How Do Ethics Make the Company More Efficient - Term Paper Example

?Ethics and Morality of Business Introduction One is usually of the impression that business and ethics do not go together. Business is seen entirelyfrom an economic point of view, the practical. On the other hand, ethics preaches the idealistic viewpoint and is considered purely from a theoretical or academic standpoint. If one were to be ethical, one ought not to involve in business. If one were business-minded, ethics would have no place. In the contemporary world, profit is not the be all and end all of organizations. Businesses are looking at long term implications for their transactions. Career development programmes are not just altruistic pursuits. These are followed keeping the future human resource requirements in mind. Similar is the case with ethics. Given a level playing field, most organizations do not shy away from ethical behaviour. With the explosion of information and the communication revolution, the media plays a crucial role in building and tarnishing reputations of businesses. Hence, every organization tries to enhance its reputation among all its stakeholders. Ethics is a novel outlook for businesses that have single mindedly pursued the bottom line so far. Hence, there exists a twilight zone where business and ethics meet. In the modern world, differences are blurring and concepts are getting re-defined constantly. Business can reap benefits without compromising on basic human values. There is no need to give up on competitiveness to be morally right. Hence, it is possible to conduct business ethically, which is essentially a win-win situation. Concepts Rationalism dictates that everything should be useful and justifiable. Utilitarianism and utility analysis as used by business vary significantly. When a firm uses a utility, it weighs the positive and negative consequences of a certain action as it relates to itself; and a utilitarian analysis weighs these 'results of an action on everyone affected by it' (De George, 2010, pg 44). Morality is concerned with creating good consequences, not having good intentions. One should do whatever will bring the utmost benefit to all of humanity. Morality guides people’s actions in order to create a better world. Bentham (1748–1832) is rightly considered the father of modern utilitarianism. He explained utility as the balance of pleasure and pain that a human being experiences (as cited in Binmore, n.d.). “The principle of utility . . . is that principle which approves or disapproves of every action whatsoever according to the tendency which it appears to have to augment or diminish the happiness of the party whose interest is in question.” (Bentham Jeremy, B. E. 1748-1832). Bentham thought that entire morality could be derived from ‘enlightened self-interest’, and that a person who always acted for his own satisfaction in the long run, would always act rightly. However, there are critics of Bentham. ‘The good’ cannot be quantified or measured. Similarly, the notion or definition of ‘the good’ was extreme. At the same time, other considerations like human rights and justice, which are relevant, are ignored. John Stuart Mill said that happiness in not the same as pleasure. Man shared the lower quality ones with animals for e.g. food, water etc. The higher quality pleasures were unique to man and involved the higher faculties (Mill, 1863, Pg 11). He showed that utilitarianism was in sync with moral rules. Utilitarians ought not to calculate beforehand whether each action would maximize utility. Instead, following a general principle (under which a particular action falls) leads to happiness. Henry Sidgwick highlighted common sense morality, which is morality accepted by the majority without detailed thinking involved, in his book Method of Ethics (Crisp, 2000). He stated that not all principles of common sense morality are apparent. He was in favour of ethical hedonism according to which any action should produce the greatest amount of pleasure. He was of the opinion that no man should destroy his own happiness (Ibid). Hence, there are two schools of utilitarianism. The act utilitarians 'calculate utility each time the act is performed' (Chryssides & Kaler, 1993, pg 128). Rule utilitarians look at the consequence of everyone following a general rule and calculating the overall utility of accepting or rejecting the rule. The main difference between the two is that the former denies, whereas the latter accepts the dependence of justice on moral rules that define man’s rights and duties (Ibid). Therefore, we come to the concept of business or corporate ethics. It is the rules that decide acceptable conduct in business organizations. Business ethics is usually used interchangeably with corporate social responsibility (CSR). Business ethics relates to decisions that society determines are right or wrong (Ferrell, et al. 2011, p. 30). CSR deals with the effect that a business has on society as a whole (Ibid). Ethics is a prerequisite to conduct business. Laws reflect the clear set of morals given by society which also follows them; and a liberal economy can function only if those involved follow a set of ethics (Schnebel & Bienert, 2004). The economy can function only if the majority of players follow ethics (Ibid). Business ethics implies taking the moral point of view. An integrated approach requires proper weightage to be given to economic and legal aspects along with the moral view. Hence, a decision should be ‘ethically defensible while at the same time satisfying the demands of economic performance’ and a company’s legal obligations (Boatright, 2000). An act is right if it produces as much good as any alternative. According to the utilitarian doctrine, if an alternative can have better results, then the act is wrong (Singer, 1977). Insider trading, perceived to be unethical, can be explained through this concept. There are circumstances where these are perfectly legal. Most economists view an action as 'good, if the result is the greatest good for the greatest' numbers. Instead of asking whether the gains exceed the losses, the act should result in the greatest good; if the answer were yes, then the act is ethical (Mc Gee, 2010). Ethical issues As Ferrell, et al (2011, pp. 32-33) point out, an ethical issue is one which requires a person to take an action which may be seen as right or wrong. 1. Standpoint – An ethical issue is best resolved by looking at it from the viewpoint of the competitor or the customer. Since the customer is the focus of business, one cannot ignore a customer in such a situation. Similarly, a firm competes with others in the market space for the same resources i.e. customers. Hence, looking at things from the perspective of a competitor would give the road map for further action. 2. Awareness – Whether it is to affirm continued support for ethical business, or to understand the implications of a wrong decision taken unknowingly, one must be aware of all the aspects related to it and the sensibilities involved in such decisions. 3. Relative Decision – Every ethical decision is a relative one depending on the dynamics of the decision. Sometimes an ethical decision taken in one sector may affect an unrelated sector in a particular manner. Hence, one must be prepared to face the consequences regarding the decision. 4. Culture - Culture fashions most of the ethical decisions taken. The behaviour patterns vary, based on country, state, culture and other factors. Businesses need to be sensitized on this issue. (Source: Ferrell, et al, 2011, pp. 32-33). Categorisation of Ethical Decisions Ferrell, et al (2011, pp. 34-37) categorise ethical decisions as follows; 1. Conflict of Interest – Different people within and outside the organization may have priorities that are at variance from each other. The ethical decision will involve the least possible damage without compromising on ideals. 2. Fairness & Honesty – Even when a stakeholder gives a benefit to the organization out of ignorance, the ethical decision would be honest and fair to the other party and not take advantage of the situation. 3. Communications – The decision would be communicated to all concerned and as far as possible would involve all the relevant people so that they feel responsible for such a decision. 4. Business Associations – An ethical decision would strive to maintain long-standing relations but would also be prepared to severe such relations if they were of a non-ethical manner. (Source: Ferrell, et al (2011, pp. 34-37) Decision Making for Ethical Issues Five Step Framework by Markkula Center for Applied Ethics (as cited in Ferrell, et al 2011, pp. 38); 1. Recognition of issue: The issue at hand could either be a standalone situation or an intertwined one. No decision can be taken without identifying the root cause of the problem at hand. 2. Facts: A lot of extraneous and unrelated aspects go on to make a situation hazy. Fiction needs to be shifted from fact in order that a clearer picture can emerge. 3. Evaluating alternatives – Several avenues for solving the problem may be at one’s disposal. These need to be evaluated for their relative worth. 1. Taking Decision: The decision cannot be considered the best until it is the best ethical one. The best decision in business terms is easier to take but it may not be the most ethical decision. 2. Action, then reflection: Procrastinating or maintaining status quo does not solve the problem. Once a decision is made, it should be implemented. One should reflect on the fallout of the decision only after this. (Source: Ferrell, et al. 2011, pp. 38). Interactionist Model of Ethical Decision Making in Organizations The interaction of individual and situational components accounts for this model. The individual reacts to an ethical dilemma based on his/her moral development stage. This stage determines how an individual thinks about ethical dilemmas and how he/she process decides what is right or wrong in a situation. Three individual variables viz. ego strength, field dependence, and locus of control, influence an individual's reaction to what is right or wrong. “Situational variables arising from the immediate job context and the broader organizational culture also moderate the behaviour relationship” (Trevino, 1986, p 601). These include the organization's ‘normative structure, obedience to authority, responsibility for consequences, and other pressures’ (Ibid). Finally, “characteristics of the job itself and the moral content of the organizational culture” also have an impact on the moral development of the individual (Ibid). Case for Ethical Utilitarianism 1. Ethical companies are more profitable – Ethical behaviour is more profitable since unethical behaviour faces negative sanctions. Moreover, habitually ethical behaviour is rewarded and those predisposed to ethical behaviour can be easily identified (Manuel Velasquez, 1996). 2. Less stress – Since one is legally right (or politically correct), one is rest assured about the consequences of one’s decision. 3. Enduring Reputation – The reputation of an ethical individual or firm endures for a long time and earns goodwill. 4. Enhances leadership – Employees flock to be under the guidance of ethical managers and leaders in whom they place their implicit trust. 5. Alternative is regulation – Ethics is to be practiced voluntarily and by everyone. It is not an enforceable aspect of organizations. A forced regulation does not have the same effect as a spontaneous readiness for ethical behaviour. (Source: Ferrell, et al. 2011, p. 31). Improving Ethical Behaviour 1. Factors a. Individual Standards – Every individual by means of his/her nature and the environment around brings a set of core values to the workplace. b. Influence of other employees – The behaviour of other employees has an impact on the individual, for better or for worse. c. Opportunity for Misconduct – There is the element of temptation when an employee may succumb to unethical practices. Such circumstances should be avoided at the workplace to eliminate such misconduct. 2. Code of Ethics – Every organization frames its own code of ethics, which could be an unwritten code, agreed to unanimously by everyone or a formal written document. 3. Whistle blowing – assures that unethical behaviour does not go undetected or unpunished. The whistleblower’ identity can be concealed while meting out any punishment to unethical workforce. (Source: Ferrell, et al. 2011). Disadvantages A company will not be in a position to increase its profits if it follows business ethics strictly. Certain countries are plagued by child labour, poor health, lack of safety etc. A foreign company may not tolerate such circumstances. Nevertheless, it stands to lose out against those who compromise with such situations and take advantage of the same. However, restrictions on company freedom benefit wider society. Losing out on one’s competitive edge is a major motivator for unethical behaviour. Conclusion If an organization is to be effective, it requires the help of ethical decision making. Modern companies are legal objects which exist because communities create the legal framework. Hence, they exist due to a partnership between shareholders and governments. This partnership is in turn built on an implicit understanding that companies have ‘an obligation both to obey the law and to treat their stakeholders ethically’ (Cragg, 2002). The best example where ethical behaviour is put to test is in a financial crisis. In such a scenario, firms give the utmost importance to their own immediate survival. Rules are distorted to the disadvantage of customers and other stakeholders. It is society that is at the receiving end in such cases. Hence, a company should have trust in all its stakeholders. To remove legal hassles all types of documentation should be clear. The company should involve in community activities to give back whatever it receives from the society at large. To maintain financial stability, there should be accounting control in the company. One should also respect the viewpoints of others and take them along. In addition to the above ethics makes the company efficient and productivity increases. Customers become loyal to ethical firms and bring in more business. Employees are motivated and become efficient. This attracts new talent too. The company’s goodwill among creditors also improves. To conclude, the field of business ethics will entrench itself in the days to come. MBA programs are expanding their focus to two recently highlighted dimensions of ethics viz. Corporate Social Responsibility and Sustainable Management (Christensen et al, 2007). In the future, ethics will not be a byword, rather a central tenet of business. 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