The issue of ethics and values is very critical in modern contemporary business organizations. Ethics basically can be defined as the study of what constitutes right or wrong behaviour. In fact, it is a branch of philosophy which focuses on morality and the way the moral principles are derived. Fundamentally, ethics has to do with the fairness, justness, rightness or wrongness of an action. Thus, ethics deals with what is good and bad with moral duty and obligation.
What is business ethics?
Business ethics primarily focus on what is right and wrong behaviour in the business environment. It has to do with how businesses apply moral and ethical principles to situations that arise in the workplace. It is worth noting that, business ethics are more complex in nature, and as a result, decision makers in the organization must often address more complex ethical issues than they face in their personal lives.
Business ethics can be simply defined as a process of promoting moral principles and standards that guide business behaviour. It is refreshing to state that there is no clear-cut definition of what behaviours are ethical and which are unethical when judging one’s behaviour. This is due to the fact that there is no global consensus on what constitutes ethical behaviour. In fact, four different levels of business ethics have been identified. This was based on what type of business and how their actions are evaluated. These levels are:
- The individual manager level: at this level, each manager and other corporate participants are responsible for their own ethical behaviour.
- The company level: this is a level at which different companies have their own set of ethical standards which regulate the activities of their employees and the business as a whole.
- The industry level: the industry level suggests that different industries have their own set of ethical standards which regulate the activities of firms within the industry.
- The society level: this level defines ethical behaviour and assesses the effect of business on society.
Interestingly, in practice there exists a conflict between the desire for more profitability and ethical values. In fact, entrepreneurs and business managers may sometimes take active roles in fostering unethical and illegal conduct with the view to achieving targets, and hence profitability. This unethical business behaviour eventually trickles down to the employees, and becomes a norm in the organization’s set-up; a phenomenon which is fatal for the long-term survival of the business.
Ethical leadership can be defined as leadership demonstrating and promoting appropriate conduct through personal actions and interpersonal relations in an organization. This implies that ethical leadership is about putting people into management and leadership positions. In fact, one of the ways to create and maintain an ethical workplace is for top management to actually demonstrate its commitment to ethical decision-making. Indeed, a manager who is not totally committed to an ethical workplace will actually not succeed in creating an ethical standard in the organization.
It is worth noting that management’s behavior inevitably sets the ethical tone of an organization. For example, an employee who observes a manager over-inflating invoices and expenses quickly learns that such behaviour is acceptable. Equally important, managers who set unrealistic sales targets as well as high profitability targets are more likely to push employees to act in an unethical manner.
Managers who fail to adequately address unethical behaviour of an employee indirectly endorses that conduct, and therefore may indicate that ethical transgressions will be an acceptable norm. In order for managers to maintain high ethical values and standards in an organization, they must ensure that employees who exhibit unethical behaviour are disciplined to serve as a deterrent to others.
The behaviour of business owners and managers is key to establishing high ethical standards in the organization. In fact, they must take more active roles in censuring unethical and illegal conduct. This may eventually indicate to management and the general staff that unethical business behaviour will not be tolerated.
Several well-accepted ethical theories attempt to explain the significance of ethical behaviour in an organization. For instance, the consequentialist theory stipulates that ethical behaviour or the moral rightness of one’s actions is determined by the results of the act and its impact on the individual – thus egoism or all involved – that is utilitarianism. Non-consequentialists, on the other hand, assess the nature of the act as being either ethical or unethical regardless of the results.
The individualist perspective of ethical decision-making states that individuals are only concerned with the impact of their decisions on their own and immediate family’s well-being and interests. Collectivism stipulates that individuals tend to belong to groups, and thus focus on the group’s interests when making ethical decisions.
Metaethics focus on ethical theories, their evolution and the social, religious, spiritual and cultural influences shaping those theories. Normative ethics lay more emphasis on the practical aspects by providing principles of appropriate behaviour and guidance for what is right or wrong, good or bad in behaviour such as principles of justice, honesty, social benefits, lawfulness etc. on the other hand, applied ethics deal with the application of moral principles and reasoning as well as codes of conduct for a particular profession – such as business ethics, environmental ethics, medical ethics etc.
Creating ethical codes of conduct
Creating ethical codes of conduct is key and critical in maintaining ethical values within the organization, and in fact one of the most effective ways to set the tone of ethical behaviour within an organization is to create an ethical code of conduct. The code should be well-written. Thus, it must set forth guidelines for ethical conduct, establish procedures that employees must follow, and should clearly state what the organization considers to be acceptable and unacceptable conduct. The organization must ensure that training on the code of conduct is done so as to enable employees to ask relevant questions; for which answers will help them adhere to ethical standards.
Ethical reasoning is a process in which the individual examines the situation at hand in light of his or moral convictions or ethical standards. In fact, ethical reasoning relating to business has been characterized by two fundamental approaches. One approach defines ethical behaviour in terms of duty, which also implies certain rights. The other approach, however, determines what is ethical in terms of the consequences, or outcome, of any given action. Each of these approaches are explained below:
- Duty-Based Ethics: Duty-based ethical standards are primarily derived from revealed truths, such as religious precepts. Indeed, they can also be derived through philosophical reasoning. In the U.S.A. for instance, in the Judeo-Christian tradition – which is the dominant religious tradition – the Ten Commandments of the Old Testament establish fundamental rules for moral actions. For example, the commandment “Thou shalt not kill” is an absolute mandate for a person who believes that the Ten Commandments reflect revealed truth.
Duty-based ethical standards may also be derived solely from philosophical reasoning. The German philosopher Immanuel Kant, for example, identified some general guiding principles for moral behaviour based on what he believed to be the fundamental nature of human beings.
Kant stipulated that human beings are qualitatively different from other physical objects, and are endowed with moral integrity and the capacity to reason and conduct their affairs rationally. Therefore, a person’s thoughts and actions should be respected. Indeed, the central focus of Kantian ethics is that individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted in the same way.
- Outcome-Based Ethics: Utilitarianism. Utilitarianism is a philosophical theory developed by British philosophers Jeremy Bentham (1748-1832) and modified by John Stuart Mill (1806-1873). Utilitarianism focuses on the consequences of an action, not on the nature of the action itself or any set of preestablished moral values or religious beliefs. With respect to the utilitarian model of ethics, an action is morally correct, or right, when among the people it affects it produces the greatest amount of good for the greatest number.
Thus, when an action affects the majority adversely it is morally wrong. In fact, that application of the utilitarian theory demands a determination of which individuals will be affected by the action in question – a cost-benefit analysis which involves assessment of the negative and positive effects of alternative actions on these individuals, and a choice among alternative actions that will produce maximum societal utility.
Can the law influence business ethics?
The question often asked is whether or not the law can influence all business ethical standards. Interestingly, business ethics and law are closely related; however, they are not always identical. Oftentimes, what may be considered legal may not necessarily be the same as ethical. In fact, compliance with the law is normally considered as the moral minimum. That is, the minimum acceptable standard for ethical business behaviour. It is refreshing to state that with most corporate scandals, had most of the professionals and businesspersons involved simply followed the law, they would not have gotten into trouble.
Interestingly, the law can codify all ethical requirements. In fact, business and corporate executives during the course of decision-making must remember that just because an action is legal does not necessarily make it ethical. Amazinglya, a business behaviour that is deemed legal may still be considered unethical. In fact, there is no provision in our Labour Law which places a ceiling on corporate executives’ salaries. An executive may increase his salary periodically far above the other employee and that conduct may be deemed legal, yet could be considered unethical.
Why is business ethics important in an organization?
As much as a business decision may be legal and therefore lawful, it is imperative that the ethical aspect of the decision be thoroughly considered since it has the propensity of affecting the long-run growth and sustainability of the enterprise. Why business ethics in an organization is important may include the following;
- An in-depth understanding of business ethics by all employees is significant to the long-term viability of the organization. It actually increases customer loyalty – thereby improving customer satisfaction, which guarantees long-term profitability of the organization. It also improves business good-will.
- Business ethics is also important to the well-being of individual officers, directors and to the organizations’ employees. Employees feel comfortable and safe working in the organization. In fact, it minimizes high labour turn-over; thereby enhancing the overall growth of the human capital which is key to the growth equation of the business.
- It is important because unethical corporate decision-making can adversely affect suppliers, consumers, the community and the nation as a whole.
- Adherence to business ethics builds and maintains the reputation of the organization. With a high reputation, the business is more likely to attract investors and customers. The investors coming on board may inject more capital into the business which will be used for business expansion and growth, and hence higher profitability.
>>>The writer is a Development Economist and Chartered Financial Analyst. Daniel is the Chief Economist at the Policy Initiative for Economic Development. He is also the Director of Research and Analysis, B&FT. He can be reached on email: [email protected]. Tel; 0244 476376/ 0201939350