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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