Business Ethics: The History, Emergence and the Importance of Business Ethics hat are Business Ethics ? Business Ethics are the principles, values, and standards that guide behavior in the world of business. Most individuals would probably agree that both individuals and business organizations must conform to solid morals to obtain high ethical standards. However, businesses face more complicated ethical issues than individual members of society. Businesses must make a profit to survive, and they have a fiduciary responsibility to their shareholders to maximize profits to increase the value of the company. The more profit a business earns, the longer the life of the business will be. However, if a business earns profits in a manner that is considered to be unethical, the life of the business can be shortened such was the case with Enron and Lehman Brothers. Businesses must balance their goal of maximizing profits with the needs and demands of society. Many businesses have failed due to financial and legal repercussions resulting from their poor Business Ethics . It is essential for businesses to maintain a healthy balance which often requires compromising profits for the needs and demands of society. Business ethics involve a large range of ethical dilemmas and decisions made by business organizations and Stakeholder s. Organizations often need to make business ethics decisions balancing their goal of profit-maximization with non-economic issues such as environmental and social concerns. Employees also often face business ethics dilemmas such as choosing whether or not to accept a bribe or gift from a potential supplier, or choosing whether or not to be a whistle blower over perceived unethical business practices. To help guide employees, most large companies have a code of conduct listing rules of what is expected by the company. Sometimes what is considered unethical in one country may be customary among business people in another. An example of this would be gift giving in Japan, where in America gift giving is generally associated with Bribery. Since business ethics are made up of principles and values, we will define them the best we can. Principles are very specific, universal, and absolute boundaries that rule the conduct and behavior of society. Rules are often based off of principles. Examples of principles include Freedom of Speech , equal opportunity, and equal rights to civil liberties. Values are a belief among a person, culture, or organization of what is right or wrong. Values are used to develop social norms of behavior and are enforced by society as society develops a general consensus of values and what behavior is considered right or wrong. Examples of values are integrity, accountability, and trust. Employees, employers, legal entities, investors, and the community in general determine whether an action is considered right or wrong. Although, their determinations are not always right, they do have a great influence over society’s acceptance of business behavior and activities. STUDYING BUSINESS ETHICS The study of business ethics is very important for many reasons. After many incidents involving unethical behavior in business it has become apparent that the need for better understanding of the what is considered right or wrong in the world of business. A person’s upbringing, morals, and personal experience may not always suffice when they are faced with ethical dilemmas in business. By studying business ethics, individuals can have a better understanding of the factors that lead to business ethics issues and be aware of ways to approach and resolve them. Business Ethics in the 1960’s Business ethics used to be looked at from a religious point of view until the 1960’s when an anti-business attitude began to emerge. During the 1960’s society began to recognize just how powerful the influence of large companies had become. During the 1960’s large ecological problems grew rapidly such a pollution, improper disposal of toxic waste, and mismanagement of environmental resources. The 1960’s also experienced the rise of consumerism as individuals, groups, and other organizations fought to protect their rights as consumers. In 1962 President John F. Kennedy delivered a “Special Message on Protecting Consumer Interest” where he outlined the basic rights of consumers. President Kennedy outlined 4 basic rights in his speech: the right to be informed, the right to safety, the right to choose, and the right to be heard. The 4 basic consumer rights that President Kennedy expressed in his speech are known as the Consumers’ Bill of Rights. The modern consumerism movement is believed by many to have begun when Ralph Nadar published Unsafe at Any Speed where he criticized the auto industry, particularly General Motors Corporate (GM) for putting profits above the safety of their consumers. The Corvair, a car produced by GM was the primary target of Nadar’s attack. Ralph Nadar and his supporters successfully fought for legislation that required automobile makers to equip their vehicles with safety features such as seatbelts, shatterproof windshields, and padded dashboards. During the consumerism movement activist were also successful in getting other consumer protection acts passed such as the Wholesome Meat Act of 1967, the Radiation Control for Health and Safety Act of 1968, the Clean Water Act of 1972, and the Toxic Substance Act of 1976. Business Ethics in the 1970’s In the 1970’s business ethics began developing as a field of study, and business professor sbegan teaching about corporate social responsibility. Social Responsibility is the obligation of a business organization to maximize its benefit to all Stakeholders with minimal negative social impact. In the 1970’s businesses became more concerned about their public image. As the demands of society on business grew, new businesses realized that they needed to deal with ethical issues in a more direct manner which often meant putting social issues over profits. Many companies such as companies known as “green” companies make social responsibility an integral part of their business model. There are many investors that even use social responsibility as a determining factor for investing in a company. For example, an investor that has a moral objection to smoking may not invest in a company like Philips Morris. Business Ethics in the 1980’s With the presidency of Reagan and Bush in the 1980’s came the belief that allowing businesses to regulate themselves, rather than by the government was in the better interest of society. Government regulations, Trade tariffs and barriers were lifted rapidly changing the rules of business. In the 1980’s the Defense Industry Initiative on Business Ethics and Conduct (DII) was developed. The Defense Industry Initiative on Business Ethics and Conduct is an organization designed to guide corporate support for ethical business behavior. The organization was developed in 1986 when 18 defense contractors outlined principles to guide business ethics and behavior. The organization now consists of nearly 50 members including major defense contracts including Lockheed Martin, SAIC, and BAE systems. The DII established a method for discussion of acceptable business activities to link together organizations’ business practices and policies for ethical compliance. The DII consists of 6 principles. First, the DII supports codes of conducts which must be clear and provide details on substantive areas of concern. Second, companies that are members of the DII must provide training in business ethics and maintain continuous support between training periods. Third, member companies of the DII must provide an environment where employees feel that they can report unethical business practices without the fear of retaliation or retribution. Fourth, extensive internal audits must be performed by member companies of the DII including internal reporting and voluntary disclosure. Fifth, member companies are required to maintain the integrity of the DII. Finally, the DII must adopt the ideology of public accountability. In the 1990’s the government continued to support corporate self-regulation; however, with less regulation came a new set of ethical issues. In November 1991 The Federal Sentencing Guidelines for Organizations (FSGO) was approved by Congress. The FSGO guidelines were based off of the six principles of the Defense Industry Initiative on Business Ethics and Conduct (DII). Laws were established to provide incentives to reward companies that actively discouraged misconduct by establishing ethical and legal compliance programs with their organizations. These compliance programs must meet defined standards to be eligible for the incentives. Companies often have to worry about penalties suffered as a result of their employees engaging in misconduct. Provisions to the Federal Sentencing Guidelines for Organizations have been made to mitigate penalties for organizations that have effectively made efforts to discourage misconduct by establishing effective ethical compliance programs. On the other hand, severe penalties may be suffered by companies that have not made the same effective efforts. The primary purpose of the FSGO is to encourage companies with rewards to effectively take action to prevent misconduct, not simply take a legal reactive approach to misconduct. Companies must develop corporate values, enforce its code of ethics, and make effective efforts to prevent misconduct. Business Ethics in the 2000’s In the 2000’s a new set of corporate scandals took place from large Corporation s such as Enron, Tyco, and Adelphia. As a result of the scandals the Sarbanes-Oxley Act was established. The Sarbanes-Oxley Act, named after Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH), also known as the Public Company Accounting Reform and Investor Protection Act and commonly referred to as “Sarbox” was passed by Congress in 2002 as a result in a decline of confidence in financial reporting and Business Ethics . The Sarbanes-Oxley act made securities fraud a criminal act stiffening the penalties for those found guilty of engaging in corporate fraud. The Sarbanes-Oxley Act also established an Accounting oversight board called the Public Companies Accounting Oversight Board (PCAOB) requiring companies to establish strict code of ethics for financial reporting and provide more transparency in their financial reports to their investors and other Shareholders. Additionally, the act required top corporate executives to sign off on financial reports so they could be held responsible for any misrepresentation of their company’s financial position risking heavy fines and imprisonment. They must declare that the financial statements are accurate and that nothing has been omitted and that they are responsible for internal controls. Management must also list any deficiencies with the internal controls. Finally, the Sarbanes-Oxley Act requires corporate executives to immediately disclose any stock sales and prohibits managers from taking loans from the company. Although SARBOX has made investing in companies safer, it also adds expenses which ultimately come out of the shareholders value. The average cost for companies to comply with the SEC was $4.51 million in 2004 but fell to about $2.92 in 2006. These added expenses have caused a number of companies to delist go dark their shares from the New York Stock Exchange in order to avoid the added expenses. Currently the trend is moving away from government control over business ethics toward cultural efforts that make good business principles and values a core part of company’s corporate culture with an ethical component known as ethical culture. In business, Ethical Culture is the component of the corporate culture that relates to the principles, values, and beliefs of what is considered to be normal acceptable behavior. The ethical culture is the established patterns and decision making processes used by employees when faced with ethical issues. The goal of any company is to establish an ethical culture than minimizes the need to enforce rule compliance and to maximize the use of ethical guidelines and principles among employees. A company that establishes a good ethical culture creates values that are shared, supported, and promoted by employees and top executives. Research has shown that companies that create a positive ethical relationship among its employees, customers, investors, and society they experience increased operational efficiency, employee loyalty, willingness to invest from investors, customer satisfaction, and ultimately increased financial performance.
Posted on: Wed, 19 Nov 2014 04:16:39 +0000
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