Comparative Business Ethics and Social Responsibility of the Better Business Bureau - Report Example

Comparative Business Ethics and Social Responsibility Name: Lecturer: Course: Date: Executive Summary Stakeholders consist of individuals, a community, segment or groups of individuals who directly or indirectly impact the activities of a business. In the case of Better Business Bureau (BBB), the key stakeholders are the business segments and their respective consumers. The businesses are BBB’s most important stakeholders since the organisation relies on businesses to finance it. BBB can be truly impartial when it engages in ethical decision-making. To address the ethical dilemmas it faces in decision-making, it needs to alter its societal context of business and address multiple stakeholders. Certain actions that can be taken to stop pay to play scheme include having a consistent board oversight, ensuring the board is involved in the entire decision-making so that the managers are not entirely autonomous, monitoring and auditing of the organisation’s finances to check for discrepancies, abolishing the membership fees, adjusting the rating system and lastly, including a third party in the review process of the businesses. The key ethical challenges that face businesses in the 21st century are varied and play out in a range of ways in six ways. These include rewards and compensation, financial integrity, solicitation and publication, investment decisions and lastly, strategic management and accountability. This report proposes that since organisational structures or set of rules cannot guarantee ethical culture, institutionalising ethical culture should begin with the management of the organisation. In this way, it will promote integrity, strengthened ethical conducts, and integrated ethics in decision-making and ensured peer display of commitment to ethics. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Better Business Bureau’s most important stakeholder 4 Can BBB be truly impartial? 6 Ensuring ethical misconduct disaster does not repeat 8 Ethical challenges facing businesses in the 21st century 11 Recommendations to create a more ethical culture 12 Conclusion 14 References 15 Introduction Stakeholders refer to individuals, community, segment or groups of individuals who directly or indirectly impact a business’ activities. The organisation is faced with an ethical dilemma in decision-making due to dependence on financial incentives. This report analyses a case study to show Better Business Bureau"s most important stakeholder, whether BBB can be truly impartial, the actions that should be taken to ensure that an ethical misconduct disaster does not happen, the ethical challenges businesses face in the 21st century, and the recommendations companies should take to improve and create a more ethical culture. Better Business Bureau’s most important stakeholder In the case of Better Business Bureau (BBB), the key stakeholders are the business segments and their respective consumers. This report argues that businesses are BBB’s most important stakeholders. The organisation relies on businesses for finances. The more the businesses that join the company, the more finances it has enabling it to provide its services to consumers. In this case, the association cannot be able to establish a community of trustworthy businesses when it lacks the real shareholders in the form of member businesses. As a result, businesses are its most significant stakeholders. On the other hand, when it has the finances from the businesses, consumers will be able to access its services and check for the ratings of the businesses provided that the business is BBB accredited. From the perspective of BBB, it can be argued that the organisation was aware that businesses were its most important stakeholders. Hence, it failed to recognise the needs of the consumers. In most cases, business emphasise the shareholders as their most important stakeholder group. However, failure to places importance on other stakeholders may lead to ethical lapse. Some theorists however argue that when their businesses focus on shareholders and customers with equal measure, then they will not experience ethical lapses (Trevino & Weaver 2003). Additionally, failure to recognise the needs as well as the potential effects of other stakeholders may result to regrettable consequences (Ferrell & Ferrell 2012a). Based on this background it can be argued that BBB was aware that businesses were its most important stakeholders and hence failed to consider the needs and the potential impacts of consumers resulting to regrettable consequences (Graham 2013). On the other hand, consumers are also important stakeholders. For instance, while other regulatory programs cover areas such as direct selling, the BBB program covered all businesses, with its key function to create trusts between the businesses and the consumers. It hence used mainstream and alternative media to inform consumers of businesses that violated established standards (Graham 2013). While businesses are critical in providing the resources for the organisation, they however only do this to earn reputation for their brands in the eyes of the consumers. Consequently, if the consumers paid no attention on the ratings awarded by BBB, then the businesses would not consider investing in BBB. In any case, since joining BBB is voluntary, it will strive more to attract businesses. Overall, it is clear that businesses are BBC’s most important stakeholders. Can BBB be truly impartial? In my opinion, BBB can be truly impartial when it engages in ethical decision-making. In the case, BBB was confronted with ethical dilemmas, which threatened its decision-making capacity and business conducts. Both of which made it to be impartial. Studies have indicated that failure to understand and manage ethical risks can play a crucial role in financial crisis. Despite the fact that a distinction exists between business misconducts and bad decision-making, a thin line exists between the ethics of applying financial incentives to measure performance as well as to apply holistic measures such as transparency ethics as well as having responsibility to the stakeholders. Ferrell and Ferrell (2012) point out that while such incentives do exist, the consequences of misconduct should assist businesses and organisation to perceive the benefits of using incentives responsibly. In the case of BBB, its key stakeholders are businesses, which provide it with financial incentives. On the other hand, businesses rely on consumers. While it has to pay more consideration to attract more businesses to join its association, it also needs to build the reputation of the businesses among the consumers. Once the consumers pay attention to the BBB accredited ratings, businesses will strive to put more efforts to either improve their businesses or to join BBB to get higher ratings (CBS 2012). However, if BBB gave higher ratings to non-members than the members, this form of treatment will give businesses little reason to invest in BBB. This implies that, BBB will lack finances to operate its business. This explains the complexities and dilemmas that BBB is faced with. In the context of BBB, business ethics may serve to address the ethical dilemmas, complexities or risks it faces. An organisation’s key values and experiences as well its organisational factors determine whether it will make an ethical decision (Sekerka 2012). Despite the complexities in describing the ways and reasons why an organisation may end up making an unethical decision, typical organisational patterns can be studied within the organisation to determine this. In the case of BBB, it had inclined more towards pleasing and attracting businesses to acquire more financial incentives without regard to the consequences on its other stakeholders – the consumers (CBS 2012; Sekerka 2012). Hence, it gave higher rating to businesses that performed poorly in the eyes of the consumers and higher rating to those that performed poorly. The managers at BBB used their influence to guide and control the ethical decisions of employees (the sales force) to seek for extra funding for higher rating, or “pay and play”. This shows that the ethical issues were related to truthfulness and transparency. The genesis of the problem can be explained by researchers such as Ferrell and Ferrell (2012), who established that when organisations focus on financial incentives from its key stakeholders, it will lose focus on stakeholder responsibilities such as offering the right product information. To ensure this, organisations may bend their rules and limit transparency to manipulate decisions (Ferrell & Ferrell 2012). To address these underlying issues in order to be truly impartial, Ferrell and Ferrell (2012) suggest that organisations need to alter their societal context of the business and address multiple stakeholders. The researchers further suggested that stakeholders need to identify all its stakeholder, determine features that will address all stakeholders, research on issues concerning stakeholder expectations and impacts of its actions, and lastly, engage with the whole stakeholders’ interests embedded in all the organisation’s activities (Ferrell & Ferrell 2012). Indeed, findings of some studies are also consistent with the conception that when a company adopts a market-orientation and places its focus on shareholders as well as customer, then it will be able to integrate all their needs in its decision-making (Ferrell & Ferrell 2012). This will ensure that BBB becomes truly impartial despite its financial dependence on businesses. Additionally, strict legislations can help institutionalise business ethics by enabling BBB to institute ethics program as a core requirement so as to avoid misconduct. It can further help create an organisation culture. For instance, having a code of ethics integrated in BBB’s organisational culture can help promote impartiality and transparency (Ferrell & Ferrell 2012b). In conclusion, I believe that Better Business Bureau can be truly impartial despite its dependence on businesses for finances. Ensuring ethical misconduct disaster does not repeat A key central concern with the “pay to play” scheme was that BBB members were given extra points denied to non-members. Accredited businesses generally support the company financially. Therefore, since rating is linked to membership, some members paid extra to attain a higher ranking. The result is companies are not judged equally. Pay to play arrangement hence poses as an ethical misconduct disaster that has the potential to create substantial interruption to the organisation, and thus threatens its continuity (Graham 2013). Certain actions that can be taken to stop pay to play scheme include having a consistent board oversight, ensuring the board is involved in the entire decision-making so that the managers are not entirely autonomous, monitoring and auditing of the organisation’s finances to check for discrepancies, abolishing the membership fees, adjusting the rating system and lastly, including a third party in the review process of the businesses (Ferrell & Ferrell 2012b). An integrity management should be instituted into the organisation as a legal requirement. Studies have suggested that employees who are aware that certain workplace behaviour or decisions subsist through an ethically judged context become more activated to conduct themselves more ethically (Chandlet 2005). On the other hand, employees who view such decision-making activities are not based on ethical contexts become more motivated to conduct themselves in ways that are unethical (Chandlet 2005). Integrity management should further be integrated by the management. Focus should be on promoting favourable organisational culture and instituting reward and motivation processes that influence the management and the employee’s decision-making process. This should be in a manner that reflects the established code of conduct. Prevalent standards may include assumptions that the behaviour and decisions are conducted honestly, and that the management and the employees never consciously or intentionally intent to damage consumers or the stakeholders or to have a conflict of interest (Chandlet 2005). Including the board in the rating process of the business can ensure that likely conflict of interests between the organisation and the businesses are avoided. The board of directors can be involved in planning the membership registration or vetting businesses that have to be accredited. In many cases, BBB management and employees tended to crate companies that they considered benefitted more beneficially (Ferrell & Ferrell 2012b). BBB needs to create a new reward system, such as one that gives rewards depending on how membership is pitched to potential businesses. Additionally, the employees, specifically the sales team, should be rewarded despite of whether they achieve the sales or not. In the case, employees who managed to sell first-year membership were awarded a 45 percent commission (Bloom 2010). Studies have shown that skewed rewards systems can cause employees to be preoccupied with earning short term profits. Indeed, this was what was happening at BBB. The company’s sales staff was preoccupied with getting business to join and to pay kickbacks for a possible profiting. Further actions would include proposing policy change in an attempt to curtain the practice using a rule. The regulations should be based on investment practices to limit practices, acts or limiting courses of business that may be fraudulent, manipulative and deceptive. The proposed rule should inhibit investors, businesses and their associates from engaging in pay to pay schemes (Everett 2009-2010; Young 2010). Training of the employees should be aligned towards creating a sense of ethics base on three major points. These include instituting corporate principles, implementing guidelines for CSR practices and ensuring fair behaviour. The organisation should also encourage whistle-blowing policy to call attention to occurrences of unethical behaviour in the organisation. Certain conditions should be fulfilled to ensure that the policy works effectively. First, the organisation must inform its employees of the steps that should be taken in communicating such unethical concerns within the organisation (Barnet 1992). Next, employees should be encouraged to believe that their concerns will be given due consideration and investigated. The employees also need to be made to feel confident to understand that they will not suffer nay kinds of reprisals for use of internal channels to report such unethical practices (Barnet 1992). Ethical challenges facing businesses in the 21st century The key ethical challenges that face businesses in the 21st century are varied and play out in six ways. These include rewards and compensation, financial integrity, solicitation and publication, investment decisions and lastly, strategic management and accountability (Rhode & Packel 2009). In regards to compensation, while salaries are modest business standards for rewarding employees, they are a major cause of disputes that present ethical dilemmas to businesses, especially when an organisation is undergoing hardship to address unmet economic and social needs. This is reflected in the case study when William Mitchell was exposed to be earning $400,000 (Ferrell & Ferrell 2012b). Here, what could be considered as reasonable or cost-effective can be a subject of dispute when the organisation has wealthy members who are used to comforts and luxuries. However, the issue also concerns the perks and bonuses to award to employees, where the employees may engage in errant activities to please the board, as was done by the sales team in the BBB case study (CBS 2012). Conflicts of interest also arises in the business, where some members of the board of directors offer preferential treatment to business that they have interests, or in which they are affiliated to one way or the other. This may raise ethical issues such as whether the member of the board obtains a contract for the company he has interests (Weber 2001). Financial integrity and publication is also an ethical challenge, particularly in conveying financial reports. Businesses are always aware that publishing financial reports that indicate the company is not performing well financially may lower the prices of its shares in the market. Such may present issues with disclosures where some companies manipulate their financial statements that mislead and that are less transparent (Rhode & Packel 2009). Investment policies also present ethical challenges. Proponents of social responsible investments argue that business should make sure that their financial portfolio is in consistency with their mission, vision and values (Brimmer 2011). Such strategies involve investment in areas that can promote an organisation’s mission. On the other hand, it means that the organisation shifts focus from stakeholders whose activities are of little consequence to its mission or profit making. Indeed, this explains the origin of “pay and Play” policies, when BBB turned its focus towards the businesses than consumers (Graham 2013). Strategic management and accountability is also an area that faces ethical challenges. Businesses may either be subject or not subject to market forces. However, in instances where a business play significant public functions as well as enjoys significant government subsidies, then it also must have substantial public responsibilities such as fiduciary duty or obligation to the stakeholders (Ferrell & Ferrell 2012b). They hence must use their resources in a responsible way. However, corporate fraud and misappropriation of funds by individuals in the businesses make them to stray from having the accountability (Rhode & Packel 2009). Recommendations to create a more ethical culture This report proposes that since organisational structures or set of rules cannot guarantee ethical culture, institutionalising ethical culture should begin with the management of the organisation. In this way, it will promote integrity, strengthened ethical conducts, and integrated ethics in decision-making and ensured peer display of commitment to ethics. Studies have indicated that organisations with strong ethical cultures are those that have a management that is committed to promoting ethical cultures (Kerns 2003). It is therefore proposed that ethical culture at BBB should begin with change in the behaviour and conduct of the managerial leaders in the organisation, since employs adopt cues from the top. The organisation’s leadership should also integrate the mission statement. The leadership should also institutionalise codes of conduct or ethical compliance programs (Llopis, Gonzalez, & Gasco 2003). Having codified rules can help spell out the ethical expectations as well as create consistent standards. If universally accepted within the organisation, it can help restore an organisation’s core value as well as prevent misconduct (Kerns 2003; Parboteeah et al 2012). Further actions should also be taken to close the gaps between the knowledge of what the organisation needs to do and what is expected of them. Ensuring employee training on ethical values can be effective in ensuring this. Additionally, publications on ethics should be passed to employees to promote their awareness and compliance (Ferrell & Ferrell 2012b). Next, the management and leaders within the organisation should be wary about who joins the organisation. Effective recruitment programs through background checks should also be done to establish the integrity of the employees can be effective in ensuring this (Llopis, Gonzalez, & Gasco 2003). The new recruits should afterwards be taken through training and orientation programs on organisational cultures. This will ensure that they integrate the ethical values into their practice. As a means of influencing and promoting ethical behaviour, it is more effective when employees learn from managerial leaders the core values expected from them (Brimmer 2011; Shaw W 2010). Next, accountability and follow-ups should be done on the ethical values put into place. Having systems and procedures in place can serve to remind employees of the need to commit to the virtuous organisational values, as well as to link their practices with the values (Weber 2001; McGhee & Grant 2008). Lastly, the leaders in the organisation can positively influence practical ethical behaviour through fair allocation of resources in the organisation. These include information, capital assets, time, money and people. Equitable allocation creates a perception of fairness and equity, hence modelling ethical behaviour (Brimmer 2011). Conclusion The businesses are BBB’s most important stakeholders since the organisation relies on businesses to finance it. Next, BBB can be truly impartial when it engages in ethical decision-making. To address the ethical dilemmas it faces in decision-making, it needs to alter its societal context of business and address multiple stakeholders. Certain actions that can be taken to stop pay to play scheme include having a consistent board oversight, ensuring the board is involved in the entire decision-making so that the managers are not entirely autonomous, monitoring and auditing of the organisation’s finances to check for discrepancies, abolishing the membership fees, adjusting the rating system and lastly, including a third party in the review process of the businesses. The key ethical challenges that face businesses in the 21st century are varied and play out in a range of ways in six ways. These include rewards and compensation, financial integrity, solicitation and publication, investment decisions and lastly, strategic management and accountability. To institutionalise ethical culture, the managerial leadership should promote integrity, strengthened ethical conducts, and integrated ethics in decision-making and ensured peer display of commitment to ethics. References Barnet, T 1992, "Why Your Company Should Have A Whistleblowing Policy," Sam Advanced Management Journal, Autumn, 1992, pp. 37-42 Bloom, L 2010, "The Ethics of Conflict of Interest," The ASPPA Journal Vol. 40. No. 2, pp.1-3 Brimmer, S 2011, The Role of Ethics in 21st Century Organizations, viewed 25 Jan 2014, http://www.regent.edu/acad/global/publications/lao/issue_11/brimmer.htm CBS 2012, Better Business Bureau Accused Of Pay-To-Play Scheme, CBS News, viewed 24 Jan 2014, http://newyork.cbslocal.com/2010/11/12/better-business-bureau-accused-of-pay-to-play-scheme/ Chandlet, R 2005, "Avoiding Ethical Misconduct Disasters Strategic planning for organizational "integrity" continuity is essential for avoiding, mitigating, and surviving organizational scandals and (un)ethical disasters," Graziadio Business Review, Vol. 8 Iss 3, viewed 24 Jan 2014, http://gbr.pepperdine.edu/2010/08/avoiding-ethical-misconduct-disasters/ Everett, N 2009-2010, “Kicking back corruption in the Public Fund Advisory Selection Process: The SEC’s Proposed Rule to Curtail Pay to Play Practices,” Review of Banking and Financial Law, Vol. 29, 557-564 Ferrell, O & Ferrell, L 2012q, Integrating Business Ethics in Business Courses. National Business Education Association, Reston, VA Ferrell, O & Ferrell, J 2012b, Business Ethics: Ethical Decision Making & Cases, Cengage Learning, New York Graham, J 2013, The Role of Corporate Culture in Business Ethics, viewed 25 Jan 2014, http://www.cutn.sk/Library/proceedings/mch_2013/editovane_prispevky/44.%20Graham.pdf Kerns, C 2003, Creating and Sustaining an Ethical Workplace Culture," Graziadio Business Review, Vol. 6 Iss. 3, viewed 24 Jan 2014, http://gbr.pepperdine.edu/2010/08/creating-and-sustaining-an-ethical-workplace-culture/ McGhee, P & Grant, P 2008, “Spirituality and Ethical Behaviour in the Workplace: Wishful Thinking or Authentic Reality," Electronic Journal of Business Ethics and Organization Studies Vol. 13 No. 2. pp.2-7 Llopis, J, Gonzalez, R & Gasco, J 2003, Corporate Governance and Organizational Culture. The Role Of Ethics Officers, viewed 24 Jan 2014, http://rua.ua.es/dspace/bitstream/10045/9171/3/corporate_Governance_and_organi.._Ethic_officer.pdf Parboteeah, P, Chen, H, Lin, Y, Chen, I, Lee, A & Chung, A 2010, "Establishing Organizational Ethical Climates: How Do Managerial Practices Work?," Journal of Business Ethics, viewed 24 Jan 2014, http://facstaff.uww.edu/parbotek/files/jbenew.pdf Rhode, D & Packel, A 2009, "Ethics and Nonprofits," Stanford Social Innovation Review, Vol 10, viewed 24 Jan 2014, http://www.ssireview.org/articles/entry/ethics_and_nonprofits Sekerka, L 2012, Moral Courage: Building Ethical Strength in the Workplace, viewed 25 Jan 2014, http://www.uwyo.edu/ser/_files/docs/conferences/2012/leslie%20sekerka_sustinable%20management_3%207%2012.pdf Shaw W 2010, Cengage Advantage Books: Business Ethics: A Textbook with Cases, Cengage Learning, New York Smith, N, Drumwright, M & Gentile, M2010, “The new marketing myopia,” Journal of Public Policy & Marketing, Vol, 29 No. 1), 4–11 Trevino, L & Weaver, G 2003, Managing Ethics in Business Organizations: Social Scientific Perspectives, Stanford University Press, Stanford Young, Christen, 2010, "Pay or Play Programs and ERISA Section 514: Proposals for Amending the Statutory Scheme," Yale Journal of Health Policy, Law, and Ethics, Vol. 10: Iss. 1, pp.199-224 Weber, L 2001, Business Ethics in Healthcare: Beyond Compliance, Indiana University Press, Bloomington Read More

While businesses are critical in providing the resources for the organisation, they however only do this to earn reputation for their brands in the eyes of the consumers. Consequently, if the consumers paid no attention on the ratings awarded by BBB, then the businesses would not consider investing in BBB. In any case, since joining BBB is voluntary, it will strive more to attract businesses. Overall, it is clear that businesses are BBC’s most important stakeholders. Can BBB be truly impartial?

In my opinion, BBB can be truly impartial when it engages in ethical decision-making. In the case, BBB was confronted with ethical dilemmas, which threatened its decision-making capacity and business conducts. Both of which made it to be impartial. Studies have indicated that failure to understand and manage ethical risks can play a crucial role in financial crisis. Despite the fact that a distinction exists between business misconducts and bad decision-making, a thin line exists between the ethics of applying financial incentives to measure performance as well as to apply holistic measures such as transparency ethics as well as having responsibility to the stakeholders.

Ferrell and Ferrell (2012) point out that while such incentives do exist, the consequences of misconduct should assist businesses and organisation to perceive the benefits of using incentives responsibly. In the case of BBB, its key stakeholders are businesses, which provide it with financial incentives. On the other hand, businesses rely on consumers. While it has to pay more consideration to attract more businesses to join its association, it also needs to build the reputation of the businesses among the consumers.

Once the consumers pay attention to the BBB accredited ratings, businesses will strive to put more efforts to either improve their businesses or to join BBB to get higher ratings (CBS 2012). However, if BBB gave higher ratings to non-members than the members, this form of treatment will give businesses little reason to invest in BBB. This implies that, BBB will lack finances to operate its business. This explains the complexities and dilemmas that BBB is faced with. In the context of BBB, business ethics may serve to address the ethical dilemmas, complexities or risks it faces.

An organisation’s key values and experiences as well its organisational factors determine whether it will make an ethical decision (Sekerka 2012). Despite the complexities in describing the ways and reasons why an organisation may end up making an unethical decision, typical organisational patterns can be studied within the organisation to determine this. In the case of BBB, it had inclined more towards pleasing and attracting businesses to acquire more financial incentives without regard to the consequences on its other stakeholders – the consumers (CBS 2012; Sekerka 2012).

Hence, it gave higher rating to businesses that performed poorly in the eyes of the consumers and higher rating to those that performed poorly. The managers at BBB used their influence to guide and control the ethical decisions of employees (the sales force) to seek for extra funding for higher rating, or “pay and play”. This shows that the ethical issues were related to truthfulness and transparency. The genesis of the problem can be explained by researchers such as Ferrell and Ferrell (2012), who established that when organisations focus on financial incentives from its key stakeholders, it will lose focus on stakeholder responsibilities such as offering the right product information.

To ensure this, organisations may bend their rules and limit transparency to manipulate decisions (Ferrell & Ferrell 2012). To address these underlying issues in order to be truly impartial, Ferrell and Ferrell (2012) suggest that organisations need to alter their societal context of the business and address multiple stakeholders. The researchers further suggested that stakeholders need to identify all its stakeholder, determine features that will address all stakeholders, research on issues concerning stakeholder expectations and impacts of its actions, and lastly, engage with the whole stakeholders’ interests embedded in all the organisation’s activities (Ferrell & Ferrell 2012).

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