Business Ethics

b u s i n e s s e t h i c s - d o b u s i n e s s e s b e h a v e e t h i c a l l y

Introduction

The word ‘ethics’ means standards of right and wrong behaviour. Another word

often used is ‘morality’.

This revision note is about whether or not businesses behave in an ethical way.

There is a popular image of the cruel and wicked Victorian mill owner. But in the

19th Century everybody in the UK more or less accepted the Christian code of

ethical behaviour, and businesses were expected to follow. Some businesses,

especially those owned by Quakers such as the Fry and Rowntree families, set very

high standards indeed.

The Modern Business Environment

Today, things have got more complicated:-

1. There is no longer one agreed moral code. Most people have a weak sense of

religion or none at all. So their morals must come from somewhere else.

2. There are competing religious and social moral codes, especially for

multinational companies ("MNCs") operating in different parts of the world and

employing people from different cultures.

3. The pursuit of profit has become a goal in its own right, and this puts pressures

on people to compromise their standards, not just ethically, but in less important

areas also. For example, a very rude manager might be tolerated because he (it

usually is a he) makes large profits. So when good behaviour and good profits

come into conflict, businesses find it difficult to resist the profits.

4. Businesses are only the people who work there; businesses don’t decide

anything – it’s the people who make decisions. But businesses have group cultures

with their own norms and standards. Individuals have a strong need to fit in and be

accepted, so it is very difficult for any individual to stand up against attitudes and

decisions they disagree with.

5. Greater wealth in the western economies means people have less tolerance for

ethically dubious behaviour. We are no longer so desperate for growth and

employment at any cost. People are also better educated and better informed.

People are less deferential ie they are less accepting of what people in authority

say. So there are higher expectations of how businesses should behave.

6. Businesses have to sell to consumers and employ workers who have their own

standards and opinions. They are not going to buy from or work for a business they

disapprove of. So there is a competitive pressure for better behaviour from

businesses.

7. Many managers and owners have ambitions of social acceptance and recognition

eg knighthoods, and so are not going to get caught behaving unethically.

8. Modern technology creates ethical dilemmas which never existed until quite

recently. Medical products, and gene technologies, are a good example of this.

Should parents be allowed to alter the genes of their unborn children, and should

businesses sell the products to do this?

You can see that these factors all pull in different directions. It has all got a lot

more difficult and a lot more complicated. Some businesses set up special

committees to discuss and decide ethical problems, and they may even employ a

professional philosopher to help them.

Common Ethical Issues

Fairness and honesty

Respect for people

Conflict of interest

Financial management

Social Responsibility

Social responsibility is the obligations a business has

over and above its legal responsibilities to the

wellbeing of employees and customers, shareholders

and the community as well as the environment.

Monday, 1

The Growth of Corporate Responsibility

‘Corporate responsibility’ is the phrase used to describe businesses which have

decide to behave in a deliberately socially responsible manner.

Obeying the strict letter of the law doesn’t always solve these problems, although it

does keep the business out of trouble with the authorities. Laws are general, and

don’t always act as a good guide to decisions in any one individual case. Laws

have to interpreted by courts, and it is not always obvious what is illegal until the

case goes to court. Laws don’t cover all the areas that people consider important in

ethical behaviour. For example, it may be perfectly legal to dump waste at sea, but

many people would consider this to be unacceptable behaviour.

In many cases different ethical principles pull in opposite directions. For example,

closing a polluting factory may be good for the environment, but it is not going to

help the local community who need the jobs and the incomes. What should the

business do? Whatever it does, it is going to upset one group of people or another,

because society at large cannot clearly answer these questions, and there is no clear

guide to the business how to behave.

Businesses which get caught acting unethically suffer much more damage than

used to be the case. The press is much more active in investigating and publicising

such cases. The population at large takes more interest, has their own views, and is

more willing to let their displeasure be known. Pressure groups opposed to some

activities of business are much better organised, better financed and better able to

attack such businesses. Huntingdon Life Sciences has been an extreme example,

because the Animal Liberation Movement is prepared to use extreme (and ethically

dubious) methods. Not only have employees been threatened, but the employees of

shareholders and banks, so the business nearly went bust through lack of finance.

This shows that the opponents of business understand business and its weak points

very well.

The internet now allows very rapid sharing of information across the world (and

MNCs operate across the world). There are many web sites devoted to publicising

and discussing the behaviour of businesses. Whistle-blowing is more acceptable,

and even protected by law in some countries, so access to secret information is

now better.

Increasing Consumer Activism

Consumer campaigns can be very effective. If enough consumers stop buying from

a business revenues will fall until the business is forced to change or go bust.

Managers don’t like the negative publicity, and are sometimes embarrassed by

their own decisions anyway; they know they are dubious decisions. Suppliers may

want to switch away from such a business because there is guilt by association.

In extremes there may be an investors strike where large numbers of people refuse

to buy the shares of such a business and the business cannot raise finance. A large

number of US pension funds (especially in the public sector) used to refuse to

invest in US businesses involved in apartheid S Africa. Businesses may also have

trouble recruiting enough good employees.

Benefits of Ethical Behaviour

The main benefits for a business of behaving ethically are:

1. Avoidance of expensive and embarrassing PR disasters.

2. Better image with consumers and better sales.

3. Better recruitment.

4. Better employee motivation because employees are proud of their jobs.

Effects of Ethical Behaviour

1. Increased costs as businesses try to do what is expected eg not pay bottom

wages, or dump pollution cheaply at sea.

2. Conflict between profit and ethical standards.

3. Business practice and organisational culture will have to be changed.

4. Changes in relations with suppliers. This may mean passing the same standards

down the supply chain, and severing relations with suppliers not prepared to meet

the same standards. Alternative suppliers may be more expensive. For example, the

export of Brazilian mahogany is illegal for reasons of conservation, but it is very

difficult (and expensive) to buy mahogany that is absolutely guaranteed to come

from an officially recognised sustainable source.

Should Businesses Be Expected to Behave Ethically?

One argument is that businesses are products of the society in which they operate,

in which they sell their products, and in which they hire their employees. So

businesses should be expected to reflect the ethical standards of the surrounding

society. One problem with this view is that society doesn’t always have clear

ethical standards to which businesses can stick. For example, some people care

passionately about animal experiments, and argue it is deeply unethical, whereas

many other people say such experiments are justified if real people benefit

medically from the research. What is a business supposed to do?

The opposite argument is that business are supposed to make a profit for their

owners, to create jobs for employees, and to create wealth for society as a whole.

Anything else is at best an irrelevance and at worst simply gets in the way of

profitable business. See What's Wrong with Ethical Corporate Behaviour for a

counter-argument.

The middle argument is that businesses in the real world (or most of them, at least)

would like to do both, if possible. But there will always be conflicts. What then

happens? Does the business stick with the ethical behaviour? Usually the business

will go for the profits and it is this which upsets many people, although perhaps

people sometimes expect too much and haven’t really thought through the

consequences of their own opinions.

Are Businesses Behaving More Ethically?

Research suggests middle and junior managers care quite a lot about ethical

behaviour, but that senior managers still care mainly about profit. To the extent

that it is senior managers that make the decisions, then little has changed, but

middle managers can gradually shift the climate of opinion in a business.

Well-publicised cases such as Shell and the Brent Spar suggest businesses have

become more sensitive to public opinion about ethical behaviour and have begun

to behave more ethically (as opposed to just saying that they do). Cynics argue this

is not because of a change of heart, but merely yet another changed response to

changed market conditions in the eternal pursuit of profit.

Corporate Ethics Management Council

The Corporate Ethics Management Council is comprised of over 40 executives

responsible for, in a variety of roles and capacities, all facets of ethics and

compliance management in major Canadian public and private sector

organizations. We meet in camera three times a year to examine national and

international ethics management practices and their relationship to business

success.

Ethics Of Corporate Management

Description: 

Ethics of Corporate Management --- This course, commonly known as the

"business ethics" course meets the law/ethics requirement of the MBA program. 

The course provides a theoretical background of how to evaluate moral claims in

business, provides and introduction to the issues related to corporate social

responsibility, and discusses how to manage ethics in organizations.  Using a

framework describing mangers' economic, legal, and ethical responsibilities, this

course draws upon classical oral theory as well as the most up-to-date

contemporary business ethics thinking.  Though a discussion of dilemmas of

executives, employees, and organizations, the course examines topics such as

corporate compliance systems, corporate culture, human rights, corruption, and

cross-national business ethics.  In this course we also examine ethical leadership in

terms of acting on your values in an organizational setting and building an ethical

organization.  

Class participation is critical, and active interaction has been a trademark of the

class.  Even the "lecture" portion is very interactive.  The full-scale discussion

consistently opens eyes to new dimensions of business behavior.

Managing corporate responsibility and business ethics

Our Code of Business Ethics

The Code sets out 12 broad principles for how we do business, based on the

common values of integrity, honesty, fairness and transparency. It provides the

framework for our policies, programmes and procedures for a range of corporate

responsibility issues.

The 12 principles of the Code of Business Ethics

1. We comply with the law

2. We compete fairly

3. We act with integrity in all our business dealings

4. We treat suppliers, partners and customers properly

5. We treat our co-workers respectfully

6. We contribute to healthy, safe and secure workplaces

7. We respect the environment

8. We contribute to our communities

9. We participate in relevant public debates

10.We respect human rights

11.We have high standards of financial record-keeping and reporting

12.The Code applies to all of us

Managing the Code

The Code is approved by our Board of Directors and supported by the Chief

Executive, directors and management at all levels. The Board has ultimate

responsibility for the Code.

The Audit Committee monitors the Code’s implementation and our compliance

with it. The Audit Committee reports to the Board on the effectiveness of our

internal controls and on the ongoing process for identifying, evaluating and

managing significant business risks, including potential violations of the Code.

The Code Compliance Council for the Code of Business Ethics (‘the Council’) acts

as the steering committee for our ethics programme. The Senior Vice President –

Ethics & Compliance reports to the Audit Committee periodically on ethical issues

and suspected or actual breaches of the Code.

The Chief Executive and his leadership team champion the Code through several

routes. These include:

discussing ethics issues and Code compliance at management meetings

reviewing ethics issues in the performance review system for managers, and

examining Code compliance issues during site-level internal audits.

Managing specific issues

Every Smiths employee must know, understand and comply with the Code at all

times.

We encourage employees who have concerns or queries about the Code to raise

them by contacting line management, human resources, their business or divisional

legal counsel or the confidential Smiths Group Ethics Alertline.

The Ethics Alertline answers queries and enables employees to confidentially

report any concerns or allegations. It is available via email, the internet and toll-

free phone numbers in 53 countries, and is staffed by people who speak the local

language. All issues are addressed promptly and referred, as required, to relevant

functions so they can be properly investigated. We have a non-retaliation policy,

which means that any employee who in good faith reports any act of apparent

misconduct or unethical behaviour will not be victimised or treated adversely.

Information about the Ethics Alertline and Code compliance is available to

employees on our intranet in 12 languages. Posters are also on display at our sites

and we provide all employees with a printed copy of the Code.

To communicate the Code, we provide ethics training to employees across the

Group. This training course is available online in English and five other languages,

through a custom-built platform, the Global Learning Resource (GLR), and

installed on a Smiths training portal accessible through the internet. The course is

also available on CD-ROM. The GLR and portal are designed to support future

employee training in the areas of business ethics, compliance, safety and security.

Smiths ongoing business ethics programme

In 2011, we reviewed and updated all of our policies, including business controls,

in order to mitigate changing areas of risk. This is an ongoing process.

The Code provides the foundation for our commitment against bribery and any

form of corruption. We recently completed a general review of our ethics

programme to take into account changes in the law and enforcement procedures in

several countries, including the UK and the US. This includes the UK Bribery Act,

which took effect in July 2011.

We continually review, evaluate and update our ethics programme, systems and

procedures for fostering, monitoring and auditing ethical business conduct.

FTSE4Good

The FTSE4Good Index acknowledges companies that meet globally recognised

corporate responsibility standards. Smiths continues to be awarded membership of

the index, scoring 91 out of 100 on the FTSE4Good Environmental, Social and

Governance rating. While we are not complacent about the ongoing work required,

we were pleased to receive this external recognition of our corporate responsibility

initiatives and business ethics programme.

Ethics and Corporate Responsibility

Walmart, the world’slargest retailer, hasgone green. Since 2005 it has worked to

plan and execute a sustainability strategy thatincludes using renewable energy

sources, reducing its waste, and selling sustainableproducts. A packaging scorecard

helps Walmart’s 60,000 suppliers learn about Walmart’sexpectations and guides

the firm in making its purchasing decisions. The company hasbuilt energy-efficient

stores and retrofitted others, and it offers reusable shopping bagsmade of recycled

materials. Although Walmart doesn’t disclose financial details on thegreen

initiative, it says the program is already saving money and resources, and it

projectsbillions in savings over time. 1