and bad press, regarding its unethical employment practices the company chose to project an image of a ‘good corporate citizen’ through rigorous advertising campaigns. Such a decision on the part of Nike, can only be viewed as highly unethical in nature. This is because, in order for these efforts to be considered ethical, the company must first make serious efforts to amend its existing unethical practices, and strive to change its wrongful policies. Merely using PR tactics to promote a good image amounts to deception and bears no consequence to the issue of social or ethical responsibility. Thus, although companies have a right to ensure good returns to their stock holders they have an equal and significant responsibility towards the society at large. Critique of Carroll's model Although Caroll’s model might be socially and economically relevant and applicable to present day corporate scenario, the same is faced with severe criticisms, all of which are directed towards the inclusion of social and philanthropic responsibilities as a part of business. Milton Friedman, who subscribed to the classical economic school of thought, argued that business has one and only one responsibility – towards the shareholders and owners and that social issues do not and must not figure on the list of corporate objectives. He further stated that social aspects are taken care of -by and in a free market economy, and in case it fails to do so, then it becomes the responsibility of the government, but business does not have anything to do with social issues. According to Friedman the basic role of management / business is: "to make as much money as possible while conforming to the basic rules of society, both those embodied in the law and those embodied in ethical customs". (Caroll, Buchholtz, 2008). Furthermore it is argued that business does not have the essential skills, resources and talent required to cater to social issues, and the managers are hired to take care of the financial and economic aspect of business, rather than social aspect. In such a situation, diverting from the key objective to achieve and cater to social issues, would only lead to serious consequences and defy the very purpose of business – that of maximizing financial gains. Furthermore, it is also argued that society has diverse needs which cannot be fulfilled by corporate organizations alone. 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