Ethical Business Operations PDF

**Chapter Three** **Ethical Business Operation** **3.1 Ethical Concerns in Business** - Business ethics is principles and standards that determine acceptable conduct in business organizations. - Ethical issue is an identifiable problem, situation, or opportunity that requires a perso...

**Chapter Three** **Ethical Business Operation** **3.1 Ethical Concerns in Business** - Business ethics is principles and standards that determine acceptable conduct in business organizations. - Ethical issue is an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical - Many of ethical issues relate to decisions and concerns that managers have to deal with daily. It is not possible to discuss every issue, of course. However, a discussion of a few issues can help you begin to recognize the ethical problems with which businesspersons must deal. - Most of ethical issues in business can be categorized in the context of their relation to **conflicts of interest**, **fairness and honesty**, **communications**, and **business associations**. a. **Conflict of Interest**: A conflict of interest exists when a person must choose whether to advance his or her own personal interests or those of others. - **For example**, a manager in a corporation is supposed to ensure that the company is profitable so that its stockholder-owners receive a return on their investment. In other words, the manager has a responsibility to investors. If she instead makes decisions that give her more power or money but do not help the company, then she has a conflict of interest---she is acting to benefit herself at the expense of her company and is not fulfilling her responsibilities. - To avoid conflicts of interest, employees must be able to separate their personal financial interests from their business dealings. b. **Fairness and Honesty**: Fairness and honesty are at the heart of business ethics and relate to the general values of decision makers. - At a minimum, businesspersons are expected to follow all applicable laws and regulations. But beyond obeying the law, they are expected not to harm customers, employees, clients, or competitors knowingly through deception, misrepresentation, coercion, or discrimination. - A recent survey showed that nearly one-fourth of workers have been asked to engage in an unethical act at work, and 41 percent carried out the act. c. **Communications**: Communications is another area in which ethical concerns may arise. - False and misleading advertising, as well as deceptive personal-selling tactics, anger consumers and can lead to the failure of a business. - Truthfulness about product safety and quality are also important to consumers. **For example:** In the pharmaceutical industry**, for example**, dietary supplements, such as herbs, are sold with limited regulation and testing, and many supplements are sold by small, independent marketers. Some tests show that herbs, such as ginseng, may be sold without enough of the active ingredients to be effective. d. **Business Relationships**: The behavior of businesspersons toward customers, suppliers, and others in their workplace may also generate ethical concerns. - Ethical behavior within a business involves keeping **company secrets**, **meeting obligations** and **responsibilities,** and **avoiding undue pressure that may force others to act unethically.** Managers, in particular, because of the authority of their position, have the opportunity to influence employees' actions. **For example**, a manager can influence employees to use pirated computer software to save costs. The use of illegal software puts the employee and the company at legal risk, but employees may feel pressured to do so by their superior's authority. **3.1.2 Social Responsibility of Business** Many consumers and social advocates believe that businesses should not only make a profit but also consider the social implications of their activities. We define ***social responsibility*** as a business's obligation to maximize its positive impact and minimize its negative impact on society. Although many people use the terms social responsibility and ethics interchangeably, ***they do not mean the same thing.*** - ***Business ethics*** relates to an individual's or a work group's decisions that society evaluates as right or wrong, whereas ***social responsibility*** is a broader concept that concerns the impact of the entire business's activities on society. - From an ethical perspective, **for example,** we may be concerned about a health care organization or practitioner overcharging the provincial government for medical services. - From a social responsibility perspective, we might be concerned about the impact that this overcharging will have on the ability of the health care system to provide adequate services for all citizens. - The most basic ethical and social responsibility concerns have been codified as ***laws and regulations that encourage businesses to conform to society's standards, values, and attitudes.*** - At a minimum, managers are expected to obey these ***laws and regulations***. Most legal issues arise as choices that society deems unethical, irresponsible, or otherwise unacceptable. However, all actions deemed unethical by society are not necessarily illegal, and both legal and ethical concerns change over time. - ***Business law refers*** to the laws and regulations that govern the conduct of business. - Many problems and conflicts in business can be avoided if owners, managers, and employees know more about business law and the legal system. - Business ethics, social responsibility, and laws together act as a compliance system requiring that businesses and employees act responsibly in society. - As with ethics, managers consider social responsibility on a daily basis as they deal with real issues. Among the many social issues that managers must consider are their firms 'relations with employees, government regulators, owners, suppliers, customers, and the community. 1. Business helped to create many of the social problems that exist today, so it should play a significant role in solving them, especially in the areas of pollution reduction and cleanup. 2. Businesses should be more responsible because they have the financial and technical resources to help solve social problems. 3. As members of society, businesses should do their fair share to help others. 4. Socially responsible decision making by businesses can prevent increased government regulation. 5. Social responsibility is necessary to ensure economic survival: If businesses want educated and healthy employees, customers with money to spend, and suppliers with quality goods and services in years to come, they must take steps to help solve the social and environmental problems that exist today. 6. It sidetracks managers from the primary goal of business---earning profits. Every dollar donated to social causes or otherwise spent on society's problems is a dollar less for owners and investors. 7. Participation in social programs gives businesses greater power, perhaps at the expense of particular segments of society. 8. Some people question whether business has the expertise needed to assess and make decisions about social problems. 9. Many people believe that social problems are the responsibility of government agencies and officials, who can be held accountable by voters. **THE ROLE OF ETHICS IN BUSINESS** - There are good business reasons for a strong commitment to ethical values: 1. Ethical companies have been shown to be more profitable. 2. Making ethical choices results in lower stress for corporate managers and other employees. 3. Our reputation, good or bad, endures. 4. Ethical behavior enhances leadership. 5. The alternative to voluntary ethical behavior is demanding and costly regulation. - It is important to understand that business ethics goes beyond legal issues. - Ethical conduct builds trust among individuals and in business relationships, which validates and promotes confidence in business relationships. - Establishing trust and confidence is much more difficult in organizations that have established reputations for acting unethically. - ***For instance***, if you were to discover, for example, that a manager had misled you about company benefits when you were hired, your trust and confidence in the company would probably diminish. And, if you learned that a colleague had lied to you about something, you probably would not trust or rely on that person in the future. 3. **Stakeholders Expectations and Requirements** In a business context, stakeholders refer to customers, investors and shareholders, employees, suppliers, government agencies, communities, and many others who have a "stake" or claim in some aspect of a company's products, operations, markets, industry, and outcomes. These groups are influenced by business, but they also have the ability to influence businesses; thus, the relationship between companies and their stakeholders is a two-way street. Sometimes activities and negative press generated by special interest groups can force a company to change its practices. Many firms experienced conflicts with key stakeholders, and consequently damaged their reputations and shareholder confidence. While many threats to reputation stem from uncontrollable events and the environment, ethical misconduct is more difficult to overcome than poor financial performance. Stakeholders who are most directly affected by negative events will have a corresponding shift in their perceptions of a firm's reputation. On the other hand, firms such as financial institutions that receive negative publicity for misconduct destroy trust and tarnish their reputations, which will make it more difficult to retain existing customers or attract new ones. We may classify stakeholders in to two different categories. These are **primary** stakeholders and **secondary**. a. **Primary stakeholders**. These are stakeholders whose continued association is absolutely necessary for a firm's survival. These include **employees,** **customers**, **investors**, and **shareholders**, as well as the **governments** and **communities** that provide necessary infrastructure. Some firms take actions that can damage relationships with primary stakeholders. Ethical corporate cultures are linked to positive relationships with stakeholders. Concern for stakeholders' needs and expectations is necessary to avoid ethical conflicts. b. **Secondary stakeholders**. They do not typically engage in transactions with a company and thus are not essential for its survival. These include the **media**, **trade associations,** and **special interest groups.** Both primary and secondary stakeholders embrace specific values and standards that dictate what constitutes acceptable or unacceptable corporate behaviors. It is important for managers to recognize that while primary groups may present more day-to-day concerns, secondary groups cannot be ignored or given less consideration in the ethical decision making process. The Interactions between a Company and Its Primary and Secondary Stakeholders can be presented as follows: In the above stakeholder interaction model, there are two-way relationships between the firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges the dialogue that exists between a firm's internal and external environments. The following table presents a list of selected issues that are important to various stakeholder groups and how corporations impact these issues: +-----------------------------------+-----------------------------------+ | Stakeholder Groups and Issues | Potential Indicators of Corporate | | | Impact on These Issues | | | | | | Employees | +===================================+===================================+ | **Employees** | | +-----------------------------------+-----------------------------------+ | Compensation and benefits | Ratio of lowest wage to national | | | legal | | | | | | minimum or to local cost of | | | living | +-----------------------------------+-----------------------------------+ | Training and development | Changes in average years of | | | training of employees | +-----------------------------------+-----------------------------------+ | Employee diversity | Percentages of employees from | | | | | | different genders and races | +-----------------------------------+-----------------------------------+ | Occupational health and safety | Standard injury rates and | | | absentee rates | +-----------------------------------+-----------------------------------+ | Communications with management | Availability of open-door | | | policies or ombuds | +-----------------------------------+-----------------------------------+ | **Customers** | | +-----------------------------------+-----------------------------------+ | Product safety and quality | Number of product recalls over | | | time | +-----------------------------------+-----------------------------------+ | Management of customer complaints | Number of customer complaints and | | | | | | availability of procedures to | | | answer them | +-----------------------------------+-----------------------------------+ | Services to disabled customers | Availability and nature of | | | measures taken | | | | | | to ensure services to disabled | | | customers | +-----------------------------------+-----------------------------------+ | **Investors** | | +-----------------------------------+-----------------------------------+ | Transparency of shareholder | Availability of procedures to | | | inform | | communications | | | | shareholders about corporate | | | activities | +-----------------------------------+-----------------------------------+ | Shareholder rights | Frequency and type of litigation | | | involving | | | | | | violations of shareholder rights | +-----------------------------------+-----------------------------------+ | **Suppliers** | | +-----------------------------------+-----------------------------------+ | Encouraging minority suppliers | Percentage of minority suppliers | +-----------------------------------+-----------------------------------+ | **Community** | | +-----------------------------------+-----------------------------------+ | Public health and safety | Availability of emergency | | protection | response plan | +-----------------------------------+-----------------------------------+ | Conservation of energy and | Data on reduction of waste | | materials | produced and | | | | | | comparison to industry | +-----------------------------------+-----------------------------------+ | Donations and support of local | Annual employee time spent in | | | community service | | Organizations | | +-----------------------------------+-----------------------------------+ | **Environmental Groups** | | +-----------------------------------+-----------------------------------+ | Minimizing the use of energy | Amount of electricity purchased; | | | percentage of "green" electricity | +-----------------------------------+-----------------------------------+ | Minimizing emissions and waste | Type, amount, and designation of | | | waste generated | +-----------------------------------+-----------------------------------+ | Minimizing adverse environmental | Percentage of product weight | | | reclaimed after use | | effects of goods and services | | +-----------------------------------+-----------------------------------+