BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
Introduction
There
has been some high profile business scandals in recent years. In the wake of
scandals at Tyco, Worldcom and Enron, the US government introduced the Sarbanes-Oxley Act in 2002. The name of the act derives from the surnames
of the two men who were responsible for drafting the act, Paul Sarbanes and Michael Oxley. The hope was to restore public
confidence in American business, which had been badly shaken by scandals.
This
act now requires that firms in the private sector provide procedures for
anonymous reporting of accusations of fraud. The new requirements also require
companies to publish their code of ethics if it has one. It also protects
investors from unethical accounting practices. It requires CEOs to personally
certify validity of company financial statements.
Before
its collapse in 2001, Enron was the 7th largest company in the USA
and it also had a code of ethics. The consequences of business failures affect
not only the employees, but also the investors who hold stock of the company,
and financial institutions that have lent money to the firm. Shareholders lost
billions of dollars, years of savings that they hoped to use during retirement.
Concern for ethical and societal issues
Every
business has to care about Business
Ethics, which refers to the standards of conduct and moral values governing
actions and decisions in the work environment. Businesses must also take into
account a wide range of social issues, including how a decision will affect the
environment, employees and customers. These issues are at the heart of social responsibility, the philosophies,
policies, procedures, and actions directed toward the enhancement of society’s
welfare as a primary objective. Businesses must find a balance between doing
what is right and doing what is profitable.
Businesses
are responsible to four important groups: customers,
employees, investors and the society
in general. Sometimes conflicts can arise in trying to serve the different
needs of these separate constituencies. In your own business career, you will
encounter many situations where you will weigh right and wrong choices before
making a decision.
THE NEW ETHICAL ENVIRONMENT
In
recent years business ethics has been in the spotlight as never before. High
profile investigations, lawsuits, arrests, and even convictions, as well as
business failures due to fraud and corruption have created a string of headline
news. Recent polls in USA
have shown that only 17% of people rate top executives highly. However, the
majority of firms maintain high ethical standards. Some firms are now
appointing ethics officers to oversee that standards are being met at their
firms. See Johnson & Johnson’s Credo (page 42).
A survey showed that more than 75% of companies are
setting up ethics standards and codes, up from less than half in 1991. New government guidelines on codes of ethics
include the following for ethics compliance programs:
1. Standards and procedures,
such as codes of ethics, capable of detecting and preventing misconduct
2. High-level personnel
responsible for ethics compliance programs
3. No substantial discretionary
authority given to individuals with a propensity for misconduct
4. Effective communication of
ethical code requirements through ethics training programs
5. Establishment of systems to
monitor, audit, and report misconduct
6. Consistent enforcement of
ethical codes and punishment
7. Continuous improvement of
the ethics compliance program
Individuals
make a difference:
In
today’s business environment, individuals can make a difference in ethical
expectations and behavior. As executives, managers, and employees demonstrate
their personal ethical principles – or lack of ethical principles – the
expectations and actions of those who work for and with them can change. Each
year, US organizations lose more than $400 billion to fraud, or an average of
$9 per day per employee.
The
main types of unethical behavior observed by employees include:
· lying
· withholding information
· abusing or intimidating
employees
· inaccurately reporting the
amount of time worked
· discrimination
New
technology seems to have expanded the range and impact of unethical behavior.
For example, anyone with computer access to data has the potential to steal or
manipulate the data or shut down the system, even from a remote location.
Often, the people who hack into computer systems are employees, resulting in
the theft of intellectual property like patented and copyrighted information.
Sometimes, one company attacks another, by methods such as spreading false
information about a competitor over the internet.
Development of individual ethical standards:
Individuals
typically develop ethical standards in three stages:
·
Pre-conventional stage: individuals think only
about themselves, own needs. Rules are followed only out of fear of punishment
or hope of reward
·
Conventional stage: Individuals consider the
interests and expectations of others in making decisions. Rules are followed
because it is a part of belonging to the group.
·
Post-conventional stage: aware of duty to society.
Individual follows personal principles for resolving ethical dilemmas. They
also consider personal, group and societal interests.
Various
factors impact the development of individual ethics including family,
education, culture and religion. Individuals have different styles of deciding
ethical dilemmas.
On the job ethical dilemmas:
Workers
typically face four types of ethical dilemmas at work; conflict of interest,
honesty and integrity, Loyalty vs. Truth and whistle-blowing.
1. Conflict of interest
Exists
when a businessperson is faced with a situation in which an action benefiting
one person or group has ability to harm another person or group. Lawyers and
business consultants would face a conflict of interest if they represented two
competing companies; a strategy that would most benefit one of the client companies
might harm the other client. A real estate agent would face an ethical dilemma
if he represents both the buyer and a seller in a transaction, because the
buyer would benefit from a low price while the seller would benefit from a high
price.
Ethical
ways to handle conflicts of interest include (1) avoiding them and (2)
disclosing them
2. Honesty and Integrity
Employers
highly value honesty and integrity. An employee who is honest can be counted on
to tell the truth. An employee with integrity goes beyond truthfulness. Having
integrity means adhering to deeply felt ethical principles in business
situations. It includes doing what you say you will do and accepting
responsibility for mistakes. Behaving with honesty and integrity inspires
trust, and as a result, it can help build long-term relationships with
customers, employers, suppliers, and the public.
3. Loyalty Vs Truth
Businesspeople
expect their employees to be loyal and to act in the best interests of the
company. But when the truth about a company is not favorable, an ethical
conflict can arise. Individuals may have to decide between loyalty to the
company and truthfulness in business relationships. Some employees place
loyalty above truth, while others place truth above loyalty, and face the
question of “do you stay loyal to your boss or do you tell the truth”?
A
story took place at Los Alamos National
Laboratory. Two men who worked there reported loss of $2.7 million worth of
missing computers, and other property, as well as abuse of lab-issued credit
cards. An investigation revealed that the lab had subjected the two men to
intimidation and pressure to keep quiet. “I believe in being dedicated to your
boss” said one of the men, “but there is a line you don’t cross, and they
crossed that line and began to perceive wrong as right”.
4. Whistle-blowing
When
an individual does encounter unethical or illegal actions at work, the person
must decide what action to take. Sometimes it is possible to resolve the
problem by working through channels within the organization. If that fails, the
person should weigh the potential damages to the greater public good. If the
damage is significant, a person may decide that the only solution is to blow
the whistle.
Whistleblowing
is an employee’s disclosure to authority such as the government or to the media
of illegal, immoral or unethical practices of the organisation. Two men at Los
Alamos National Laboratory, who reported theft of property, were
whistleblowers.
Whistleblowers
need to weigh a number of issues in deciding whether to come forward. According
to the National Whistleblower Center,
may whistleblowers said that they had been fired for reporting illegal conduct,
and most of the other respondents said they had been harassed or unfairly disciplined
at work.
The
Sarbanes-Oxley act now requires that private firms provide procedures for
anonymous reporting of accusations of fraud. Under the act, anyone who
retaliates against a person who blows the whistle can be prosecuted.
How organizations shape ethical conduct
Development
of a corporate culture to support business ethics happens on four levels:
ethical awareness, ethical reasoning, ethical action, and ethical leadership.
If any of these four factors is missing, the ethical climate in an organization
will weaken.
Ethical awareness
Workers
need guidance about how a firm expects them to respond to ethical dilemmas. One
way for firms to provide this support is to develop a code of conduct, which is
a formal statement that defines how the organization expects and requires
employees to resolve ethical questions. Some companies use their codes of
conduct to identify key corporate values and provide frameworks that guide
employees as they resolve moral and ethical dilemmas.
Nortel
Networks, a Canadian telecommunications company, has a code of conduct that
defines seven core values that is required as Nortel strives to become a
company of integrity. The code also defines standards for conduct among
employees and between employees and the company’s shareholders, customers,
suppliers and communities.
Ethical reasoning
Employees
need help in resolving ethical questions. Many firms have instituted ethics
training programs. Lockheed Martin uses a game called the ethics challenge and
everyone, from hourly workers to the chairman, is required to play the ethics
challenge once per year. However, some people doubt that ethics can be taught.
Ethical action
Goals
set for the business as a whole and for individual departments and employees
can affect ethical behaviour. Setting unrealistic goals can cause increase in
lying and cheating as workers try to protect themselves. Some companies
encourage ethical action by providing support for employees faced with
dilemmas, such as a hotline that can be used anonymously for advice or to
report an instance of unethical behaviour.
Ethical leadership
One
recent survey revealed that employees felt less pressure to behave unethically
when managers and leaders in their firms behaved in an ethical manner. One
important way for business leaders to model ethical behaviour is to admit when
they are wrong and correct their organisation’s mistakes and problems.
ACTING RESPONSIBLY TO SATISFY SOCIETY
Social Responsibility
Social
responsibility is management’s acceptance of the obligation to consider profit,
consumer satisfaction, and societal well-being of equal value in evaluating the
firm’s performance. It is the recognition that business managers must concern
themselves with qualitative dimensions of consumer, employee, and societal
benefits as well as the traditional quantitative measures of sales and profits.
Social Audit
Some
firms measure social performance by conducting social audits, formal procedures
that identify and evaluate all company activities that relate to social issues
such as conservation, employment practices, environmental protection, and
philanthropy. A social audit informs management about how well the company is
doing in these areas. Based on this information, management may take steps to
revise current programs or develop new ones.
Boycott
Outside
groups may conduct their own evaluations of business ethics standards. Examples
of these groups include ‘the council on economic priorities’ which publishes an
investment guide called ‘The better world investment Guide’ which mentions
companies social activities. Some consumer groups organize boycotts of
companies they find to be socially irresponsible and refuse to buy their
products For example, many consumers boycotted companies that invest in South Africa
because of apartheid policy.
Public Health
Some
businesses make products which can harm customers such as tobacco, alcohol and
handguns. Smoking can lead to heart disease or cancer while alcohol can damage
the liver. Traffic accidents are caused by drink driving and it is outlawed in
many countries. In the west, advanced regulations are now allowing some smokers
with illnesses to bring lawsuits against cigarette makers. Some cigarette
makers have tried to diversify their business by moving into areas like food
manufacture, like Altria’s purchase of Kraft Foods. A visit to the website of
phillip morris, the maker of brands like Marlboro, shows plenty of information
on the risks of smoking, such as lung cancer. There are also health risks from
junk foods like fast foods and obesity caused by soft drinks like coca cola –
which has been banned by some schools. In some counties, advertising by
cigarette makers and alcohol brands are not allowed.
Pollution (Protecting
environment)
Finding
ways to minimize pollution and other environmental damage caused by their
products has become an important economic, legal and social issue for firms.
Companies burn fossil fuel like coal and oil, which releases sulphur into the
air, which combines with water vapor in the air to form sulfuric acid. This
acid rain can kill fish and trees and pollute ground water. Ways include
finding alternatives to petrol cars, such as hybrids which use a combination of
gas and electricity. Also there are hydrogen powered cars. Hybrid cars are a
bit more expensive, but promise far higher fuel efficiency in times of volatile
oil prices than conventional cars.
Recycling
One of the solutions for pollutants is recycling –
reprocessing used materials for reuse. Recycling can sometimes provide much of
the raw materials that manufacturers need – thereby conserving the world’s
natural resources and reducing the need for landfills. Recycling firms in Asia like NTT DoCoMo, a Japanese firm, are buying used
cell phones in bulk from wireless carriers, crushing and melting them, and
extracting platinum, silver and even gold. Many environmental groups have
realized that working in partnership with companies can help them achieve their
environmental goals.
Green Marketing
A
marketing strategy that promotes environmentally safe products and production
methods. Federal Trade Commission(FTC) has issued guidelines for companies to
follow in making environmental claims.
Claim
|
Must
|
Biodegradable
|
Break down and return to nature in a reasonably
short period of time
|
Recyclable
|
Be entirely reusable as new materials in the
manufacture or assembly of a new product or package
|
Ozone Safe
|
Must not contain any ozone-depleting ingredient
|
Genetic engineering
Sometimes
new technologies raise controversy. Genetic engineering involves altering crops
or other living things by inserting genes that provide them with a desirable
characteristic, such as resistance to pesticides. One of the most controversial
of these genetically modified (GM) crops has been corn engineered to make Bacilus
thuringiensis (Bt), a type of bacteria that acts as a natural insecticide.
The potential value of such a crop is that it reduces the need for chemical
pesticides. Some consumers, especially in Europe,
have resisted buying GM foods, and the European Union has maintained a
moratorium on approving new GM crops. Farmers are uncertain about adopting the
technology because consumer resistance could make the crops worthless in the
marketplace.
Quality of the workforce
In the past, a nation’s wealth has often been based on its
money, production equipment, and natural resources. A country’s true wealth
lies, however, in its people. An educated, skilled workforce provides the
intellectual know-how required to develop new technology, improve productivity,
and compete in the global marketplace. In developed economies, most new jobs
require college-educated workers. With demand greatest for workers with
advanced skills, the difference between the highest-paid and lowest-paid
workers has been increasing. Twenty years ago, a college graduate on average
earned 38 percent more than someone with only a high school diploma, but today
the typical college graduate earns 71 percent more.
Corporate Philanthropy
As
pointed out earlier, not-for-profit organizations play an important role in
society by serving the public good. Philanthropy refers to donations or
financial contributions firms make to not-for-profit organizations involved in
charitable or social issues. Firms donate billions of dollars each year to
not-for-profit organizations. Companies give back to the communities from which
it makes profits. This includes the cash contributions, donating equipment and
supporting volunteer activities of company employees. Microsoft founder Bill
Gates has established the Bill and Melinda Gates foundation with an endowment.
Another form of corporate philanthropy is volunteerism. Thousands of businesses
encourage their employees to contribute their efforts to projects as diverse as
Habitat for Humanity, the United way, and the Red Cross blood drives.
Responsibilities to Customers
Businesspeople share a social and ethical
responsibility to treat their customers fairly and act in a manner that is not
harmful to them. Consumer advocate Ralph Nader first pioneered this idea in the
late 1960s. Since then, Consumerism, the public demand that a business consider the wants and
needs of its customers in making decisions, has gained widespread acceptance.
Consumerism is based on the belief that consumers have certain rights.
The
most famous statement regarding consumerism was made by President Kennedy in
1962. Figure 2.9 summarizes these rights.
Basically,
consumers have four rights:
·
right to be safe (includes product liability)
·
right to be informed
·
right to choose
·
right to be heard
Consumers
have the right to be informed but false and misleading advertising can be
punished under existing laws of the Wheeler-Lea Act. This is to stop companies
from misleading consumers.
Product liability
Refers
to the responsibility of manufacturers for injuries and damages caused by their
products. Many companies put their products through rigorous testing to avoid
safety problems, but testing alone cannot foresee every eventuality.
Companies
have responsibility to provide warnings about the dangers posed by their
products, such as cigarette manufacturers. Also, if a product poses dangers to
customers, firms must respond quickly by recalling the product.
In
the US
there are many product liability lawsuits, brought by customers against the
companies, such as cigarette companies. These can be very expensive for
companies and so firms must minimize this exposure.
Workplace Safety
The
occupational Safety and Health Administration (OSHA) is the responsible
authority tin setting workplace safety and health standards. OSHA tracks
workplace accidents and has the power to fine employers who are found
responsible for workplace injuries. Dangerous industries include mining and
construction.
Family leave
The
family and medical leave act of 1993 requires large firms to provide unpaid
leave for any employee who wants time off for various reasons such as having
children or to care for a relative.
Equal opportunities on the
job
Efforts
aimed at maintaining diversity in the workplace are backed by many legal acts
over the years in the US.
The civil rights act (1964) outlawed many discriminatory practices. Other laws
include the equal pay act (1963), equal employment opportunity act (1972) and
the civil rights act of 1991.
The
Equal Employment Opportunity Commission (EEOC) has been set up. It was created
to increase job opportunities for women and minorities and to help end
discrimination based on race, colour, religion, disability, gender, or national
origin in any personnel action.
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