Ethical Decision-Making and Ethical Consideration of Avivas Operations - Case Study Example

Ethics Business and Finance

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Introduction

There are numerous issues that surround the ethical considerations in financial and management practices, which require that fundamental principles be formulated to guide the financial management (Schwartz, 2015). Ethical decision making is a concept that is used in various disciplines such as medicine, business philosophy and sports (Johnson and Coyle, 2010; Greenfield West, 2012; d’Anjou, 2011; Soskolne, 1991). This paper aims critically the role and effectiveness of ethical codes in finance and business management. Aviva Plc. will be used as the case study, and the paper will review the role and effectiveness of ethical codes as applied in Aviva Plc (Aviva Plc., 2014).

Background of Aviva

Aviva is an insurance company in the UK that offers life, general and health insurance, and asset management. This is the aspect that has made the company refer itself as a customer composite. (Aviva, 2015). The company’s main activity is financial management, and it makes various decisions concerning finances it is therefore very important that the company establishes an ethical decision-making strategy approach. Therefore, a strategic approach to ethical decision-making and ethics consideration in Aviva Plc.’s operation will be assessed.

Ethical decision-making and ethical consideration of Aviva’s operations

Aviva’s financial and management practices are guided by a code of ethics that requires the employees and the management to uphold the highest possible business standards and conduct their business in accordance with the robust ethical, professional and legal standards. One aspect of application of ethics in the company is in decision making. Aviva adopts an ethical decision making model in its business operations to make all the necessary decisions in the company (De Cremer et al., 2010).

The development and implementation of the ethical decision model of decision making involves three phases upon which the best decision is based. Before the three phase, the code of ethics requires that the company frame the ethical issue being faced. For instance, Aviva code ethics states that a person who observes any legitimate concerns or malpractice of unethical conduct such as bribery, insider trading, market abuse, accounting misstatement or fraud should report regardless of the confidentiality of the information (Adams et al., 2001). Dinehart et al., (2001) argues that, as soon as a case is established, the decision makers gather all the available information and process all the alternative courses of action. The criteria for the selection of a given decision is based on the trade-off between cost and benefits, the outcome of the decision and the feasibility of implementing the decision (Seiler, 2009). The decision maker employs practical judgments at this point as opposed to deductive logic mostly employed in theoretical reasoning (Geva, 2000).

The first phase of the ethical decision making model adopted by Aviva involves making judgment on the matter to be decided upon, or where action needs to be taken. James (2000) says that the evaluation of the judgment involves application of the standards of morality as well as an ethical code of operating an international business. The standard of international business makes a normative analysis of the chosen course of action based on moral evaluation (Thoma, 2006). Various theories that proposed different methods of undertaking the moral evaluation include Geva (2000), who proposes the standards as justice, utilitarianism, and deontology. Cavanagh, Moberg, and Velasquez (1998) suggest the standards of justice and caring, utilitarianism, and rights and duties. The analysis of the application of the moral evaluation of the course of action in Aviva’s decision making model indicates the application of Cavanagh, Moberg, and Velasquez (1998) standards. Moreover, Aviva is more receptive to the moral codes of the local people to avoid making decisions that conflict with the local ethics and standards of morality (Haidt, 2001).

The second phase of the model is the virtue-based solution where focus shifts from the action to the actor upon which the action is to be taken. This phase involves an attempt to give the actor an opportunity to resolve the conflict that arises from the action and the difference in ethical perspective of the actor and the company (De Cremer, 2010). During the moral evaluation, the action of the ethical problem is approached from the different perspective by employing virtue ethics (Forester-Miller and Rubenstein, 1992). This gives the actor an opportunity to use his or her imagination and creativity to redefine the ethical issue for purposes of eliminating the problem under contention. Some of the creative strategies proposed by Geva (2000) include institutionalizing ethics, the specification strategy, the fresh solution and the collective action strategy. If the action conforms to the social contract norms, then it is accepted and implemented, otherwise it is rejected.

The third decision making phase is the contract-based decision that involves the code of ethics that govern different social contracts. For instance, ethical issues arising from management and financial aspects of the company could involve financial advisers, accountants, managers lawyers, all of which are also governed by the ethical codes of their bodies. For instance, when resolving a fraud case, the company evaluates the extent to which an individual violates the company’s code of ethics as well as the ethical principles accepted by lawyers or accountants (Donaldson and Dunfee, 1999). An individual can thus rely on the contract-based ethical practices to have an action implemented.

The concept of Morality

The concept of morality should also be considered in ethical decision making. A decision can be ethically correct but wrong morally, therefore the company should try to distinguish and balance the two when making any decision. Morals are many defined by society, or organization. Stainer (2004) argues that the morals can be d from either a religious perspective or from any other belief of the decision maker. For instance, even though many people consider it morally wrong to deal in arms, Aviva is investing in arms dealing and making huge profits out of the investment. In 2012 the company made £2.3billion by selling its arms to the government of the United States to enhance its solvency. Aviva should find new ways of investing its money in a morally upright manner and incorporate all these scenarios in its strategic decision making approach. The belief of the customers should be considered when managing their finances or when paying the insurance claims. ome cultures give a token when the want something the Chinese this might be viewed as a bribe but it is a form of values of the Chinese. Therefore the company should make sure that the ethical decision making approach has considered the concept of cultures should be customized to accommodate the culture and moral values of the primary and secondary stakeholders (Jensen, 2002). The decision maker should always ensure that the decision made has taken into consideration aspects such as the religious belief, moral values, and the cultural practices that may affect customer or other secondary stakeholder.

This paper presents a critical analysis of the role and effectiveness of ethical codes in finance and business management using Aviva Plc. as the case study. Some of the ethical issues that Aviva has put in place in financial and management are commendable especially the issue of making sure that all of its employees are transparent in their transactions to avoid any fraudulent transactions (Aviva Plc., 2014). The company different ethical dilemmas are also a key challenge but practices such consulting widely has enabled Aviva to maneuver through such dilemmas smoothly (Stadler, 1986).The ethical framework that aids the management in making rational decision has worked well for the company, however the company should change some aspects in the framework such as making it more transparent and credible and considering cultural and moral values of its customers (Aviva Plc., 2014).

Effectiveness of Aviva’s Ethical Decision-Making Model

The ethical decision-making model adopted by Aviva is effective in its business model and can be explored as a source of its competitive advantage (Dinehart et al., 2001). The link between ethical business practices and behaviour of the employees and the managers in business has been established (Tenbrunsel and Smith-Crowe, 2008). This value can be demonstrated using the rational decision-making models which are based on the premise that trust and honesty reduce the transaction costs in a company (Messick and Tenbrunsel, 1996). Given that Aviva is an insurance company that is characterized by a great level of trust issues, there is the need to operate with many protective devices to ensure customer satisfaction. Consequently, this raises the transaction costs of operation. However, with the application of ethical decision making models, the company requires fewer such devices since the company produces trustworthy agents that can be trusted by the company. In case of an unethical claim, the company also reduces the transaction costs and the time taken in the negotiation of the truthfulness of the initial claims (Aviva, 2015).

The rationale for the exploitation of this strategy as a source of competitive advantage can be explored using the strategic resources model. Treviño et al. (2006) posits that this model focuses on attainment of sustainable competitive advantage by differentiating the operations and the behaviour of Aviva from other insurance companies in any other part of the world. The model suggests that both tangible and intangible assets are essential for the achievement of sustainable competitive advantage including the people, knowledge and technology, in-house procedures and the brand names (Litson, 2001). In the wake of the rapidly dynamic global business environment, imitation is rampant, which shortens the value of the competitive edge companies create (Weaver, 2001). However, the competitive advantage created by the use of an ethical decision making model cannot be replicated since it shapes the behaviour of the people and guides their activities as they undertake their business activities in way that differentiates them from the rest(De Cremer, 2009). For instance, given the commitment of Aviva to ethical practices in decision making, an individual who has worked for the company, transacted with the company or for the company would expect that such features are unique and are found in all Aviva companies regardless of the geographical location of the branches (Arthur, 2000). As such, potential customers will have a favourable perception when dealing with any insurance agent associated with Aviva than they would with an agent from a different company (Walstrom, 2006).

Recommendations And Justification for Change on Aviva’s Ethical Decision-Making Model

Despite the effectiveness of Aviva’s decision making model in making ethical decisions that shape financial and management behavior in the company, there are some loopholes that need changes. The company’s strategic approach to ethical decision making is more customer centered, but does not give the customers a true perception of the company’s operations. Aviva should change the model or incorporate a more comprehensive transparency and accountability approach in its ethical decision making. This implies that the company should use a more realistic approach in the manner it assess its risk and liabilities this will give a true and fair overview of the finances are managed in the company. Financial management means that each and every aspect in the company asset management and other insurance products are disclosed in a transparent manner (McDonald, 2006). When Aviva achieves this, it will be able to make a sound and ethical decision regarding financial management of the company. The company should also incorporate a mechanism that links the customer and the respective regulators such as the capital market regulators in terms of asset management. This does not only assure the customers and the key stakeholders that the company is following all the guidelines, but reveals how much the company is in terms of transparency and accountability strictly adhering to the regulators guidelines. Transparency and accountability is a very important aspect in matters pertaining financial management, therefore this should be the center of Aviva’s strategic approach to ethical decision making. eputation of Aviva will also be enhanced if it embraces transparency and accountability as the core aspect in its approach to ethical decision making.

The other aspect that should be incorporated in the ethical decision making approach is ensure that it has effective and efficient relationship building between the key stakeholders it has some form of relationship with some stakeholders especially the customers, it should be made to be all-inclusive. This implies that the relationship of all stakeholders such as the board of directors, managers, customers, industry regulator, and all other external stakeholder should be enhanced to ensure a robust approach in terms of adhering to ‘sound’ ethical decision making process (Ferrell, Fraedrich and Ferrell, 2010). Cooperation of these parties is very important since it helps in identifying the parties that have contributed to any unethical issue in the company (Verschoor, 1998). If the is no cooperation it will be very difficult to pinpoint the party that has contributed to unethical decision.

This paper has critically investigated the ethical decision making process adopted by Aviva for purposes of ensuring that the company’s financial and management practices are in line with the ethical consideration. The ethical issues are resolved through the guidance of the code of ethics, with an essential tool in ensuring that the employees and the management to uphold the highest possible business standards and conduct their business in accordance with the robust ethical, professional and legal standards. By applying the code of ethics in the decision making process, the company ensures fair and just decisions are made, thereby avoiding unnecessary suits.