Business Ethics and Governance

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Table of Contents

Introduction
Personal ethics
Organizational ethics
Arguments in favor of CSR
Arguments against CSR
References

Introduction

During the end of 19^th century big business owners who were really concerned about the social abuses and demands of labor unions, started the concept of Corporate Social Responsibility (CSR). They constructed abodes and medical facilities in order to improve the living standards of their employees. This gesture paid back. The employees were motivated and there was an increase in the worker turnover.

This happened because the business houses cared for the society and in return, the society cared for the business houses. This is a small example of business ethics. Business Ethics means the moral principles that a business should follow while performing.

Chris MacDonald indicated that “Business ethics can be defined as the critical, structured examination of how people $ institutions should behave in the world of commerce” (MacDonald). Today, the world is full of competitions in all walks of life.

Owing to the technological developments and the businesses growing on a worldwide level, it has become very essential for business houses to follow business ethics in order to gain public support and to enhance the image of their business.

There are many plus points of following the business ethics but the demerits of not following the business ethics are countless. During the years, owing to the great effect that business ethics have on a business, organizations have started laying greater stress on adhering to the business ethics.

There are many instances during the performance of a business where the performers are confronted by the business ethics. Basically, there are two kinds of ethics that business houses should follow namely, personal ethics and organizational ethics.

In both the situations, it is crucial to know what exactly should be the individual’s or the organization’s conscientiousness in any particular business. For individuals, it is a greater task since they tend to have different ethical values outside the organization.

While in the organization, individuals have to act differently, according to the business ethics of their company. It should be understood that personal ethics are not suitable within the organizations. “External behaviors would be issues such as conflict of interest or treatment of citizens.

Internal behaviors would be issues such as sexual harassment or inappropriate preferences in hiring” (Gilman, 2005). Organizations, on the other hand, have to understand their social responsibilities and act accordingly.

By the advent of CSR, expectations of the society have increased. People form good opinion about the companies or business houses that care for the benefit of the society.

This enhances their public image. This helps them to increase their customers and greater admittance in the money markets. Such companies or business houses are supposed to have a longer profit run. This is because of their better social relations and productive actions towards the benefit of the society. Actually this has to be a conscience decision from them.

There is no more powerful institution in society than business… The business of business should not be about money, it should be about responsibility. It should be about public good, not private greed. (Roddick 2000).

The main objective behind the requirement of the business houses following the business ethics is to ensure that they don’t practice such actions that might menace the enduring soundness of the earth and its inhabitants. Sustainability is the capacity for continuance in the long term.

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (Tomlinson 1987).

The issues covered under business ethics are:

Social issues like human rights, child labor, standard of living of the workers, multiplicity, etc.
Environmental issues like pollutions, emissions, wastage of natural resources, wastage of energy, environmental management systems, etc.
Economic issues like financial performance, etc.

In the following paragraphs, the main principles of personal as well as organizational ethics shall be discussed.

Personal ethics

“An individual at the institutional stage becomes aware that others also have needs and begins to defer to them to get what the individual wants” (Mulcahy).

“An individual at the interpersonal stage considers appropriate behavior as that which pleases or is approved by friends or family” (Mulcahy).

“An individual at the law and order stage recognizes that ethical behavior consists of doing a person’s duty, showing respect for authority, and maintaining the social order for its own sake” (Mulcahy).

It is not feasible for organizations to have a separate educational training course in order to teach their employees the business ethics or the way in which they should behave.

As such, organizations around the globe haven’t come up with any system to regulate the business ethics among their employees. “Ethical issues are difficult to resolve because they involve values and because ethics cannot be taught” (UNCP).

Organizations can only provide an outline of the business ethics. It is up to the employees to set up their own standards. One thing that can help in inculcating the business ethics within the individuals is the motivation. Motivation can be provided by various means that are listed below:

According to an old proverb, in order to change anything, one should be able to see it first. This saying is apt under circumstances where employees behave unethically simply because they are not aware of the ethical values. They don’t know what the business ethics are. So they need to be taught how their conduct should be.

Efficient leaders can have a great impact on the employees. Organizations should employee such leaders who have the competence to motivate the employees and lead them to follow the business ethics. “Even if senior management and employees embrace a code of ethics, someone needs to be put in charge of applying and updating it” (Spiro, 2010).

Installing an incentive on following the business ethics seems to be unfeasible because the employees should themselves think morally and learn what is right and what not. Nevertheless, incentives do motivate employees and results can be monitored easily.

For example in a service industry, if there is an incentive for the employee who has the best customer remarks, the employees will try and behave in an ethical and moral way with the customers.

Group meetings of the employees should be conducted wherein they should be given any particular situation and asked to deal with the situation in an ethical manner. This way, the employees will be afresh with the business ethics.

It has been observed that sometimes the leaders themselves are confused on the validity of the employees’ behavior as being ethical.

This happens because those particular behaviors of employees have been prevalent since long and moreover, it becomes a habit. In such circumstances, some outside counseling should be beneficial. There are consultants who provide training based on ethics.

Organizational ethics

Organizational ethics can be termed as the social responsibility of business houses. Any business cannot flourish without the participation of its workers or the masses. It is good for business houses to be concerned about the profit makings but they should not neglect the fact that they are what they are due to their employees and the layman who is a consumer.

It should be the moral duty of all business houses or corporations to ensure that the interests of the people are not compromised. Another major factor is the environment. We all are so concerned about pollution nowadays. We have pollution free vehicles, fuel, etc.

Our scientists invented such things because the pollution was evident. But there are certain things that mankind cannot visualize, like for example, earlier we never used to hear about the global warming syndrome. Moreover we actually didn’t know that things like this could happen.

But it is happening and we are doing our best to save the Earth and its environment. The reason why I mentioned this here is that unless we understand the basis of any action, it will be difficult for us to understand the motive and its long-term effects.

When we talk about business ethics, Social and Environmental Reporting Assurance (SERA) or Corporate Social Responsibility (CSR) automatically come into the scene.

The motive or intention that lies behind business ethics is social welfare and environment protection. There are three main considerations that organizations need to follow in achieving the business ethics standards.

Firstly, organizations should involve the maximum number of employees possible in order to deal with the customers, the reason being the vast number of stakeholders.

As such, it will not be feasible for a few employees to understand the nature of problem of each stakeholder and the resultant will be utter chaos. More employees will mean more brains at work and ethical solutions to the problems will be easier and up to the required standards.

Secondly, organizations should contribute towards the social reforms and benefits. Monetary considerations should be kept aside while making such contributions.

Even if any social service program involves some expenditure, organizations should not step back. Ultimately, it is the society due to which businesses flourish and as such, it is the moral responsibility of organizations to take care of the society. If the society is happy, businesses will flourish more.

Thirdly, organizations should try to hire more people from the underprivileged groups. It’s not that such groups don’t have qualified people. The only thing is that they require a chance to prove their worth.

If organizations adopt the strategy of recruiting a certain percentage of its vacancies from the underprivileged classes, it will be a great step towards following the business ethics. “The diversity of the company’s employees is a tremendous asset” (Knowledgeleader, 2011).

“If organizations concentrate on acquiring those virtues which are most useful in the business world, then it will have made great material progress since it attempts to improve employees who, in turn, help the institution to be more profitable” (Arjoon).

There have been mixed reviews on whether corporate social responsibility, a part of business ethics, is of any use or not.

Arguments in favor of CSR

A company is considered to be sharp if it ensures that right information is passed on to the groups. It should not matter whether the group is the one that has direct contact with the company or the one that is in the society. Such groups have the capability of influencing the company’s present and future success.

Environmental concerns are addressed properly when business houses get involved. They have better finance, technical experts and managerial qualities to support charitable trusts. This creates better standards of life and employees feel safe and obliged in continuing working.

Government imposes restrictions and regulations on companies to ensure better and safe environmental conditions. This increases the cost factor of companies. But if a company is socially responsible and works for the benefit of the society, it can expect less government restrictions and regulations.

Socially responsible companies are at less risk and are not prone to public attack or ire. The stock price of such companies improves in the long run. The stock market evaluates the public standing of that company and awards higher price factor.

Arguments against CSR

There can never be unanimous agreement on any topic or issue. Similarly, in this case also, there are people who feel otherwise. They have different opinion and are against CSR. Any business is considered to be socially responsible if it looks after the economic interests of the society.

It is understand that any social work involves a lot of money. No one wants to pay from his or her pocket. As a result, the company will add the costs to the products and ultimately the consumer has to bear it.

Some people are of the opinion that social service is a gimmick by a company to gain popularity and subsequently capture market for its products. Corporations don’t really care – “they’re just out to screw the poor and the environment to make obscene profits”. (Baker 2008a)

According to some people, social reforms are the duty of politicians and not the business community. “It’s the responsibility of the politicians to deal with all this stuff. It’s not our role to get involved”. (Baker 2008b)

Companies hire professionals according to their expertise in accounts, sales, management, production, etc. But no company hires professionals who are expert in social service. It means the people who will be responsible for any particular social service, will not be qualified for that. They will not have that skill. Then how will the job be carried out successfully?

Due to the materialistic interests, not much information is provided on the environmental; issues that are governed by accounting standards. Moreover, the standards of accounting don’t matter much because they are very narrowly focused and don’t make much of a difference. (Buhr 2003)

There are so many noteworthy companies that are very aware about the environment. Such companies provide ample information along with their financial reporting. (Hannele, 2008)

Another drawback of SERA is due to indifference in the government policies. Due to the ‘free rider’ pattern, the reporting companies are at a disadvantage when compared to those that are not reporting. As a result, the government agencies are prone to pressure to review its policies. The governments are feeling a need to have regulated reporting requirements, at least for the key industry sector. (SustainAbility et al, 1997).

References

Arjoon, S., Corporate Governance: An ethical perspective. Web.

Baker, M. 2008, Arguments against corporate social responsibility-and some answers. Web.

Buhr, N. 2003, ‘Mandatory Environmental Disclosure: The current practice in Canada with a comparison to the United States’, AccountAbility Quarterly, vol. AQ21, pp. 29-34.

Gilman, S. C. 2005, Ethics codes and codes of conduct as tools for promoting an ethical and professional public service: Comparative successes and lessons. Web.

Hannele, M. 2008, Construction of the social dimension of CSR in corporate disclosures. Web.

Knowledgeleader 2011, Code of business conduct-sample. Web.

MacDonald, C., Definition: “Business Ethics”. Web.

Mulcahy, A., Individual and Organizational Ethics. Web.

Roddick, A. 2000, Business as Unusual, Harper Collins Publishers, London.

Spiro, J. 2010, How to write a code of ethics for business. Web.

SustainAbility & UNEP 1997, Engaging Stakeholders: The 1997 benchmark survey, SustainAbility Limited, London.

Tomlinson, J. 1987, Employment policy: The crucial years, 1939-1955, Oxford University Press, New York.

UNCP, Ethics in organizations. Web.

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