Significance of Ethical Business - Literature review Example

CONTENTS LIST INTRODUCTION 0. Responsible Business...............................................................................................................2.0. Stewardship…………………………………………………………………………………………………….……………..…….2.1. Legal…………………………………………………………………………..……………………………………….………..……...2.2. Ethics……………………………………………………………………………………………………………….………….………..2.3. Corporate Social Responsibility (CSR)…………………………………………………………........................…2.4. Social Enterprise…………………………………………………………………………………………………………………….2.5. Corporate Responsibility………………………………………………………………………………………………..………2.6. Sustainability in Business…………………………………………………………..…………………………..…………..….2.7. Ethical Business……………………………………………………………………………………………………………………….3.0. Government…………………………………………………………………………………………………………………………….4.0. Conclusion………...……………………………………………………………………………………………….……………………5.0. References Ethical Business 1. Introduction This report examines the nature and significance of ethical business and its relevance to the concept of responsible business. It includes definition of, and what constitutes responsible business. The report compares, contrasts, and contextualises responsible business with other relevant ethical business concepts, such as corporate responsibility, sustainability in business, social enterprise, and corporate social responsibility. The report highlights the impact of ethical business and its influence on business behaviour and on society. The important role of the government, whether as a source of guidance and support, or as a barrier to ethical business and responsible business approaches, is also discussed. 2. Responsible Business Carroll (1979) defined responsible business according to four dimensions: economic responsibility, legal responsibility, ethical responsibility, and a discretionary responsibility. This last dimension refers to volunteerism, such as corporate philanthropy, which is not exactly required by society, but is totally appreciated. (Michael & Alan, 2008) Responsible business can also refer to the commitment of the company to operate in “an economically, socially, and environmentally sustainable manner while balancing the interests of a diverse stakeholders”. (Responsible Business) 2.1. Stewardship Stewardship in business is defined by Hartman as “the responsibility companies have to understand and manage their impacts on the environment in any number of ways”. Managers as stewards of companies have to make profits, and at the same time, are expected to act responsibly when making decisions, respecting the rights of others (Jennifer), that is, the rights of others for a safer and healthier environment. 2.2. Legal Businesses are expected to operate within the legal framework set by the government. Some managers would rather pay fines for breaking the law in order to generate more profits for the organization (Jennifer). This is just unacceptable and does not constitute responsible business. 2.3. Ethics Ethics are standards of moral behaviour (Nickels, 2010). Society dictates an ethical behaviour, since it is society that determines what behaviour is accepted as either right or wrong. Business acting ethically, and respecting consumer needs and demands, can be significant from a public relations point of view. 2.4. Corporate Social Responsibility (CSR) The European Commission defined CSR in 2006 as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (Malte Kaufmann, 2012). Responsible businesses with CSR programs are expected to integrate social and environmental concerns in its strategic decisions. 2.5. Social Enterprise A social enterprise focuses more on serving its clients rather than in making money. A social enterprise is defined as “business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.”(DTI, 2002) Social Enterprise is unique in a sense that, rather than maximizing shareholder value, it focuses on generating profit only to further its social purpose (Sage). 2.6. Corporate Responsibility According to Jonkers, “corporate responsibility is a sensitising concept: a term that draws attention to a complex range of issues and elements that are all related to the position and function of the business enterprise in contemporary society” (Michael & Alan, 2008). 2.7. Sustainability in Business Sustainable development aims to improve quality and efficiency of internal corporate operations. For example, a car manufacturer implements cleaner production processes, including design for disassembly (Dexter el, 2000). In sustainable development, economic objectives are not pursued without considering its environmental and social impact. 3. Ethical Business Business ethics has been defined as “the application of a moral code of conduct to the strategic and operational management of a business”. (Mike Bull, 2012) Business ethics has two aspects: It involves specific situations in which ethical controversy arises (ethic). It concerns the principles of behaviour (moral). Johnson and Scholes classify business ethics as: The macro level: the role of business in the national and international affairs, the relative virtues of different political/social systems such as free enterprise and centrally planned economies, and international relationships. The corporate level: corporate social responsibility, ethical issues facing individual corporate entities (private and public sector). The individual level: the behaviour and actions of individuals within organisations (Applied Corporate Governance). Business malpractices can harm any individual and the environment. Business ethics discourages malpractices, and therefore avoiding its causes and consequences. Business ethics helps improve ethical decision-making by providing managers with a framework for solving ethics-related problems (Andrew & Dirk, 2004). According to Ferrell et al. (2000:13), about 48 per cent of US employees claimed to have done something unethical in the previous year. Ethics is an important aspect in life of individuals as well as businesses, distinguishing right from wrong, and good from bad. It constitutes desirable conduct in a particular set of social circumstances, prescribes moral codes, norms, beliefs and practices. (Andrew & Dirk, 2004) Business ethics is fundamental to corporate governance. Good corporate governance lies in the eye of the stakeholder, and needs to recognize the different individuals and stakeholder groups of a business (Applied Corporate Governance). Ethical shareholders tend to take greater responsibility for the profitability of the company. Ethical conduct enables employees to integrate their personal goals with goals of organization. These stakeholder groups form the root of success and failure of the business. Customers, suppliers, employees, and shareholders are example of primary stakeholder groups having interest in how an organization interacts with them. These stakeholder groups can profit from a company’s success and can be harmed by its mistakes. Secondary stakeholders are also important because they can take action that can either harm or support the organization. Secondary stakeholders include governments (especially through regulatory agencies), unions, nongovernmental organizations (NGOs), activists, political action groups, and the media. The objective of being a socially responsible business is achieved when its actions meet or surpass the expectations of its stakeholders. Many firms have introduced policies encouraging employees to include ethics as part of their decision making processes. For example, corporate training programs teaching employees how to deal effectively with ethical issues are now common. Firms hope that a consideration of ethical issues during decision-making process will be helpful in preventing, or at least decreasing, the occurrence of unethical behaviour (Elizabeth, 1997). An example of unethical practices committed by corporate businesses is Sears, which admitted to have overcharged customers on their car repairs bills. Other firms such as Nestlé and Beechnut have also been involved in ethical scandals. Having a corporate ethics policy also helps in enabling a process of recovery after an ethical scandal has occurred. Unethical acts do occur and do not often go unnoticed. The general lack of respect people feel towards business today, plus the appetite of the press for scandals and investigative reporting, and the willingness of many insiders to “blow the whistle” on unethical corporate behaviour, all contribute to higher chances that any unethical behaviour will be discovered. Thompson (1995) has noted that knowledge about marketing ethics has increased substantially over the last several years. However, the existing body of knowledge is based mainly on findings from research that analysed ethical judgments solely of marketing professionals, without any insight from a consumers’ point of view. This imbalance was addressed by a research project whose purpose was to examine the issue of unethical corporate behaviour from the perspectives of consumers (Elizabeth, 1997). According to utilitarian-based approaches, behaviour is judged by its effects on the overall welfare of everyone involved. With rights-based approaches, on the other hand, behaviour is judged with regard to how it affects the entitlements of individuals. Many people in business behave within the generally accepted standards of ethical behaviour as a personal choice. An individual’s action may be guided by strong religious beliefs, altruistic motives, or simply by a desire to protect individual reputation. A firm needs the trust of its stakeholders. Once trust is withheld, unpleasant outcomes can be expected, such as increased government regulations, confrontational suppliers, and disillusioned customers. For example, consumers may initiate boycotts to protest unethical corporate behaviour. The findings from the research mentioned above provide marketing practitioners new insight on the factors influencing consumers’ decision to purchase. In the survey that was conducted, consumers were reported to have said that ethicality of a firm’s behaviour is an important consideration during the purchase decision. Consumers will reward ethical behaviour with a willingness to pay higher prices. Although they may buy from an unethical firm, they will do so at lower prices which, in effect, punishes the unethical act (Elizabeth, 1997). These findings are encouraging results from a societal perspective. It suggests that firms should encourage ethical behaviour, not only for its own sake, but also because ethical behaviour may benefit the firm while unethical behaviour may harm it. These findings provide new insight into the long-standing debate regarding the usefulness of socially responsible behaviour (Elizabeth, 1997). 4. Government Government is mandated with the duty to protect and enhance the welfare of society. The issue of business relations with government has increasingly become a matter of business ethics. The figure below describes the ideal government relationship with business and society. Government receives mandate from society to govern and act responsibly to promote a regulatory environment (Andrew & Dirk, 2004). Ideally, the regulatory environment is not restrictive but conducive to proliferation of ethical businesses. Taxes, jobs, Regulations that investments, etc. protect their interests Profitable and stable Consent economic framework Figure 1: Government reconciling conflicting interests of business and society Source: (Andrew & Dirk, 2004) In a free market economy, businesses need certain degree of freedom and independence to be able to act swiftly to market signals. Businesses have the right to demand freedom from government interference especially in making business decisions. They, however, enjoy this freedom from government interference that they sometimes overlook the important roles governments play, such as setting fiscal policies; management of government borrowings and macro-economic affairs; caring for businesses during times of local or national recession; providing funds to support both pure and generic research; as well as providing funding for major projects that might be too large for private capital formation (Colin & Alan, 2003). Business in general has a vested interest in maintaining certain legal and economic conditions. Today, business pressure groups can exert tremendous influence, and have a far more important effect upon the construction of legislative measures than the organization in general. Recent examples are shown below: The important campaigns (on both sides of the argument) by business pressure groups to try and shape political and public opinion with regard to the UK’s possible adoption of the Euro. The initial opposition of business pressure groups to the principle of a national minimum wage, and then a campaign to limit the amount of the minimum wage. The use of political influence by business interests. For example, the Labour Government in 1997 had a manifesto commitment to a total ban on tobacco advertising. In March 2002 the Minister for Health announced legislative plans for ban on tobacco advertising and sponsorship, the one exception being motor racing sponsorship. Bernie Ecclestone, who effectively controls worldwide Grand Prix motor racing, was a significant donor to Labour Party funds in 2002 (Colin & Alan, 2003). The confirmation that corporations lobby for ‘business-friendly’ conditions strengthens the conclusion that corporations should act as citizens within society, rather than apart from society. As governments, in theory at least, are in power to represent the interests of society, governments have the authority and the responsibility to make demands of business to act in ways that are in the interest of society, not the other way around (Colin & Alan, 2003). 5. Conclusion Modern business can no longer exist solely on the purpose of profit motivation, but must now incorporate in its strategic decisions a responsible business approach that would make it accountable to society any and all of its actions. There is a growing emphasis both by modern businesses and the society in general on the need and importance of CSR, where businesses own the responsibility for all the consequences of its actions. Whether actions by business that provide it business benefits are ultimately regarded as socially responsible by stakeholders is a question that remains open and is left to judgement of society in general. Modern businesses face increasing pressures on communicating, applying, and monitoring their strategic policies. Transparency and sincerity are being demanded by stakeholders to satisfy their need for information on how and why particular courses of actions have been taken. In order to be effective, responsible business decision-making requires willpower and assurance from management to implement and monitor ethical actions taken based on the organisations own set of values. Most people use their religious beliefs and personal philosophies to determine what is right or wrong. The result is confusion and mishandling of ethical behaviour, especially if there is no defined corporate ethics at the outset. Pressures to influence personal standards are likely to be exerted and felt at the middle and lower management levels. The person most likely to act ethically is one with a well-defined personal code. Profits should not be the only motivation of business. While writers and speakers have divergent views on what business ethics is, the bottom line is: sound ethics is good business. References Alan, G. Lorice, S. and Alan, S.. (2006). Responsible business decisions: an over-arching framework. Journal of Public Affairs. 6 (3-4), p185-196. Andrew, C. & Dirk, M. (2004). Business Ethics. New York: Oxford University Press Inc. p12-13. Applied Corporate Governance. Define Business Ethics - Discussion and Debate. Available: http://www.applied-corporate-governance.com/define-business-ethics.html Last accessed 18 Dec 2012. Carroll, A.B. (1991) The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Available: http://www.cbe.wwu.edu/dunn/rprnts.pyramidofcsr.pdf. Last accessed 30 Dec 2012. Colin, F and Alan, L (2003). Business Ethics and Values. Harlow: Financial Times Prentice Hall. p273-275. Dexter,D., Jodie, b., Andrew, G. & Philip, S. 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Stakeholders and Corporate Social Responsibility. Available: http://totalqualitymanagement.wordpress.com/2009/03/12/stakeholders-and-corporate-social-responsibility/. Last accessed 25 Dec 2012. Read More