How Ethics Influences an Organisations Decision Making Process - Essay Example

How Ethics Influences an Organisation’s Decision Making Process Name Name of Institution How Ethics Influences an Organisation’s Decision Making Process Ethics is an area of study that concerns itself with whether actions are right or wrong and the motives behind such actions. It forms a vital component of the business world as organizations have to consistently weigh between multiple alternatives. This can be seen in the hospitality industry in policies such as overbooking, where managers have to decide whether turning away customers who had reservations is an ethical practice (Hwang & Wen 2009, p. 660). Firms can adopt different decision-making models, but they have to consider whether their final decisions are ethical. This essay will evaluate how ethics influences decision-making processes in organizations. The paper will begin with a discussion of corporate governance and ethical values in Australia, before moving to evaluate how ethics influences four areas in the hospitality industry. The areas to be considered will be the impact of ethics on business decisions relating to location, suppliers, human resource management, and industrial relations. Corporate governance defines the framework of rules, relationships, systems and processes by which businesses exercise and control authority (ASX Corporate Governance Council 2010, p. 3). Based on this definition, it is clear that corporate governance plays a key role in the decision-making processes in organizations. Corporate governance determines a firm’s overall objectives and how performance will be measured. This in turn affects the decision taken by managers at all levels and can lead to ethical and unethical practices. For example, unreasonable targets can force managers to offer bribes in different locations or introduce harmful human resource policies. This will allow the managers to reach their targets, but workers will be treated unfairly, and resources will be wasted on bribes. Therefore, there is a clear link between corporate governance and ethical and unethical decision making in organisations. When it comes to Australia, the country has ethical values that are comparable to other first-world nations. This can be seen through the corporate governance principles that are created by the Australian Stock Exchange (ASX). They are designed to be a reference point for businesses and have a direct influence on decision making. These principles were created in 2002 as a result of corporate collapses that were caused by ethical failures (Dakhelalla 2014, p. 2). This change in Australian ethical values mirrored changes in the US and UK that came as a result of the collapse of companies such as Enron and WorldCom in the US and Barings Bank and Polly Peck in the UK (Dakhelalla 2014, p. 1). The response in the case of the US was the enactment of Sarbanes-Oxley Act in 2003. This shows that changes in Australia’s ethical values have corresponded with changes in the same values in the UK and the US. Therefore, it can be argued that globalisation has created a situation where Australian ethical values are similar to those of other first-world countries. Having discussed corporate governance and ethical values in Australia, it is important to look at how organizations in the country make decisions regarding location, suppliers, human resource management, and industrial relations. First, the location of a business plays a big role in determining whether it will be successful. The hospitality industry places a higher priority on location as people want to spend their time in peaceful and convenient locations. The need to select the best location can lead to numerous ethical issues. For instance, a hotel can want a location that is near a historical site. However, it might be difficult to get unused land in such an area. The hotel can decide to purchase an occupied building in the area and increase the rent on a gradual basis to drive out tenants. The building can then be demolished and a new hotel developed. In this case, the manager will have to decide whether to develop a site that is further away from the historic location or evict nearby tenants to maximize profits for the hotel chain. It is an accepted fact that different locations have different sets of rules. One town might have tough health and safety rules while the town next to it has relaxed rules. Similarly, rules that cover the consumption of liquor might be different across the territories, and a business might choose a location that has the weakest rules. This might guarantee higher sales and profits, but it will harm society. For example, the laws might allow longer selling hours or reduce the responsibilities of those selling the alcohol. These weaknesses in legislation might also allow underage drinking which is harmful to society. According to Murphy, Laczniak & Prothero (2013, p. 9), ethics and laws are connected, but they are not the same. This is because ethics places a higher standard of professional responsibility than law (Murphy, Laczniak & Prothero 2013, p. 14). Therefore, a hotel that finds itself in the given situations has the option of choosing between lawful alternatives and ethical alternatives. When it comes to location, the situations have shown that legislation can allow a manager to be unethical. In many cases, the unethical alternatives lead to higher profits for the organization. This benefits the management in a direct way as they may get performance-based compensation that increases as profits rise. This creates a situation where managers ignore ethics and select the options that will lead to more profit. If I find myself in a situation where the legislation allows me to be unethical, I would not go down that path for the sake of profits. The reasonable option will be to utilize rational thinking to select the alternative that will be ethical. As stated, globalization has had a direct impact on the ethical values in Australia. Similarly, globalization has changed supply chains in a considerable manner whereby organizations have the option of sourcing materials from around the globe. For example, the food section of a reputable hotel has to offer meals from around the world. This means that hotels might have to deal with multiple suppliers who are based in different countries. This presents a big challenge to businesses when it comes to verifying that imports are produced in an ethical manner. A relevant example would be the fishing industry. According to Palmstrom (2014), Thailand is the world’s third leading exporter of seafood. However, the fishing industry in the country suffers from widespread slavery. Robertson (2011, p. 7) notes that some fishermen can work for years without wages as they pay off the money that the boat owners used to recruit them. The situation is worsened by laws such as Thailand’s Labour Protection Act which does not cover people working in the fishing industry (Palmstrom 2014). The situation in the Thai fishing industry shows the difficulty that businesses face when trying to verify suppliers. Some of Thailand’s fish that comes from slave labour might be considerably cheaper that the fish from other leading fishing nations like the USA and Norway (Palmstrom 2014). A business in the hospitality industry has the option of buying the cheaper fish with the aim of making huge profits. This is despite the presence of reports like the one produced by Robertson that describes the unethical practices of some suppliers. Managers in organizations have to take the step of evaluating all potential suppliers to ensure that they do not buy goods that are produced through unethical practices. This should happen even in cases where the unethical suppliers offer cheaper prices. Additionally, business should not take gifts from such suppliers as the gifts are used to hide unethical practices. The Body Shop is an example of a successful ethical business that checks on suppliers and then gives fair prices thereby contributing to the success of poor communities (Barrientos 2012, p. 187). If all businesses utilized ethical sourcing, suppliers would be forced to adopt ethical policies in order to get markets for their products. The businesses themselves will also gain from their ethical responsibility through enhanced reputations, sustainable profitability, and customer loyalty (O’Donohue & Wickham 2010, p. 3). The human capital available to an organization can generate sustained competitive advantages if managed in the correct way (O’Donohue & Wickham 2010, p. 5). The emergence and acceptance of strategic human resource management over the last twenty-five years shows how important it is to manage people in the right way (Salaman, Storey & Billsberry 2005, p. 1). Despite this widespread acceptance, there are businesses that use wrong human resource policies with one of the results being low job satisfaction which leads to high employee turnover (Mudor & Tooksoon 2011, p. 47). Examples of the wrong HR policies include discrimination against certain individuals during recruitment and promotion and wrongful use of confidential employee information. Studies on the cost of employee turnover in Australia’s hospitality industry have shown that high levels of turnover have a considerable impact on operating costs and profitability. Additionally, the turnover affects the level of service, value, and consumer experience (Davidson, Timo & Wang 2010, p. 19). In addition to the obvious benefits of strategic human resource management, businesses are also encouraged to have ethical practices by labour laws. These laws affect all aspects of the relationship between a worker and an employer. However, there might be weaknesses in these laws that lead to a situation where businesses are not forced to follow ethical human resource policies. For example, the country sets minimum wages for all people working in the economy. Businesses in the hospitality industry can decide to pay waiters and cleaners very low wages and hide these expenses from their financial reports. They can also decide to use immigrants who are desperate for work. This leads to higher profits for the business thereby confirming that there are many ways to take unethical short cuts and get away. As a business manager, I would not ignore such practices due to the fact that they are unethical. The business will also suffer since the low-paid workers will not offer the best quality. It is better to offer at least the minimum wage as this figure gives workers the chance to have a decent life. In addition to location, suppliers, and human resource, businesses also have to make decisions that are related to industrial relations. Kaufman (2004, p. 562) notes that there are many definitions of industrial relations. A common view is that it defines collective bargaining, trade unions, and labour-management relations. A broader definition states that industrial relations defines it as the study of employment relations (Kaufman 2004, p. 562). The Fair Work Act 2009 is the legislation that covers workplace relations in the country. It addresses issues such as the freedom of employees and employers to be represented by third parties, minimum terms and conditions of employment, collective bargaining, termination, and flexibility arrangements (“Australia’s National Workplace” 2015). Organisations in the hospitality industry adhere to these rules, but some of them find ways to bend the rules. For instance, penalty rates have been part of Australian culture, and they are used to compensate workers who have to work during weekends and holidays. It is evident that it is ethical to offer higher pay to a worker who will spend a holiday working away from family members. However, the hospitality industry is lobbying against these rates stating that they will cripple their businesses (White 2015). This is a clear case of businesses prioritising profits over the well-being of employees who get to spend holidays at work. Despite the business culture of bending rules, I would not pay to change rules and hurt employees for the sake of profit. This essay began with a discussion on corporate governance as it is an area that has a direct relation to ethics and decision making. The paper also found that Australia has ethical values that are similar to those of advanced countries like the UK and the US. The main section of the essay discussed how ethics influences decision-making processes. The areas covered were ethical issues related to location, suppliers, human resource management, and industrial areas. The finding was that businesses have to decide between alternatives that will generate the highest profits and those that will be ethical. An ethical manager in the hospitality should take the ethical approach to business where profit will be maximized without negative social impacts. References ASX Corporate Governance Council 2010, Corporate Governance Principles and Recommendations with 2010 Amendments, Australian Securities Exchange, Sydney. Australia’s National Workplace Relations System 2015, Department of Education, Viewed 2 June 2015 . Barrientos, S (Ed.) 2012, Ethical sourcing in the global food system, Taylor & Francis, New York. Dakhelalla, RF 2014, The impact of corporate governance principles on board characteristics: an Australian study, University of Wollongong, viewed 30 May 2015 . Davidson, MC Timo, N, & Wang, Y 2010, How much does labour turnover cost? A case study of Australian four-and five-star hotels, International Journal of Contemporary Hospitality Management, vol. 22, no. 4, pp. 451-466. Hwang, J & Wen, L 2009, The effect of perceived fairness toward hotel overbooking and compensation practices on customer loyalty, International Journal of Contemporary Hospitality Management, vol. 21, no. 6, pp. 659-675. Kaufman, BE 2004, The global evolution of industrial relations: Events, ideas and the IIRA, International Labour Organization, Geneva. Mudor, H and Tooksoon, P 2011, Conceptual framework on the relationship between human resource management practices, job satisfaction, and turnover, Journal of Economics and Behavioral Studies, vol. 2, no. 2, pp. 41-49. Murphy, PE, Laczniak, GR & Prothero, A 2013, Ethics in marketing: International cases and perspectives, Routledge. O'Donohue, W & Wickham, MD 2010, The role of ethical intelligence and organizational infrastructure in organizational decision-making, British Academy of Management, vol. 1, pp. 1-17. Palmstrom, B 2014, Forced to fish: Slavery on Thailand’s trawlers, BBC News, viewed 30 May 2015 . Robertson, P 2011, Trafficking of Fishermen in Thailand, International Organization for Migration, Bangkok. Salaman, G Storey, J & Billsberry, J (Eds.) 2005, Strategic human resource management: theory and practice, Sage, London. White, A 2015, Penalty rates are part of the Australian values of giving workers a fair go, Canberra Times, viewed 2 June 2015 Read More