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SCHOOL OF BUSINESS BUS 4070BUSINESS ETHICS AND VALUES WEEK 2: THE IMPORTANCE OF BUSINESS ETHICS? Nicholas Kimani, PhD[1] KEY LESSON Recent years have seen the media filled with reports of corporate misconduct. And many suspect that these represent only the tip of the proverbial iceberg. This is why people receive the term ‘business ethics’, as a contradiction in terms. In truth, the most balanced response is to accept the criticism in good faith. However, one should not succumb to the criticism with cynicism. After all, one might add that the challenge for business ethics is to move from the fundamental to the instrumental.

That is, it is generally accepted that there is conscience and ethics are not inimical (harmful) to the fiscal goals for business. However the need to focus on making the concepts of business ethics to be more instrumental (i. e. practical) is glaring. Put another way, we have accepted the need for ethics in governance, and now we should be focussing on the governance of ethics. This is no easy task. But the goal of business ethics is to one day arrive at the corporation with a conscience. Teaching and training business ethics does not promise to provide answers to complex moral dilemmas.

All the knowledge in the world cannot guarantee to make a person more ethical. With any study, it is up to the individuals how well, or even whether, they translate learning into practice. However, thoughtful and resourceful business ethics educators can facilitate the development of awareness of what is and is not ethical; help individuals and groups realize their ethical tolerance and decision-making styles; decrease unethical blind spots; and enhance a curiosity and concern to discuss moral problems openly in the workplace.

Business ethics can make it difficult for people to behave immorally by exposing them to ethical issues and ethical issues and ways of resolving them. Instruction in business ethics is not to make fun of the discipline; rather it may have the following purposes: 1) To push the reflective person to think more deeply about the nature and purpose of business in our society and about the ethical choices individuals inevitably make in their business and professional lives. 2) To increase the manager’s sensitivity to ethical problems; 3) Encourage critical evaluation of value priorities; 4) Increase awareness of organizational realities; ) Improve understanding of the importance of public image and public/ societal relations. To this list we might add some desirable goals: 1) To examine the ethical facets of business decision making; 2) To bring about a greater degree of fairness and honesty in the workplace; and 3) To respond more completely to the organization’s social responsibilities. There will obviously be difficulties in training managers in such an amorphous subject as ethics. Business ethics has a multidisciplinary character. Questions of economic policy and business practice intertwine with issues in politics, sociology and organizational theory.

Although business ethics remains anchored in philosophy, even here business ethics remains anchored in philosophy. Even here abstract theoretical points and political philosophy mingle with analysis of practical problems and concrete moral dilemmas. Furthermore, business ethics is not just an academic study but an invitation to reflect on our own values and one our own responses to the difficult moral choices that the world of business can pose. These difficulties, however, should not preclude serious attempts and experimentation with case studies, incidents, role-playing, and discussion of crucial ethical issues.

The assumption made in studying business ethics is the same assumption made in any academic study of any areas of business. That is, the ability to tackle the problems of business can be enhanced by formal, rigorous study. CASE STUDY: WHAT IS BUSINESS ETHICS? Introduction Confronted with an unfamiliar subject, many people insist on starting with a definition. They ask: how can we know what is being talked about unless first we are told what it is? In One L, Scott Turow quotes from the opening lecture of one of his law professors: “You are going to have an enormous power to do bad things when you finish your education here.

When you get into practice, you’ll be shocked at the incredible opportunities you have to mess up other people’s lives. That’s not funny”, he told us, “although for some reason most law school professors don’t like to talk about the destructive capacity you’ll all hold as lawyers. I hope we can talk about that in here, and I hope we can talk about some of the good things you can do, which, unfortunately, are often a little harder to accomplish”[2]. Some would argue that it is too late to raise questions of values and ethics with students who are in their 20’s and 30’s, that such people are totally formed and unchangeable.

However, I reject that assertion emphatically. These students are at a critical stage in the development of their perceptions about capitalism, business practice, and the appropriate resolution of ethical dilemma’s in business. This is a period for inquiry and reflection. It takes time to develop sufficient strength and sophistication to acknowledge the presence of ethical dilemmas in business, to imagine what could be, to recognize explicitly avoidable and unavoidable harms. Having said all that, one would also agree that the activity of business (or money making) has always stood in uneasy alliance with ethics.

Sometimes it has seemed contradictory or at least several worlds apart. This is discernible by first determining the nature of business and the nature of ethics 1) What is the nature of business? Business is something very specific and limited. Business is but a small part of human existence, albeit a very important one. The classic statement ‘business is business’ is highlights the fact that business has boundaries and that it specifies something particular and distinctive. However this classic statement does not specify what makes business different from all other undertakings and organizations.

What distinguish business are its characteristic objectives. What are the objectives of business? The defining purpose of business is to maximize owner value over the long term by selling goods or services. This statement is key to understanding business and, consequently, understanding the foundations of business ethics. To many, this is very obvious, and it is why subjects such as accounts and corporate finance still take financial gains for owners to be the evident and undisputed end of business. However, such a narrow definition is increasingly being seen as controversial.

The modern trend is that business exists for the financial benefit of the owners BUT ALSO for social, psychological, political and economic objectives. Some illustrations: • Businesses give back to society and their local communities; • Businesses are obliged by law to pursue varied ends i. e. do things other than maximise long-term owner value e. g. they are required to act as tax collectors (VAT and PAYE). It is precisely because business is inseparably intertwined with other activities and objectives in practice, that defining business activity strictly is so important.

This is why it may be more desirable to term the defining purpose of business as maximising stakeholder value over the long term by selling goods or services. The term ‘maximising long-term stakeholder value’ requires clarification with regard to the meaning of ‘maximising’ ‘long-term’, ‘stakeholder’ and ‘value’. Meaning of ‘maximising’ It is essential that the objective be to maximise owner value, not just to increase or promote or sustain it. Maximisation reinforces business’ long-term view i. e. forward thinking. Meaning of ‘long-term’ The term ‘long term’ highlights the fact that: Actions have long-term consequences. Therefore businesses have to consider the future effects of their current actions. • ‘Long term’ also serves as a reminder that business is normally assumed to be a sustained activity, not a temporary one. • In most circumstances, a business will be able to generate greater owner value if it operates over an extended period. Meaning of ‘stakeholder’ The term stakeholder is popularly used to designate those groups without which whose support the business could not survive—the customers, employees, lenders, and local community.

They hold economic, political, social and moral stakes or interests in particular business and ethical outcomes. Increasingly, the term ‘stakeholder’ has been used much more broadly, to include everything and everyone who might have a stake in the business or be affected by it. In this extended sense, it has been taken to include the media, competitors, and future generations. The stakeholder theory of business typically holds that business is accountable to all its stakeholders, and that the role of management is to balance their competing interests. The stakeholder theory incorporates at least four fundamental errors: ) It is erroneous to assume all stakeholders are of equal importance to a business. For example, all, including businesses are equal under government. 2) Stakeholder theory rests on confusion about the nature of accountability. Businesses are more accountable to some groups e. g. the owners (because it is their property) or government, than others e. g. local communities. The same is true for suppliers, lenders, employees and customers. To recognise that a business affects them, and must to some degree be functionally responsive to them, is quite different from saying that it is accountable to them.

In the absence of a written contract, business is not accountable to them. 3) Stakeholder theory effectively destroys business accountability. In substituting a notional accountability to all stakeholders for all direct accountability to owners, the result is that accountability is rendered too diffuse, which is impractical and effectively non-existent. 4) There is no objective basis for evaluating business action. Stakeholder theory provides no guidance as to how competing interests are to be ranked or reconciled. It is not clear how conflicting interests are to be balanced, whether some interests are more important than others,

Meaning of ‘value’ The term ‘value’ is systematically ambiguous: it can mean different things in different contexts. In the definition of business, value is simply financial value. In stressing the primacy of financial value within business, it does not deny the relative ranking of other values, such as ethical, spiritual or artistic. • Stakeholder value is more important than wealth, assets and revenues. The term wealth implies amassing funds, while assets may not always be utilized or they may not even be worth having. • Stakeholder value is more important than profits.

Profits can be window-dressed or subjected to window-dressing. • Stakeholder value is more important than share price. Share price is determined by investors, who may exhibit irrational reasons for going after particular shares. WHAT BUSINESS IS NOT! 1) Business is not ‘one big happy family’ The more managers consider their staff to be ‘one big happy family’, the more likely it is that basic moral issues will be confused, and that the ends of both business and of family will be subverted. Family members are kept and cared for, come what may.

Business, in contrast only exists to maximise long-term stakeholder value. 2) Business is not a club Business is not a club; its members’ shared interests, amusements or values typically define a club. By contrast, business has a definitive purpose to accomplish, and selects candidates for their ability to contribute towards maximising long-term stakeholder value. 3) Business is not a Hobby, Game A hobby is something done in one’s free time to pass the time agreeably. By their very nature, hobbies are subordinate to activities with higher priorities. Business in contrast has a purpose to be achieved.

Its commitment towards maximising long-term stakeholder value means that it cannot be abandoned just because it ceases to be fun or convenient. Business affects peoples’ lives and livelihoods, and should not be taken lightly; when business creates expectations, it has a responsibility to correct or to fulfil them. 4) Business is not government Businesses are definitively different from governments. Governments are deeply involved in business, in regulating and in owning businesses. Businesses are often required by law to act as agents of the state e. g. collecting taxes. Business also requires effective corporate governance. Business is a specific limited activity, whose purpose is to maximise long-term stakeholder value by selling goods or services. • The purpose of government is to provide the enabling environment within which business can be pursued. 2) What is the nature of ethics? Ethics is commonly defined as a set of principles prescribing a behaviour code that explains what is good and right or bad and wrong. Ethics can also be understood as the study of judgements concerned with moral right or wrong, that is, with judgements based on moral standards. Ethical concerns can arise in respect of any and all business activities.

They do not necessarily have to be associated with scandals. As a result the need to consider business ethics is a central inescapable fact of business life. Ethical concerns permeate every aspect of business activity because ethical concerns permeate all human activity. Activities such as decision making, arbitration, marketing and sales, personnel appraisal, financial reporting, leadership, hiring and firing, choosing suppliers, setting prices, establishing objectives, allocating resources, determining dividends, disciplining workers, awarding contracts…all involve ethical choices.

Managers and other employees must be able to see the ethical issues in the choices they face, make decisions within an ethical framework, and build and maintain an ethical framework. The ways a business conducts itself in its ordinary, everyday, routine activities, is the key determinant of whether a business is ethical. They are as important as the way it deals with crises. Roots of ethical behaviour Ethical behaviour of employees is rooted in the following: The general culture The culture of a country has established norms and values that guide a people as a whole.

They are encompassed in the basic values and community standards and formalized into law (which may also be enshrined in the constitution). Also important are community standards, values established by custom and accepted by the majority of a region or individual community as right and proper behaviour. Examples are respect for the sick and aged, concern for supporting charities. Community standards reflect the values held by individual community members, and value systems developed through interaction with family, church and schools.

The Organization The values of an organization—as reflected in management philosophy, its culture, and the products or services it offers—echo the values of the individuals who make it up: employees, supervisors, managers, chief executive officer and top-leaders. Some commonly held organizational values are the importance of resources, return on investment, welfare of employees, service to customers and clients. Although the goals and values of an organization may be implicit or explicit, to a growing extent they are being placed in writing.

Many companies have adopted codes of ethics, or include sections in their policy statements that relate explicitly to the ethical realm. They address such issues as leadership, integrity, equity, employee rights, employee development, participation in policy formulation, non-discrimination, quality of work life etc The employee People’s own values are a reflection of their home life and rearing, education and training, and religious beliefs. They bring these values to the performance of their jobs. Examples are competence, honesty, sense of personal responsibility, completing a task on time, and pride in workmanship. DEFINING BUSINESS ETHICS

There is no one best definition of business ethics. There is, however, consensus that business ethics is an area that requires reasoning and judgement based on both principles and beliefs in making choices to balance economic self-interests against social and welfare claims. Ethical solutions may have more than one right alternative, and sometimes no right alternative. Logical and ethical reasoning is therefore necessary to understand and think through complex moral problems in business situations. Some definitions: 1. Business ethics is the art and discipline of applying ethical principles to examine and solve complex moral dilemmas.

Business ethics asks, what is right and wrong? Good and bad”. 2. Business ethics is ‘the study of how personal moral norms apply to the activities and goals of commercial enterprise’. Business ethics deals with three basic areas of managerial decision-making: (1) choices about what the law should be and whether to follow it; (2) choices about economic and social issues outside the law’s domain; and (3) choices about the priority of one’s self-interest over the company’s. 3. Business ethics concentrates on how moral standards apply particularly to business policies, institutions and behaviour.

Business ethics generally falls into three basic areas of managerial decision-making: 1) Choices about the law—what it should be and whether or not to obey it; 2) Choices about the economic and social issues that are beyond the law’s domain—usually called the ‘grey areas’. This concerns the tangible and intangible ways one treats others, and includes the moral notions of CHAPELFIRZ. 3) Choices about the pre-eminence of one’s own self-interest—the degree to which one’s own well being comes before the interests of the company or of other people inside and outside the company.

Included are decisions concerning the rights of owners, and other stakeholders. The ways in which such choices are framed, analysed and either maintained or abandoned form the basis of the business ethics inquiry. The validation of business ethics, however unpopular the term, is simply a way of acknowledging that, indeed, there are choices to be made concerning the means and ends of business that have an essentially moral ingredient. What are the most common ethical issues in business? • Employee conflicts of interest • Sexual harassment • Managers lying to employees Expense-account abuses at high levels (to get reimbursed for questionable business expenses) • Office nepotism and favouritism • Taking credit for others’ work • Giving or receiving bribes • Stealing from the company • Firing an employee for whistle-blowing • Divulging confidential information or trade secrets • Terminating employment without giving sufficient notice • Using company property and materials for personal use. Such ethical dilemmas are at the core of every manager’s job, and their resolution rests partly on the manager’s personal values, as well as on many conditions beyond his or her control.

An ethical resolution to these situations requires discretional judgement about degree, overall goals, immediate logistical problems, other trade-offs, chances of success etc. Other familiar ethical quandaries include the following: • Greed • Cover-ups and misrepresentatives in reporting and control procedures • Misleading product or service claims • Reneging or cheating on negotiated terms • Establishing policy that is likely to cause others to lie to get the job done • Disloyalty to the company as soon as times get rough • Poor quality Humiliating people at work or by stereotypes in advertising • ‘Blind’ obedience to authority, however unethical and unfair it might be • Suppression of basic rights: freedom of speech, choice and personal relationships • Failing to speak up when unethical practices occur • Neglect of one’s family, or neglect of one’s personal needs • Making a product decision that perpetrates a questionable safety issue • Knowingly exaggerating the advantages of a plan in order to get support • Courting the business hierarchy versus doing the job well • Climbing the corporate ladder by stepping on others Lying by omission to employees for the sake of the business. Where does the most unethical behaviour take place? • Government • Sales • Law • Media • Finance • Medicine • Banking • Manufacturing What are the important causes of unethical behaviour? In understanding and summarizing some of the important causes of unethical behaviour: 1) Personal gain. It is important to recognize the role of temptation in unethical behaviour or decision-making. The anticipation of support for following unethical behaviour may ‘encourage’ further unethical decisions. ) Competition. Stiff competition for scarce resources can stimulate unethical behaviour or decisions. 3) Culture. Aspects of an organization’s culture (and its sub-cultures) can influence the ethics of decision-making. Factors such as consideration for employees, respect for the law, respect for organizational rules (including codes of ethics), differences across groups within the organizations, peer and superior conduct (including role models) are capable of influencing ethical behaviour for good or bad. 4) Personality. Individual personalities matter.

A person’s moral philosophies, a person who is more self-conscious about moral matters will be more likely to avoid unethical behaviour or decisions. DEVELOPMENT OF BUSINESS ETHICS The study of business ethics, in North America, has evolved through a number of distinct stages. It is important to understand this process of evolution, so as to understand the direction business ethics is likely to take in the 21st Century. i) Before 1960’s: Ethics in business Before the 1960s the Protestant and Catholic churches often discussed ethical issues related to business theologically.

Religious leaders raised questions about fair wages, labour practices, workers rights and living conditions, and for improving the conditions of the poor. Some religious colleges and universities developed courses on ethics in business. Such religious traditions provided a foundation for the future field of business ethics. Each religion applied its moral concepts not only to business, but also to government, politics, and to family and personal life. For example, the Protestant work ethic encouraged individuals to be frugal, honest, work hard, and attain success in the capitalistic system. i) The 1960s: The rise of social issues in business During the 1960s, American society turned to causes. Widespread criticism arose regarding pollution and decay of inner-city areas. This period saw the rise of consumerism: i. e. activities undertaken by independent individuals, groups and organizations to protect their rights as consumers. iii) The 1970s: Business ethics as an emerging field Business ethics began to develop as a field of study in the 1970s. Theologians and religious thinkers had already laid the foundations by suggesting that certain religious principles could be applied to business activities.

Consequently, academics began to teach and write about corporate social responsibility. Philosophers began to apply ethical theory to philosophical analysis to structure the area of business ethics. Businesses became more concerned with their public images, and as social demands grew, they realised they had to address ethical issues more directly. By the end of the 1970s a number of major ethical issues had emerged, such as bribery, deceptive advertising, product safety and the environment. The term business ethics had become a common expression.

Academic researchers sought to identify ethical issues and describe how business people might choose to act in particular situations. However, only limited efforts were made to describe how the ethical decision-making process worked and to identify the many variables that influence the ethical decision making process in organisations. iv) The 1980s: Consolidation In the 1980s business academics and practitioners acknowledged business ethics as a field of study. A growing group of institutions with diverse interests promoted the study of business ethics.

Many firms established ethics committees and social policy committees to address ethical issue. At this time, the Reagan and Bush eras took the view that self-regulation, rather than regulation by the government, was in the public interest. Because of deregulation, businesses had more freedom to make decisions in their operations at national and international levels. However the government was also developing stringent laws to control firms that were involved in misconduct. v) The 1990s: Institutionalisation of business ethics

While the Clinton administration supported self-regulation and free trade, it also supported the concept of organizational accountability for misconduct and damages. The study of business ethics began to evolve to its present form. Business ethical issues could be dealt with in a pragmatic way, seeking solutions for specific managerial issues. They could also be approached from the perspective of law, philosophy, theology, or social sciences. During this period, an attempt was made by business managers, academics and the government to link the concepts of ethical responsibility and decision-making within the organization. i) 2000 and beyond The current trend is to move away from legally based ethical initiatives in organizations to cultural or integrity-based initiatives that make ethics a part of core organizational values. Firms that have developed proactive culturally based organizational ethics initiatives have helped support many positive and diverse organizational objectives, such as profitability, hiring, employee satisfaction, customer loyalty and supply-chain relationships. At an international level, the development of global codes of ethics reflects common ethical concerns for global firms.

WHY IS IT IMPORTANT TO STUDY BUSINESS ETHICS? 1) Inquiring into the ethics of business activity is important because it is inescapable. Societies are structured around moral rules. Businesses have to operate in a social structure that is as much ethical as it is legal, political or economic. This means that business decisions can be as much constrained by the ethical environment as by the legal, political, or economic environments. 2) It helps the business to make informed choices, by providing greater awareness of what is important in business activities, and can therefore improve business performance.

Empowering the people who exercise or will exercise power in business is an inevitable process of professionalization. It is possible because the principles of business ethics clarify the proper goals of business and the conditions of achieving them. 3) When the principles of business ethics are not properly understood, a business’ attempts to do good may be self-defeating. Business is constantly requested to support charitable causes in the name of business ethics. Some of these requests are made under false pretences.

Unless the business is able to distinguish the genuinely ethical from the counterfeit, it is likely to find its ethical impulses perverted and its resources hijacked to unsuitable ends. 4) Many times laws are insufficient and do not cover all aspects or ‘grey’ areas of a problem. That is, law, formal policy and written may not always be clear in certain situations to enable those who must act to do so with clear unquestionable authority. Ethics plays a role in business because laws are often absent or insufficient to guide morally complex decisions. ) Free market and regulated-market mechanisms do not effectively inform owners and managers about how to respond to complex crises that have far-reaching ethical consequences—e. g. environmental disasters, discrimination etc. 6) Ethical reasoning is necessary because complex moral problems require an intuitive or learned understanding and concern for fairness, justice, due process to people, groups and communities. Company policies and procedures are limited in scope and detail in covering human, environmental and social costs of doing business.

Thus, teaching business ethics has been the subject of much debate and controversy about whether managerial ethics can and should be taught. One view is that it is unnecessary since business ethics are already embedded in managers. A growing school of thought, on the other hand, argues that instruction in business ethics should be made a part of management training, development programs, and seminars. A number of purposes of ethics training are suggested: • To increase the manager’s sensitivity to ethical problems; • To encourage critical evaluation of value priorities; • To increase awareness of organizational realities; To improve understanding of the importance of public image and public/ societal relations; To this list we might add some desirable goals: • To examine the ethical facets of business decision making • To bring about a greater degree of fairness and honesty in the workplace; • To respond more completely to the organization’s social responsibilities. There will obviously be difficulties in training managers in such an amorphous subject as ethics. These dificulties, however, should not preclude serious attempts and experimentation with case studies, incidents, role playing, and discussion of crucial ethical issues.

What are the costs of being unethical? 1) Failure to recognise and address ethical problems can lead to very substantial damage: in legal and monetary terms. In recent years, being unethical can cost a business its life. In almost all cases, ‘bad ethics’ is bad business; the short-term gains that may be won by unethical conduct seldom pay in the end. 2) An unethical business is unlikely to maximise long-term stakeholder value. • The business that characteristically cheats steals and breaks promises, is difficult and unrewarding to deal with. Such business is unlikely to retain its suppliers, customers or employees 3) Even in the short run, businesses whose conduct is unethical, or who do not understand the requirements of business ethics may be placed at a disadvantage when dealing with problems which have unsuspected ethical elements. Why do business people resist learning business ethics? Some business people are resistant to the mention of business ethics. Some are defensive about business’ inferior ethical conduct. Others deny there can be or should be any such thing as business ethics.

Business people resist learning business ethics for the following reasons: 1) Much of what masquerades as business ethics has nothing to do with either business or ethics. They say that demands for ‘social responsibility’ should fall into this category. Attempts to re-interpret business practice undermines the reputation of ethics and hinders attempts to improve business. People involved in business should focus their resources in pursuit of the firm’s profit. In perfectly competitive markets the pursuit of profit will by itself ensure that the members of society are served in the most socially beneficial ways.

Thus businesses should devote themselves to producing efficiently what the members of society themselves value. • HOWEVER, markets are not perfectly competitive. Also profits can be produced in unethical ways e. g. deceptive advertising, fraud and bribery, tax evasion, price-fixing. Thirdly, the poor are hardly able to participate effectively in the market. 2) Business and ethics don’t mix. They say that ‘business is business’, meaning that business is basically amoral (not necessarily immoral), since businesses operate in a free market.

They also add that management is based on scientific, not religious or ethical principles. • However this notion ignores the fact that business involves all of us. It is a human activity, not simply a scientific one, and as such can be evaluated from a moral perspective. Thus activities such as hiring or firing can be evaluated from a moral perspective. 3) Business ethics is like sex education. In both subjects, formal instruction is unnecessary and inappropriate for those who have been properly brought up; people are supposed to do the right thing naturally, without any need for outside help. ) Resistance to business ethics can also stem from the difficulties of recognizing, admitting and discussing ethical problems. The ‘moral muteness’ of managers is renown, particularly when discussing ethical concerns. Managers may also fear disturbing the status quo. They may fear being ostracised by their peers because of doing the right thing. They prefer to suppress their fears rather than confront them. 5) It is enough for business people merely to obey the law. This is the objection that to be ethical it is enough for people merely to obey the law.

Business ethics is essentially obeying the law • HOWEVER, some laws have nothing to do with morality e. g. city by-laws, while other laws may even be contrary to morality e. g. discrimination. 6) Business ethics is common sense. Such people argue that as a result, there is no need to take special effort to learn business ethics. • In a sense principles of business ethics are sensible: grounded in the nature of business, they make sense of business and for business. They are fundamentally simple, and not being tied to any particular culture or religion, they are readily accessible to all. Nonetheless, business ethics is much more than common sense. Understanding what constitutes ethical conduct for business, and what makes such conduct ethical, normally requires both time and systematic analysis. Also, given the complexity and scope of modern business, business decisions often involve issues that need to be supplemented with an explicit framework for dealing with business ethics issues. 7) Personal ethics is enough. Some people believe that their personal, cultural or religious values are sufficient for dealing with specific business ethics issues.

According to Milton Friedman, ethics is not suitable for business professionals to address or deal with seriously or professionally, since they are not equipped or trained to do so. • Although it is true individuals make moral choices in life, most of their decisions are made is discussions, conversations, and group contexts. Organizational culture plays a major role in shaping and influencing member’s attitudes, perceptions and behaviour. Also, managers may experience business pressure to sacrifice their personal moral integrity for corporate goals. ) Good business means good ethics. The reasoning here is that executives and firms that maintain a good corporate image, practice fair and equitable dealings with customers and employees, and earn profits by legitimate legal means, are de facto ethical. Such firms, therefore, do not have to be concerned explicitly with ethics in the work place. • However, there is no correlation between being good and being materially successful. The ethical thing to do may not always be in the best interests of the firm.

Consequently, we must be prepared to do the ethical thing even if it costs us to do so. 9) Ethics in business is relative. This myth holds that there is no right or wrong way of believing or acting. Right and wrong are in the eyes of the beholder. The simplistic logic of ethical relativism can lead to chaos, since each person’s values would be right and true for him or her. 10) The loyal agent’s argument[3]. This holds that as a loyal agent of his employer, the manager has a duty to serve him in whatever ways will advance the firm’s self-interests. However this argument can be used to justify a manager’s unethical or illegal conduct, and therefore relies on several questionable assumptions: (1) there is no reason to assume an unproven moral standard of the employer; (2) this argument assumes that there no limits to the manager’s duties to serve the employer, when in fact such limits exist under the principles of agency; (3) the argument mistakenly assumes that if a manager agrees to serve a firm, then this agreement automatically justifies whatever the manager does on behalf of the firm.

WHAT ARE CHARACTERISTICS OF ETHICAL PROBLEMS IN MANAGEMENT? Five conclusions concerning the character of managerial ethics can be stated: 1) Most ethical decisions have extended consequences. The results of managerial decisions and actions do not stop with first-level consequences. Rather, these results extend throughout society e. g. bribes, pollution, and unsafe products. 2) Most ethical decisions have multiple alternatives. It is not merely a simple matter of ‘yes’ or ‘no’. 3) Most ethical decisions have mixed outcomes.

This creates dilemmas: costs versus benefits e. g. in working conditions, work force reductions, customer service, pricing, advertising messages, product promotions. 4) Most ethical decisions have uncertain consequences. It is not clear what consequences will follow from most ethical choices. Paying bribes, for example, may have short-term benefits, but uncertain long-term implications. 5) Most ethical decisions have personal implications. This is because of conflicts between the individual’s personal beliefs and the organizational culture and business pressures.

WHY IS BUSINESS ETHICS PARTICULARLY RELEVANT NOW? Although business ethics is universal in its scope and application, there are particular social, economic, technological and political reasons why business needs to pay exceptional heed to business ethics just now. Also important are the shifting attitudes and outlooks of their stakeholders. Even if we consider the purpose of business, in narrow terms, as the maximization of long-term owner value, business must still take into account everything, which affects achievement of that limited goal.

In the 21st Century, consumerism, social responsibility, demographic changes, global markets, environmentalism, management theories…have all raised public awareness of business conduct and the need for business to respect business ethics. Some reasons why business ethics is so relevant in the present time are as follows: 1) The actions of governments have highlighted business ethics issues: privatisations, redundancies, poor services rendered, higher costs, and (oftentimes), high pay of executives. Questions arise as to the ethics of such actions: is it to serve the public welfare or the interest of their stakeholders. ) With governments attempting to withdraw from sectors that they have dominated for decades, questions have arisen more generally as to the extent to which business should fill in the gaps. The prevalence of such demands makes it essential to investigate their ethical status • Hopes that business might support the arts or charity are not new. However, what is relatively new, is the transformation of homes into expectations and more strongly, into demands. What was once voluntary action is ever more frequently regarded as social responsibility. Also new is the extent to which business is being called upon to cure all the ills of society: to make safer products, improve employment conditions, save endangered species, and alter fundamental social attitudes. 3) With worldwide privatisations of what were state-owned assets, business methods and business activities are moving into more and more areas of economic activity in more and more countries. Multinational corporations have turnovers larger than the GNPs of many small countries. 4) Questions of business ethics have arisen due to economic reasons.

In a very competitive global market, businesses have to consider certain patterns of conduct that may have ethical dimensions e. g. bribery and fraud, sub-contracting to the developing world. 5) The growing voice of the media is increasingly being heard in the business world. The media is increasingly exposing business misconduct through investigative journalism. 6) The actions of stakeholder groups have made also made business ethics more important. The best employees are attracted by pay, job satisfaction, as well as the ethical nature of their employer.

Whereas previously consumers concentrated on the qualities of the product, the new trend is towards ‘vigilante consumerism’, in which consumption choices take into account the character of the producing firm. So the firm that wants to attract increasingly critical customers mush have a care for business ethics. Shareholders have stated to take an active interest in the way their firms are run. These ‘shareholder activists’ are no longer to express their dissatisfaction by selling their shares. They are prepared to assess management on the quality of their corporate governance. ) An increasing focus on business ethics is arising because of the changing nature of business itself. Business has become more international, complex and fast moving than previously. New issues have arisen in a multinational, multicultural context in which standards seem constantly in flux. 8) Ethical training can add value to the moral environmental of a firm and to relationships in the workplace in the following ways: • Finding a match between an employee’s and employer’s values • Handling an unethical directive from one’s boss Coping with a performance system that encourages cutting ethical corners. 9) Paying heed to business ethics has also been made more essential to changing corporate strategies and structures. • Total Quality Management (TQM), organizational process re-engineering and benchmarking have all led to traditional practices been overthrown. Layers of management have been removed, and hierarchies flattened. As a result, authority has been devolved more widely throughout businesses: key decisions are being made at ever-lower levels and by greater numbers of employees. It is therefore essential for everyone in the business, not just top management to have a thorough understanding of business ethics. All need to be aware of the organization’s key values and aims, and how they should be reflected in the business’ conduct. • For business ethics to be disseminated, however, it must first be understood. Understanding is important because the new structures also need to new complexities—of information management and team assembly and organization—for which there may be no traditional precedent. For ‘empowerment’ to be successful, a proper understanding of business ethics is vital.

Can business ethics be taught and trained? Given the complexity and often-vague nature of ethical problems and moral dilemmas, the question arises, “ Can business ethics be taught or instructed”. It may not reorder the priorities, but it may change the degree of importance. Ethics courses should not advocate a single set of rules to play by or offer one best or only solution to specific ethical problems. Ethical training can do the following: 1) Provide people with rationales, idea, and vocabulary to help them to participate effectively in the process of ethical decision-making. ) Help people ‘make sense’ of their environments by ‘abstracting’ and selecting ethical priorities. 3) Enable employees to act as alarm systems for company practices that will not pass society’s ethical tests. 4) Enhance conscientiousness and sensitivity to moral issues and commitment to finding moral solutions. 5) Enhance moral reflectiveness and strengthen moral courage. 6) Increase the ability of people to become morally autonomous ethical dissenters, and the conscience of a group. 7) Improve the moral climate of the firm by providing ethical concepts and tools to use for creating ethics codes. ) Provide intellectual weapons to do battle with advocates of economic fundamentalism and those who violate ethical standards. VALUES What are values? Ethics and values are closely connected. Values enter into practically every decision that a manager makes. Values are core belief about what is intrinsically desirable. They underlie the choices that people make at the workplace, just as in their personal lives. They give rise to ideals that are called ethics or morals. The word ethics is derived from Greek, while the word morals is derived from Latin.

They are interchangeable terms referring to ideals or character. These ideals, in the form of codes of conduct, furnish criteria for distinguishing between right and wrong. Ethical inquiry requires the decision maker to consider facts in light of the values, which she holds of important value. That is, words such as good, bad, right, wrong, obligation, ought, should and virtue are examples. Phrases such as “good person”, ‘that person is irresponsible”, “bribery is wrong”, “ his character”, provide other examples.

Any typical corporation consists of individuals who may each have their own moral code. Although all companies would prize ethical employees, there is no guarantee that they would actually behave ethically. Knowing what is right and wrong is a good thing, but applying these values is another matter. This is because everyone who makes decisions relies on a moral code. Decision makers may only be partially sensitive to the crosscutting loyalties, interests and preconceptions that actually shape their choices.

Importance of values in business Assuming that values are clearly communicated to all organizational members, one would expect the following desirable outcomes: 1) Harmony in values will provide a sense of common direction for all staff and guidelines for their daily behaviour. 2) Harmony in values will provide the social energy that moves the organization into action. Social energy is generated whenever people are working together as a community of persons with a common centre. This common centre denotes the organizational values. ) Harmony in values will permit upper management to influence employee behaviour without being present physically. By clearly communicating the values and doing everything reasonably possible to win a commitment to these values. Assuming success in this endeavour, then the organizational values will serve as the collective conscience for all members of the organization. 4) Harmony in values will provide a framework for managerial decision-making. Where the decision making of managers is guided by organizational values, it will allow them to move in the same direction as their peers. ) Harmony in values will provide a sense of stability and continuity in a rapidly changing environment. Most human beings have a basic need for stability and continuity, and in order to help employees maintain a reasonable sense of sanity, it would be helpful to communicate the organization’s values as enduring ideals. Values as guideposts for ethical decision- making In ethics, actions speak louder than words. While codes of ethics may be useful from the perspective of public relations, they do not adequately stem unethical behaviour in business.

Unwritten codes of conduct may be taken for granted in small, family owned organizations. However, such informal controls and the ‘personal touch’ become vague, if not lost in the large impersonal organizations. This is not to absolve organizations of all blame whatsoever. All organizations are formulated by people and can be modified by people. However, when inquiring into the ethics of particular decisions or actions, one notes that contradictory values may add to the overall complexity of ethical inquiry. To maximise one value often requires diminishing others.

For example: • An emphasis on quality may de-emphasise efficiency or quality; • Over-emphasis on objectivity and impersonal procedures may preclude taking individual circumstances into account; • Emphasis on friendship at the workplace makes it more difficult to promote other important values such as efficiency or fairness; The ten core values A general consensus has developed around ten essential values that are central to relations between people. Although they overlap to some degree, they provide a means for judging interpersonal choices and behaviours.

By evaluating how these values relate to an issue under consideration, and analysing who the stakeholders are in the decision, the ethical implications of an action become clearer. These ten values have survived the ages, and can be remembered by the acronym CHAPELFIRZ. When put into practice they generate widely recognized virtues that provide the basis for ethical decision-making: 1) Caring Caring means treating people as ends in themselves, not means to an end. It means having compassion, treating people courteously and with dignity. However, the problem arises because organizations use people as end by virtue of the employment contract.

Employees tend to be seen as a means to an end (productivity), and thus employment is often viewed as an unequal relationship, with the employer having more weight than the employee. This principle also applies to colleagues who may be tempted to work with someone not for the value of their relationship, but for the value of what the person can do to help them achieve their ends. 2) Honesty Honesty means being truthful and not deceiving or distorting the facts. In the long term, dishonesty undermines truth and credibility. Privacy can better be protected by silence, than by deception. 3) Accountability

Accountability means accepting the consequences of one’s actions and accepting the responsibility for one’s decisions and their consequences; 4) Promise keeping Promise keeping means observing one’s commitments. When promises have been made, they are supported by the fact that the obligation to keep promises is among the most important of generally accepted commitments. To be worthy of trust, promises must be kept and commitments fulfilled. There are many stakeholders in organizational decisions, including employees, clients, shareholders, dealers, trade unions, local communities, competitors and customers.

Promises and agreement to and among stakeholders create expectations of performance and establish obligations 5) Pursuit of excellence Pursuit of excellence means striving to be as good as one can be. It means being diligent, well prepared, well informed, industrious, and committed. It is not sufficient to win at any cost. 6) Loyalty Loyalty means being faithful and loyal to those with whom one has dealings. However loyalty depends upon whom and for what purpose the loyalty is given. Blind obedience on the other hand is thoughtless and does not prepare a decision to weigh values in question and make the best decision. ) Fairness Fairness means being open-minded, willing to admit error, and not over-reaching or taking advantage of others. It means treating people equally and making decisions based on notions of justice. It also means avoiding arbitrary or capricious favouritism. 8) Integrity Integrity means using independent judgement and avoiding conflicts of interest, restraining from self-exaltation, and resisting economic pressure. It means being faithful to one’s deepest beliefs, acting on one’s convictions, and not adopting an ‘ends-justifies-the-means’ approach that ignores principle. 9) Respect for others

Respect for others recognizes each person’s right to privacy and self-determination and having respect for human dignity. It means being courteous, prompt and decent, and providing others with information that they need to make informed decisions. 10) Responsible citizenship Responsible citizenship means that actions should be in accord with societal values. Public servants have a special obligation to lead by example. It is important to obey just laws. If a law is unjust, it should be protested through accepted means. Reading • TR Piper et al ‘Can Ethics Be Taught? ’ (Harvard Business School Press

Boston Massachusetts 1993) • GD Chryssides and JH Kaler ‘An introduction to Business Ethics (International Thomson Business Press: London 1993) p 12-78 • E Sternberg ‘Just Business’ (Little Brown & Co: London 1994) pp 15-61 • JW Weiss ‘Business Ethics: A Managerial Stakeholder Approach’ (Wadsworth Publishing California 1994) p 6-25 • LT Hosmer ‘The Ethics of Management’ (2nd Edition Irwin: Boston 1991) 13-15 • MG Velasquez ‘ Business Ethics: Concepts and Cases’ (3rd Ed Prentice Hall NJ 1992) 22-23 • RR Sims “ Ethics and Organizational Decision Making” (Quorum Books: London 1994) 2-37 • LL Nash ‘Good Intentions Aside’ (Harvard Business Press: Boston 1991) 1-34 • WD Hitt ‘Ethics and Leadership’ (Bettelle Press: Columbus, Richland 1990) pp 5-66 • Chapters 1-2 Ferrell O. C. and Fraedrich John, Business Ethics: Ethical Decision Making and Cases, 2nd Ed, (Boston, MA: Houghton Mifflin Co. , 1995. ) • Chapters 1-2, Guy, Mary E. , Ethical Decision Making in Everyday Work Situations, 2nd Edition, (New York, Quorum Books: 1990. • Archie B Carroll ’Business and Society: Managing Corporate Social Performance” (Boston, MA: Little Brown & Co) 74-87 • Chapters 1-2 Ferrell O. C. and Fraedrich John, Business Ethics: Ethical Decision Making and Cases, 2nd Ed, (Boston, MA: Houghton Mifflin Co. , 1995. ) • Chapters 1-2, Guy, Mary E. , Ethical Decision Making in Everyday Work Situations, 2nd Edition, (New York, Quorum Books: 1990. ) ___________ ———————– [1] (c) 2009 Nicholas Kimani [2] Scott Turow, One L (New York: G. P. Putnam’s Sons, 1977), p. 64 [3] Alex C Michales, ‘ The Loyal Agent’s Argument,” in Ethical Theory and Business, Tom L Beauchamp and Norman E Bowie, (eds). Englewood Cliffs, NJ: Prentice Hall, 1979), pp. 338-48. See also Milton Friedman, “ The Social Responsibility of Business is to Increase Its Profits, “ New York Times Magazine, 13 (September 1970) ———————– TORTURING YOUR RIVALS A new American business book causes a stir even before its publication. How hard do American businessman compete? The answer from Europe, which tends to view American business practices with horror and disdain, might be too hard. But a forthcoming book by George stalk, a senior partner at the Boston consulting group (BCG), and Bob Lachenauer, boss of GEO2, a car – engine technology firm, makes the opposite claim.

American business schools and executives now pay far too much attention to “soft” management issues, such as leadership, corporate culture, and customer care and employee management. Popular business books urge managers to hug their customers or find the “leader within”. Nobody focuses on what really matters in business, they argue: the profits and pleasure that come from making competitors suffer. Their book, “Hardball”, offers several strategies for the manager who suddenly realises that he is too squishy. Surprisingly, unleashing’ massive and overwhelming force’ against rivals is not top of the list. Thanks to America’s bankruptcy courts, killing a competitor outright gives him a chance to return, cleansed of debt unburdened of past mistakes.

Far better, argue the authors, to weaken rivals to a point of near- death, and keep them there. This can be done in several fun ways: by systematically the most profitable products and services luring them into lines of business that will make them less profitable, stealing their ideas and -well, you get the picture. Although not due out until October, “Hardball” is already causing a stir. A recent article in the Harvard Business Review, in which Messrs Stalk & Lachenauer aired their ideas, got an icy reception in some quarters. In the original draft, they had urged businessmen to focus not just on creating “competitive advantage” but also “unfair advantage”.

That phrase was replaced with the decidedly softer “decisive advantage” with the editors at the Harvard business school press, the internal police at BCG also bulked at some of the language, chuckles Mr. Stalk. One chapter heading, urging managers to “plagiarise, don’t shade your eyes”, became “Take it and make it your own”. Another, ”entice your competitors’ costs,” became “entice your competitor into retreat”. (An earlier version was the thoroughly wimpish “Entice your competitors into doing something different”. (Some of BCGs European partners, meanwhile, have reacted coolly to the book pointing out that talk of gleefully stomping on ones rivals is far too rude for Europe’s cultured boardrooms. Source: The Economist, ‘Torturing your rivals’, August 28- September 3 2004, p54

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