Role of Ethics in the Business World - Essay Example

? Business Ethics Business Ethics Introduction Ethics is a branch of philosophy that deals with defending, systemizing, and recommending the desired concepts of right and wrong behavior (Singer, 2011). Business ethics refers to the basic standards and principles that determine appropriate and acceptable behavior in business organizations (Singer, 2011). In an organization, the acceptability of any form of conduct is determined by competitors, customers and various interest groups as well as individual personal values and ethical principles. Business ethics can also be defined as a form of professional or applied ethics that examines moral values, ethical principles and problems that arise in an organizational environment (Singer, 2011). This applies to all the aspects of an organization and deals with both the conduct of individuals and organizations. The field of ethics is made up of various theoretical principles that represent ideas upon which moral principles are based. These theories are systematic and coherent in terms of guiding people on what they ought to do and how they ought to live their lives. The ethical theories can also be used to judge the moral values of one’s actions and behavior as well as predicting how one ought to act in certain situations in order to act morally right (Singer, 2011). Some of the ethical theories include the utilitarian theory, Kantian theories, Virtue ethics theory, the ethics of care theories and human rights theories among others. In a business environment, these ethical theories are used to guide major decision makers in a business to make appropriate decisions that uphold the morality of the individuals within the organizations and the moral values of the organization as a whole. Business ethics therefore seeks to apply ethical theories in the business or professional realm in order to promote good conduct among professionals and encourage appropriate behavior in the business world. This essay aims at reflecting on business ethics, examining its role and impact in the business world. In achieving this objective, this paper will attempt to examine four main ethical theories and their role and impact in various ethical dilemmas and organizational problems. Organizations encounter a lot of ethical challenges that require the leadership of the organization to make relevant moral decisions in order to help the organization to move forward. Organizations are expected to uphold high ethical standards and ethical business properties centered on honesty, full disclosure, confidentiality and respect for other individuals and businesses. Business ethics ensures that organizations engage in ethical business practices with their employees, partners, suppliers and customers among other stakeholders. This essay will therefore seek to apply ethical principles to a business environment and to make appropriate judgments and recommendations. The four theories that will be used to assess the business ethical environment include the utilitarian theory, the ethics of care, Kantian ethics and the social contract theory. These theories have been relied upon in the field of ethics for a very long time in judging, explain and predicting and recommending ethical behavior. This essay will rely on the four theories to reflect on the ethical dilemma that faced a British bank, The Northern Rock bank, based in Newcastle, England, in 2008. The bank was rocked with a funding crisis that exposed the ethical problems of the bank and its managers in decision making processes affecting various stakeholders in the bank including employees and the shareholders (Shin, 2009). The ethical crisis of the bank led to the bank being nationalized, more people losing their jobs and most of the creditors of the bank incurring losses. This essay will examine the situation, assessing the various management decisions that were made in order to determine their ethical and moral values. The essay will attempt to answer the question as to whether the management decisions made during this unfortunate crisis were ethical. Overview During the financial crisis of 2008, many banks in the UK, including the Northern Rock bank, were rocked with high profile scandals that exposed the weaknesses in the corporate organizational structures in the banking sector (Shin, 2009). The Northern Rock bank was the fifth highest lender of mortgages in the UK before it faced a funding crisis that led to the bank being nationalized after several months of speculation and later on bought by Virgin Money. The crisis began with the bank making huge losses in the first six months of 2008 as a result of most of its mortgage borrowers struggling to pay back due to the global financial crisis. The bank borrowed a loan from the bank of England in order to finance its activities amid this financial crisis (Shin, 2009). When the losses continued to increase, the management decided to lay off about 1300 individuals from its staff with plans of reducing the number of the huge staff to about 4000. Legal battles then ensued between the bank and its shareholder regarding compensation amid the crisis. Ethical questions raised during this crisis at the bank revolved around the nature of the relationship between the bank and the bank of England. There were issues regarding the bailout plan that the Bank of England had with the Northern Rock bank (Shin, 2009). There were concerns that the bailout plan undermined competition in the banking industry. This was unethical because it creates an unfavorable environment for doing business. Another ethical challenge was the laying off of staff members. The crisis came about as a result of poor managerial planning and decision making. By laying off employees, it implies that the junior staff are actually paying for errors made by the top managers, which is unethical (Shin, 2009). There were also questions as to whether the decision to go for funding from the government was the right move for the bank with some people questioning the decision of the banks management. This scandal also had a huge impact on the entire banking industry in the UK as it tarnished the name of the banking sector I the UK across the world as one filled with unreliable business practices. A reflection of the situation using ethical theories Utilitarianism Utilitarianism holds that a morally right action is that which maximizes utility of the greatest among of people (Bredeson, 2011). Utility can be defined in utilitarianism terms as maximizing happiness while reducing suffering. A right action is therefore that which results in the greatest amount of happiness to the greatest amount of people. In other words, morally right actions in any situation are those that result in the greatest balance of its benefits as compared to the harmful results of the action (Bredeson, 2011). It is a consequentialism theory in the sense that it assesses the morality of actions by looking at the consequences generated by the actions themselves. The main proponents of this theory include J.S. Mill and Jeremy Bentham. Based on the principles of the utilitarian theory of ethics, the actions taken by the management of the Northern Rock bank can be said to be immoral. This is because the consequences of these management decisions resulted in more harm than good for the largest number of people concerned. During the crisis, several employees of the bank lost their jobs, the shareholders incurred huge losses on their investment, creditors of the bank also incurred losses while other banks in the UK were also negatively affected from the unfair competition of the bailout plan for the bank from the Bank of England. The confidence level of the public in the banking sector also went low as a result of the Ethical problems of the Northern Rock Bank. Given the scenario faced by the bank, the morally right actions would be to take in to consideration the needs of all stakeholders in the bank before making any decisions. The bank’s management should have developed ensured greater accountability to the shareholders, enacted strategies for corporate governance as well as adhering to set ethical standards for bankers. This would have prevented the crisis from happening and would ensure there was more transparency in the bank thus benefiting the greatest amount of people. Social Contract Theory According to the Social Contract theory, one’s ethical obligations should be in line with an agreement that they have with other individuals in the society (Singer, 2011). The agreements could either be verbal or written in form of legal provisions, or the various societal customs and norms. Morally right actions are those that are in sync with the agreements while those that violet the agreements are morally wrong actions. In the business and professional world, morally right actions are those that relate with the agreements and obligations that businesses and their managers have with the surrounding communities, employees and other stakeholders in the business (Singer, 2011). Origins of the social contract theory can be traced to philosophers like Jean- Jacques Rousseau, Thomas Hobbes and John Lock. The Northern Rock bank had several obligations in the society, to its stakeholders and to the banking industry as a whole. The company was expect to be philanthropic in the society through sponsorship deals and community engagement, the bank had an obligation to be transparent and accountable to its stakeholders and to promote good banking practices for the entire banking industry. In the wake of this crisis, the bank was unable to fulfill all these obligations. The various sponsorship deals and community engagement programs were affected by the losses incurred by the bank, there was no transparency and accountability on the part of the banks management while it also led to distrust among the public concerning the banking industry. The actions of the bank that led to this crisis and the decisions made during the crisis were therefore morally wrong according to the social contract theory. The bank ought to have acted morally by putting in place appropriate measure to ensure accountability and transparency as well as ensuring greater ethical standards and corporate governance. This would have prevented the ethical and financial crisis in the bank and ensured the bank continued to discharge its responsibilities in accordance to its agreements with the society, stakeholders and the entire banking industry. Kantianism Kantianism is a form of a deontological theory that judges moral value of actions based on the opinion that individuals have a duty to act accordingly regardless of the result consequences of their actions. The word deontology is derived from a Greek work, deon, which means duty. According to the theory, people have a duty to act morally right. Immanuel Kant is the main proponent of Kantianism as a deontological theory (Armstrong, 2002). The Kantian theory is based on a principle of judging the moral value of actions called the categorical imperative. The categorical imperative has to main proposition, that morally right actions must be applicable universally and that they must respect human beings. Respect for human being demands that we treat human beings as ends in themselves and not merely as means to our ends. Moral actions are therefore those that treat human beings as ends I themselves and those that can be applied universally (Armstrong, 2002). Based on Kant’s principle of categorical imperative, the actions of the Northern Rock bank can be considered to be morally wrong. The bank did not act according its duty of protecting and promoting the interests of its stakeholders. The bank’s actions do not respect human beings because the bank laid off its employees in order to enable it achieves its desired ends. This amounts to treating human beings as means to an end as opposed to regarding human beings as ends in themselves. The bank’s actions cannot also be applicable universally because they are not in the best interest of the duty of the bank to advance the interest of its stakeholders. The morally right action for the bank would have been to act according to its duty by putting in place appropriate measures to enable the management to make relevant decisions to move the company forward and promote its core duties. Ethics of care theory The ethics of care theory emanated from the feminist movements in the twentieth century (Machan, 2007). One of the founders of the theory is Carol Gilligan, who criticized both the deontological and consequentialism theories for not adequately guiding people to act right in most situations. The ethics of care theory is based on the responsiveness of individuals to various situations and seeks to address the question “how do we respond?” instead of “what is right?” The theory is based on three main principles. The first principle is that human beings depend on each other for their own success. The second principle states that the individuals who are most vulnerable to our actions need more consideration and care from us that any other people (Armstrong, 2002). Finally it is important for one to fully understand the contexts of specific situations in order to be able to advance the interests of those involved in the situation. According to this theory therefore, the Northern Rock Bank out to have acted morally by showing great care and advance the interests of the individuals who were more vulnerable to its decisions and actions. These are the investors in the bank and the employees. The bank did not do this because it failed to maximize the investors’ investment while it also failed to advance the interests of the employees who were laid off. The actions of the bank during this crisis can therefore be described as being morally wrong. Conclusion From this analysis and reflection on the actions of the bank and its management that led to the ethical and financial crisis in the bank as well as the decisions taken during the crisis, the bank can be said to have acted morally wrong based on the four theories. This implies that the bank could have done more in order to act right and either prevent the crisis from happening or even properly solving it once it occurred (Machan, 2007). References Armstrong, M. B. (2002). Ethical Issues in Accounting. In N. E. Bowie (Ed.), The Blackwell to business ethics (pp. 145–157). Oxford: Blackwell. Bredeson, D. (2011). "Utilitarianism vgs. Dentological Ethics". Applied Business Ethics: A Skills-Based Approach. Cengage Learning. Machan, T. R. (2007). The Morality of Business: A Profession for Human Wealthcare. Boston: Springer. Shin, H.S. (2009). "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis." Journal of Economic Perspectives, 23(1): 101-19. Singer, P. (2011). Practical Ethics, Third Edition. Cambridge: Cambridge University Press. Read More