Business Ethics and the Law - Essay Example

Author’s Name Professor Subject Date Business Ethics and the Law I. I agree with Kerr (1998) that ethical business conduct practically affects everyone. I further believe that it is each individual’s social responsibility which should be taken seriously. It must be remembered that every employee, may they be the lowest clerk or the CEO, are part and parcel of a company whose ethical culture would ultimately impact on its shareholders and the customers in general. Ethical standards also apply to the public sector since its degradation results in the same outcome i.e., the corruption of the system. The regulation of juridical persons has always been imbued with public interest so that almost all governments have been regulating and controlling their relationship with the general public Additionally, it is my belief that the ethical problems cropping up in the corporate world has its beginnings on an individual’s value foundation. Although this aspect of a person’s life is initially handled by the church, at present, the matter is of general concern without consideration of religious affiliation. As such, it is respectfully submitted that strengthening one’s basic ethical foundation through education, corporate governance and government regulation would address the issue. Education plays an important role in value formation. Although some universities in Australia are now requiring Business Ethics as one of their core subjects in the curriculum, it is my belief that the emphasis of value formation should begin at the early stages of an individual’s education. Once an individual passes his formative years, no amount of lectures on ethical practices will convince his inner self to actually adhere to do what is right. Corporate governance also plays an important role in addressing issues on ethical business conduct. The direction of the balance with which the company holds its interest vis-à-vis that of the general public will eventually determine the future of the organization. It is my belief that had there been sound corporate governance coupled with management’s ethical outlook, the scandals involving HIH, John Laws and the Australian Banker’s Association (ABA) and Pan Pharmaceuticals could have been avoided. The HIH scandal involved an insurance company whose financial statements did not reflect the real scenario. John Laws, a very influential radio commentator, solicited and was paid by some big banks in order to have favourable comments over the air in the hope that it will boost their business. Pan Pharmaceuticals Limited was Australia’s largest contract manufacturer of complementary medicines which was discovered to have used sub-standard ingredients and quality control procedures. It is a truism that investors want a good return of their money. However, studies reveal that reputation, an intangible, is a factor to be reckoned with if a company is seriously looking at improving its balance sheet. The bigger is the company, the greater effort is given to protect its name. Consequently, poor business ethics often lead to the collapse of companies such as what happened to HIH and Pan Pharmaceuticals. As shown above, reputation does not only cover corporations or partnerships but also professionals, such as John Laws. Surely, they can no longer recover the business they have previously generated and if ever they will, it will take a very long time before consumers will trust them again. On the government side, the proper legal framework should be in place in order that businesses will refrain from doing illegal or unethical practices. It has been said that in the early 80’s corruption is so rampant that government and the private sector was forced to review existing standards on business ethics. It was with this background that legislation was enacted to effectively regulate business transactions and eventually protect the general public. Premises considered, ethical business conduct is a cooperative effort which is everyone’s concern as it is aimed to benefit everybody including the government. It is my submission that under an ethical business environment, the level of trust and confidence among the market players and the consumers will be high necessitating repeated transactions and eventually translating to higher income and consequently more taxes for government spending and the betterment of the community. II. Australia is a member of the Organization of Economic Cooperation and Development (OECD). It is an organization that promotes democratic government and the market economy. The thrust of this organization and the scandals revealing unethical business practices have driven the government and civil society to have a second look at ethical business conduct and its impact. Transparency International regularly conducts a survey on government corruption and institutional safeguards which has influenced the legal framework and reforms instituted on the Corporation Laws of Australia. Moreover, BT Investment (2004) recognized regulatory, litigation and reputation risks if a company is not insulated by strong ethical practices. According to their report, unfair business practice, violation of consumer privacy, neglect of consumer safety and welfare, and misleading or deceptive promotion and marketing are among the areas of concern relative to unethical business practices. The risk factors on long term shareowners demand that companies should seriously consider a review and the proper enforcement of its code of ethics in order to ensure or strengthen existing ethical practices which will eventually lead to protection of investors. Although there is no study revealing a strong objection to promoting ethical standards in business, the general problem lies in the attitude towards enforcing effective ethical guidelines. A study conducted by the Australian Catholic University (ACU) (2005) revealed that among the Top 200, only 16% responded indicating that companies are quite reluctant in revealing their positions relative to ethical issues. Of those who responded, most of them have their own ethical guidelines although it was concluded that they are not really practicing their code of ethics since issues of conflict of interests and environmental risk were not considered important in decision making. It would therefore appear that companies, by reason of compliance with regulatory statutes or to satisfy civil society, have guidelines that mandate the promotion of sound ethical values within their organization. For example, Bonn and Fisher (2005) pointed out that Enron had a code of ethics which was introduced to the company. However, history would show that it was not followed. The Australian Standard AS8000 (2003) (qtd. in Bonn and Fisher 6) discourages mere compliance with the statutory requirements but pushes management to practice good governance. However, the actual corporate culture and the question of whether or not a company really takes time to effectively implement their ethical guidelines is a totally different matter. Further, Tempone and Richardson (n.d.) reports that Australian accountants have a code of ethics which they generally follow. The ethical standards are generally based on universally accepted accounting principles and measures to ensure that the accountant adds credibility to a financial statement rather than erode the trust reposed on such reports. However, not all directors of corporations are accountants and most do not feel obligated to follow said code. Essentially, the benefits of high ethical standards being practiced in business or profession have been identified and recognized. Most companies realize that promoting integrity in all aspects of their internal and external relationships often lead to tangible and intangible benefits. However, the greed and lure of a “quick buck” often induces a person to forget about the long term benefits of practicing high standard of ethics. The benefits of a morally conscious business group far outweigh the “quick buck’ of an illegal transaction. Ethical business practice can give long term benefits to the company practicing it whereas and illegal practice is only good until it is discovered. The probability of discovery is relatively high considering the regulatory statutes in place. Hence, those who engage in unethical business practices have a short lived sense of satisfaction. On top of this, there is the unnecessary stress caused by the fear of discovery. III. In order to check unethical practices, various companies have used different mechanisms, strategies or techniques for defining and promoting ethical business conduct. Some promulgated their own code of ethics, others created an ethics committee and there were some which improved their self-regulation mechanisms or engaged the services of external auditors. The creation of an ethics committee is a mechanism employed directed at giving a check and balance in the implementation of the company’s ethical guidelines. However, reports have discussed that the common problem of such committee is conflict of interest. An example is when a report has been made on a slippage in the application of the company’s code of ethics. Upon investigation, it would appear that the act, although unethical by company standards, has given much benefit to the financial standing of the company. The dilemma of turning a blind eye on the ethical infraction is itself a challenge to the committee. It is for this reason that other companies do not adopt this mechanism. Moreover, it has been generally reported that companies have their respective vision and mission statements which are often grounded on ethical values. Nowadays, the general rule is that a company has a code of ethics for employees and management to adhere to. But as pointed above, their respective codes have not been followed. Basically it all boils down to what amounts to the “political will” of the company or the professional to follow a certain code of ethics. Without such will, the code of ethics is useless. It may be worth mentioning that sanctions, though existing, are seldom enforced due to the tolerant attitude of most companies. Again, corporate governance comes into play as most management prefers to tolerate ethical infractions for so long as the company has been financially benefited It is for this reason that it may be more effective if heavier sanctions be made against erring companies. Bonne and Fisher (2005) also suggest that business ethics be incorporated in strategic planning with the caveat that the pitfalls of strategic planners be taken into consideration. They further suggest an integrated approach in this method. Nowadays, it has been reported that Australian investment firms are more concerned on socially responsible investments (SRI) compared to their counterparts in the United States. Also, financial institutions in Europe are reported to take a company’s corporate social responsibility (CSR) when considering its value and performance which can also be considered in the Australian setting. The concern for good corporate governance is gaining ground so that companies like Caltex Australia Limited included it its 2006 Annual Report statements of its adherence to high ethical standards and operating within the context of social responsibility while treating all persons with “fairness, respect and dignity”. As shown above, there is no sure fire method of promoting business ethics. It may take sometime to achieve the situation wherein corporate governance is run by highly ethical directors. Nevertheless, what is important is that government and private businessmen are united in its realization that maintaining a higher degree of ethical standards in the conduct of one’s business either in a corporate set-up or professionally is the right path towards maintaining economic growth in a market economy. IV. With regards to the legislative framework, Australia has been quite serious in providing for safeguards in order that companies will not be tempted to espouse the quest for earnings and sacrifice the welfare of its clients. One of the primary law on consumer protection in Australia is the Trade Practices Act (TPA) of 1974. The law is being administered by the Australian Competition and Consumer Commission (ACCC). On the other hand, there are other agencies responsible for other aspects of consumer protection such as for financial services (Australian Securities and Investment Commission), food safety (Australia New Zealand Food Authority) and for therapeutic goods (Department of Health and Aged Care). The main purpose of the statute is to improve the well-being of Australians through the promotion of “competition and fair trading” within a “consumer protection framework”. The TPA was amended by the Trade Practices Amendment Act (No 1) 2001 wherein there was a clarification and expansion of the possible sanctions that may be imposed in case of violation of the TPA. The said amendment further enhanced the accessibility of the remedies provided by TPA. The usual breach is covered in Part IV of TPA which is referred to Restrictive Trade Practices. The provisions under Part IV are designed to preserve competition of the same market. The advantages in preserving “restricted” competition can be gleaned on the fact that in market economy, healthy and fair competition will not only benefit the players but also the general public as this will assure quality products and services at the best price. Further, Part IVA of the TPA is oft referred to as the unconscionable conduct provision wherein prohibitions are imposed on acts which take advantage of the clear weakness of another either in “commercial dealings or consumer transactions”. Additionally, Offences are provided in Part VC of the TPA. What is remarkable on this provisions is that the TPA explicitly indicates that the application of Part IV, IVA and VC extends to conduct made outside of Australia provided the person, natural or juridical, involved is conducting business in Australia or is a resident of Australia. Also as of 2001, a new Part VC was inserted wherein the provisions are harmonised with those of the Criminal Code by expounding on the physical and mental components of the violations and indication “offences of strict liability.” Another measure that promotes ethical business conduct is the Public Interest Disclosure Act of 1994 essentially gives protection to those employees in the public sector and others who give information of public concern. This is often referred as a whistleblower legislation. The law is designed to encourage those who have observed violations of the law in order that offenders may be prosecuted. This is a necessary legislation in order to shield cooperative individuals who might otherwise be subjected to retaliation or physical harm by the offenders. Additionally, the modern development in commercial transactions which evolved with the wide use of the internet and electronic commerce has led the Australian government to enact the Spam Act of 2003. WebStart Design (n. d.) states that an enterprise found to have violated it may be penalized by as much as $1.1 million. The Act imposes a penalty on persons who send unwanted email containing commercial offers or directs another to a site where commercial transactions is taking place. In the 2002 OECD Annual Report on Consumer Issues, it was reported that a corporation may be fined by as much as $1.1 million while an individual as high as $200,000 for violations of consumer protection legislation. Overall, the Australian government has been vigilant in its efforts to ensure economic growth in a market economy. It is quite laudable that it chose to promote legislative reforms and corporate governance by giving emphasis on business ethics. Also to remarkable is the strong presence and cooperation of civil society in implementing the reforms for indeed, the government cannot do anything without the wilful cooperation of its constituents. V. At present, Australia has already outranked all G7 countries except the United States in terms of GDP per capita. It is an example of the success of a market economy and a democratic government. It must be remembered that essentially, freedom is the basic principle that drives a market economy. From the perspective of the consumer, there is the freedom of choice from among products and services in the market. On the part of producers, there is freedom to initiate or increase volume of business or to share his benefits and risks. Lastly, from the point of view of the workers, there is freedom to choose a career. Again, I agree with Kerr (1998) when he stated that “good ethics is good business”. Put in perspective, market economies necessitate the development of ethical business conduct. The disquisition of Kerr (1998) which essentially concluded that ethical business conduct is brought about by market demand is interesting and logical. According to him, the basic principle of voluntary exchange is the underlying principle of the market. Necessarily, there must be a certain degree of trust between merchants or businessmen in order for continuity of relations to prosper. The level of trust will depend on reputation, customer relations, integrity in dealings and the commitment to maintain these. As the reputation of the company is spread by satisfied customers and the media, more clients and an increase in the volume of transactions will surely be realized. Also, the higher the degree of trust, the more transactions is being done. Consequently, all of these will relate to a healthy bottom-line. Hence, companies are driven by the market to promote ethical values as this will greatly improve the welfare of their finances. Evidently, it becomes essential that ethical business conduct is promoted in order that a market economy, such as that of Australia, will function properly and efficiently. Otherwise put, ethical business conduct will further strengthen the economic status of Australia. As indicated above, in an environment wherein the general norm of companies is effectively applying the ethical policies and guidelines embodied in their respective code of ethics, the economic benefits are multifarious. Not only will the benefits redound to its shareholders but also its workers will be amply rewarded since it is the normal course of things that as the economic status of a company improve so will the benefits of its workers. With this view, it becomes clear that companies who aim to be globally competitive and maintain a healthy financial status has no option but to adhere to higher ethical standards. It is the only way to secure their niche in the market. Basing on the premise that everyone is affected by the culture of business in a country, a cooperative effort must be undertaken by the government and the private sector in order to ensure that the economic progress of Australia will be sustained. Lastly, it is respectfully suggested that the power of media be made to good use. The experience with John Laws may not be an isolated case but there are journalists who are also known for their integrity. Tapping the right people to promote the advocacy of ethical conduct in business transactions will surely be another step towards the right direction. Works Cited “ACU study says business ethics recognised but not practised.” 21 October 2005. 21 October 2007. Bonn, Ingrid and Fisher, Josie. “Corporate Governance and Business Ethics: insights from the strategic planning experience.” November 2005. Blackwell Publishing Ltd. Volume 13, Number 6. 21 October 2007 . Kerr, Roger. “Business Ethics and the Market Economy.” 15 October 1998. Chartered Institute of Corporate Management. 21 October 2007 . “Position Paper – Business Ethics.” 19 October 2004. BT Investment Management No. 3 Pty Limited. 21 October 2007. Read More