Financial vs Ethical Issues - Essay Example

22 Feb. 2008 Financial VS Ethical issues Business owners often face difficult ethical dilemmas, such as whether to cut corners on absolute ethical standards and related practices. The intense pressures of business may not always allow you the luxury of much time for reflection, and the high stakes may tempt you to compromise your ideals. No doubt, the company may already have a well-developed ethical outlook. Nevertheless, by considering various approaches to ethical decision making, you may be better able to make the right choice when the need arises. The subject of business ethics is complex. Fair-minded people sometimes have significant differences of opinion regarding what constitutes ethical behavior and how ethical decisions should be made. The case of magmacorp is quite a complex and a serious one with two of the top management committees advocating two different approaches to solve the problem. The ethics code has long needed to be designed particularly for leaders and managers -- those people charged to ensure ethical practices in their organizations. Unfortunately, far too many codes about business ethics end up being designed primarily for philosophers, academics and social critics. As a result, leaders and managers struggle to really be able to make use of the codes at all. As a result they tend to make individual perception of the problem and advocate conflicting ideas to the management. In our complex global business climate, ethical decision making is rarely easy. Corporate governance is nothing but the moral or ethical or value framework under which corporate decisions are taken. Corporate managements generally have been concerned with using the physical, financial and human resources available with the management to get the best possible results in the interests of the stake holders and, particularly, shareholders. It is quite possible that in the effort at arriving the best possible financial results or business results there could be attempts at doing things which are verging on the illegal or even illegal. There is also the possibility of grey areas where an act is not illegal but considered unethical. These raise moral issues. Corporate governance is all about “promoting corporate fairness, transparency and accountability.” Its difficult to think of a subject touchier than that of what actions are "Right" and what are "Wrong", especially when were discussing a real life situation. Ethics places not only our actions and behavior under the microscope, but it also scrutinizes our integrity and worth as a person. Since Ethics is so personal, it is socially unacceptable to name names when discussing specific situations. As a business owner, one may have several models available for analyzing the ethical dilemmas. Sometimes one approach will be more appropriate than another. If one takes time to consider the various possibilities, he is more likely to make a decision that he believes to be ethically correct. While Tightpenny uses the cost-benefit approach, Leftbrain advocates moral rights approach. Both options have their own pros and cons. The cost-benefit approach balances the costs and benefits of taking versus not taking a particular action. It weighs that cost against the competitive advantage that you might gain by paying those costs. From financial point of an organization this approach returns a lot. It takes into account the industries current financial situation and finds an optimal financial solution without paying any attention to the moral of the organization. Though this approach seems to be ideal for an organization it creates a negative impression about the organization in the long run. Also the employees may follow the organizations cost-benefit approach and will adopt immoral ways to achieve their financial targets against the organization. In the long run it creates a lot of dilemmas within the organization itself. The moral rights approach concerns itself with moral principles, regardless of the consequences. Under this view, some actions are simply considered to be right or wrong. From this standpoint, engaging in immoral activities in order to meet the competition and keep your business afloat is not a sufficient justification. Under this view, you should close down your business if you cannot operate it in ethical way, regardless of the actions of your competitors. This approach in course develops a good will on the organization. Also the employees develop a kind of respect for their organization and won’t engage themselves in immoral activities against the organization. The final thing you will benefit from becoming more aware of is your own values and how those values correspond to your communitys moral sensibilities, and to your own actions. The values are the principles where the organization believes in and have invested in (which is why they are said to have "value" in the first place). Values are the goals towards which the organization aspires. They largely define the core of their identity. More importantly still, they are the source of motivation to improve. But being too much ethical wont help the cause either. Your competitor may engage in immoral activities in order to cause your downfall, with you not resorting to such behavior in return. You may also pay excessively to meet your ethical demands and in course of time you will run out of business. Its important for the management committee to balance both these approaches before taking a decision. It can’t neglect Tightpenny’s concern about the company’s current financial situation nor can it ignore the company’s moral and ethical values advocated by Leftbrain. It must give sufficient importance to both before making a decision. Before making the decision on the ethical issues raised by Gus Gumshoe, the management must make a research on its current financial liabilities. It must also make a detailed analyze on current ethical standard set by itself and its employees. The management committee must have full detail on the two issues in its hand in document form before it can make any decision. It is important to develop a good understanding of the firm’s values, because of how influential the values are in determining and motivating the firm’s behavior. If the management doesn’t understand firm’s values, it wont be able to orient in a direction that is likely to be satisfying both financially and ethically. The actions and the organizations behavior will be more oriented towards putting out fires (satisfying your immediate needs), and less oriented towards developing long term potential. The management wont have a plan. It will instead, just be reactive. Hence it is very important to make detailed analyses on this. Now let us analyze the three ethical issues raised by Gumshoe. a.) ‘Backhanders in Bali’: In order to gain preferential access to the most attractive, trendiest designs, Gumshoe revealed a pattern of systematic bribes to senior management of the design houses, over a period of years. This is a very critical as far as organizations ethical behavior is concerned. The senior management of the design house is being bribed to get access to the designs. This creates a negative impression about the organization among customers. But at the same time eliminating such payments would reduce profits by 20% at least, possibly jeopardizing the viability of Magma itself as suggested by Tightpenny. This issue can be handled in two ways. Even if the financial situation is week as suggested by Tightpenny, it can’t just ignore the ethical side of the issue. The company must make internal analyzes of the design house and check whether they make any discretion between those bribe them and those not, in giving access to the trendiest designs. If they found guilty of ignoring the customers who don’t bribe them, the firm must take action against those managers. It can either issue a memo or other actions like suspension. Tightpenny can be softened by showing the proof of neglecting the customers by the managers. If it is found that they don’t make any definable differences between the two customers, it can be ignored. This may look like unethical, but the mangers satisfy the customers by posing that they are given preferential access to the trendiest designs. Leftbrain may be given the reports showing the improvement in business, and also the manager’s point of view of rising the business. Also the evidence that the mangers don’t demand bribe from the customers and it is by their own they give them to get special attention. According to teleogical ethical theory, an action is considered morally correct if the consequences of that action are more favorable than unfavorable. Also the organization must lay down a code of ethics for their employees. This Code of Ethics is designed to help them address situations that may involve a conflict of interest, including situations in which your personal interests are in conflict with the interests of Magmacorp., situations in which they, or a member of their family receive personal benefits as a result of your position with Magmacorp., and situations that otherwise may cast doubt on their ability to act with objectivity in dealings with or on behalf of the firm. If become involved in or are otherwise made aware of a conflict of interest, please consult your manager, they must consult their human resources representative. A conceptual model presents the likely influence of customer relationships with service workers on the development of true customer loyalty to the service firm. It is suggested that strong customer relationships with a firm’s service personnel lead to true customer loyalty to the service firm, as positive attitudes towards service staff are transferred directly to the firm. In situations where a strong relationship develops between the customer and only one particular service worker, true loyalty to the service firm will be an outcome of high personal loyalty and therefore be dependent on the continued availability of the service worker. Also, if there are a number of bad apples in the bunch and that may tend to colour the publics perception of the whole bushel. Hence these bribes must be controlled by the management committee through suitable measures. (b.) ‘No Wonder Labour There is So Cheap’: Gumshoe also revealed that children as young as nine years old were being used to sew dresses in one country, in clear violation of Magma’s written contract with that subcontractor. In the UK, Magma had long been suspected of sacking even highly competent workers before they were two years in the job in order to reduce the theoretical risk of tribunal action later. This ethical issue should be given higher preference because any leakage of this to public will rigger an ultimate fall of the firm. In UK child labour is viewed very seriously and hence it must be dealt with utmost care. In this issue the firm management must stand behind Leftbrain and try to convince Tightpenny about the bad consequences they might face if the issue comes under public scrutiny. The 10% saving which Tightpenny suggests is inappropriate and the firm cannot sacrifice its ethical conduct for this meager cost. After all Magmacorp is an UK firm, obeying UK laws and every subcontractor in turn must obey UK laws. "Child labour has serious consequences that stay with the individual and with society for far longer than the years of childhood. Young workers not only face dangerous working conditions. They face long-term physical, intellectual and emotional stress. They face an adulthood of unemployment and illiteracy." United Nations Secretary-General Kofi Annan The firm management in this case must stand up to its ethical status and should force its subcontractor to relieve the children from work. If the subcontractor fails the firm must sack him and look for an alternative. Also as suggested by Leftbrain, ‘Early Sacking’ practice in the UK would almost assuredly come under government scrutiny very soon, causing far more losses in the form of damage to public reputation than the small, temporary ‘savings’ that Tightpenny claims today. Also the employees of an organization are it real assets and it must groom them to make the future of the organization. There is no point in sacking the future to save the present. The theoretical risk of facing of tribunal action later is probabilistic and it might never happen if the firm grooms them into their asset rather than liability. The firm must take care not to hurt Tightpenny in this issue and must convince him by providing sufficient reasons for taking the decision (c.) “It’s Advertising, Stupid”.: Magma executives have long recognized that their advertising image is key to appeal with their advertising market, and has consistently had the top advert budget in the industry. Magma is continually (and some say, deliberately) running afoul of the UK Advertising Standards Board for its provocative, sometimes disturbing images and colorful language. Recently, the tone of the adverts have crossed the line from edgy and nihilistic to something far darker with the highly successful launch of the KillYerself TM line: all black clothing, sold on the telly by razor-thin models contemplating talking openly about self-harm, all the while wearing Magma’s new line. Two actual suicides are said to be linked to the adverts, but nothing has been proven. Yet. Strangely, the Advertising Council delayed a prohibition order against the ads following a visit from Tightpenny. Provocative advertising is characterized by a deliberate attempt to gain attention through shock. In today’s society people face thousands of different types of commercials and advertisements everyday. It is impossible for the audience to pay attention and remember all of them. Due to this marketers stretch the limits more and more in order to break through the advertising clutter and to be noticed among the audience. In some cases they cross the limit of what is considered acceptable and the advertisements are perceived as provocative and inappropriate. The reactions of individuals to a provocative appeal for a cause, as opposed to a provocative advertisement for a standard consumer product is sometimes exotic and trigger public attention. In our case the advert has supposedly caused the suicide of the two girls. This is for sure an ethical issue and must be given sufficient attention. The firm must consider pulling off the advertisement as it may in long run cause some legal problem. It must think of an alternative non provocative advert before pulling the earlier one as it might create a negative image. It must not reveal the real cause behind pulling off action as it might trigger legal action against the firm. It must create a feeling that it has pulled the older one just because of the newer one. Also the firm must take this opportunity to lay down the code of ethics for its future advertisements. This will avoid any such kind embarrassing situation in the future. The firm must take care that its advertisements never play a provocative role and must think off alternative ways to gain the attention of the customers. This will help the firm build it goodwill in the long run. At this point the firm must lay down some codes and practices that will end such conflicts between its people in management committee in the future. There are many natural conflicts among departments and their managers due to the nature of their work. These conflicts should always be anticipated by the management committee. Dilemmas at work relate to power, authority and trust and secrecy, confidentiality and loyalty. Corporate governance has meant that there should be at the board level non-official directors who are professionals and who have no conflicting interests and who can particularly operate the two key committees, the Ethics Committee and the Finance Committee to see that there is greater transparency in the management of the enterprise. Corporate governance ultimately has to come to mean better transparency in the operations without sacrificing business strategy or business secrets which are necessary for success in the market place and absolutely ethical behaviour where the conduct of the company will not only be legal but also ethical. That brings us to the basic issue of what will be the ethical issues in corporate governance. Honesty is the best policy. This means that there has to be absolute integrity in all operations. Integrity is of three types: Financial integrity Moral integrity Intellectual integrity The firm should hold all employees responsible for the quality of their work. This must hold good for the managers especially, because this will urge them to behave ethically, putting aside their ego. One way to establish a shared framework for accountability is to develop and implement an organizational code of ethics. When developing a code of ethics that represents shared values and that will be accepted by board members, staff and volunteers, its important to involve a wide spectrum of people. Form a board committee, including someone with legal background if possible, to examine your organizational culture and needs to determine what kind of code to develop. While some people might balk at signing an ethics code because they believe they already behave ethically and havent done anything wrong, the process can help people see that such a code demonstrates a commitment to standards and sets expectations for ethical behavior across the whole organization. Keep the language of the document clear and accessible, instead of composing in legalese, to ensure that board, staff, and volunteers can all understand whats expected of them Wherever choices exist there is potential for disagreement. Such differences, when handled properly, can result in richer, more effective, creative solutions and interaction. But alas, it is difficult to consistently turn differences into opportunities. When disagreement is poorly dealt with, the outcome can be contention. Contention creates a sense of psychological distance between people, such as feelings of dislike, bitter antagonism, competition, alienation, and disregard. If department managers cannot see eye to eye then this will have an impact on getting people assigned to the projects. Also this will cause an unwarranted delay in solving issues. It may also impact the company’s decisions to make interfaces amongst various departments. There are some early warnings of this conflict among managers. The employees and managers should respond swiftly to the following early warnings. Declining Organizational Performance: This is the most important practical and functional symptom. Declining performance trend in a section or department often accompany the growth of conflict. Declining Morale: This is indicated by rising rates of labour turnover, sickness and absence and rising accident rates. Conflict aggravates this problem The company must develop a list of points for effective management of conflict between managers which should include the following points Develop and improve rules, procedures, processes and precedents to minimize the emergence of conflicts. Develop and improve the channels and the quality of communication amongst the managers Separate and isolate sources of potential conflict Establish conciliation and arbitration machinery to which all those in the organization can agree Use confrontation to try and bring participants to the conflict together in an attempt to get them to resolve matters on a face to face basis Undertake broader advances in managerial qualities and expertise, alongside the process of conflict management, in order to reduce the risk and prevalence of conflict, and to ensure that managers are able to tackle it more quickly and effectively than in the past. Many a time, the issues may arise about being transparent, which may compromise the financial interests of the company. Suppose a company has been behaving in a manner, which is harmful to the environment, there may always be a tendency to downplay the impact or even cook up the figures to say that there is no damage caused to the environment. These are really ethical issues where the corporate management will have to show its commitment to good governance by accepting responsibility. Works Cited APPROACHES TO ETHICAL DECISION MAKING”. Poznak law Firm Ltd. 22 Feb. 2008< http://www.poznaklaw.com/articles/bizethics.htm> Business Ethics and Corporate Governance. 2007. ICMR Case Studies and Management Resources. 22 Feb. 2008. http://www.icmrindia.org/courseware/Business%20Ethics%20&%20Corporate%20Governance/Business%20Ethics-DS19.htm “Child labor”. Anti-Slavery -todays fight against tomorrow. 22 Feb. 2008 E. Bowie, Norman “The Blackwell Guide to Business Ethics “Blackwell Publishing.2002. “How to harness ethics to increase productivity”. Josephson Institute. 22 Feb. 2008 K. Ll. Pope, Nigel, E. Voges, Kevin,and R. Brown, Mark.”The Effect Of Provocation In The Form Of Mild Erotica On Attitude To The Ad And Corporate Image : Differences Between Cause-Related and Product-Based Advertising” .Journal of Advertising.2004 Morningstar, Inc. Code of Ethics. 9 Feb. 2007. Morning Star. 22 Feb. 2008 http://corporate.morningstar.com/US/documents/PR/CodeOfEthics.pdf N. Vittal, Central Vigilance Commissioner. Ethical Issues in Corporate Governance. 22 Mar. 2000. Central Vigilance Comission. 22 Feb. 2008. http://www.cvc.nic.in/vscvc/cvcspeeches/march2k5.html#no1 Pettinger,Richardson.Effective Employee Relations: A Guide to Policy and Practice in the Workplace.Kogan Page Ltd.1999 Pettinger,Richardson. Managing the Flexible Workforce.Routledge.1998 P. Lientz, Bennet, and P. Rea, Kathryn.” On Time Technology Implementation: How to Achieve Implementation Success with limited time and resources”. Academic press.1999 Sutton, Brenda. “The Legitimate Corporation: Essential Readings in Business Ethics” .Blackwell business.1993. Read More