Theory and Practice of Business Ethics

The new economy has increased the complexity of the business environment, changing the ethical dimension and raising new ethical issues. Every entrepreneur should be aware of the Theory and Practice of Business Ethics.

Factors Involved in Unethical Activity

A competitive environment—

In their investigations published in 1974, ‘Litemer and Molander’ discovered that the rising nature of competition is a major factor in the decrease in the usage of ethical conduct in business. When managers want to reach targets and must cut shortcuts in order to do so, the intense competition on a national and international level becomes an unavoidable basis for unethical behavior.

There is increasing pressure to produce more profit and to meet the increased demands and expectations of all stakeholders, including shareholders, consumers, employees, and all other types of stakeholders. As a result, this becomes a significant role in unethical corporate practices.
Ambiguous Situations present the management with an ethical dilemma, forcing them to choose an option that provides a better return at the expense of their integrity, which they do not consider.

Political corruption has also become a major concern in recent years, as a business is inextricably linked to politics, and most political parties seek gifts, money, and bribes from corporate leaders in exchange for political favors.

The younger generation does not adhere to traditional social norms and rituals.
Nowadays, people desire to become wealthy quickly, even if it means engaging in immoral behavior. Money and achievement become the primary motivators for any endeavor.
People have a lack of social duty, honesty, and discipline when it comes to social principles.

Many corporate activities that entail unethical practices are distasteful, exploitative, and do significant harm to innocent individuals. The following is an example of unethical behavior:

Encourage dishonest actions • Falsely depict returns and income statements
Ignore the public interest • Create a competitive environment • Accept political contributions
Take advantage of the consumer • Engage in illegal trade with hostile countries • Take advantage of scarce natural resources

The points described above are some real-life scenarios that occur in business and are sometimes inevitable; as a result, corporate commitment to ethics is critical; it is the most important asset a company can have, and it pays off in the long term. Here are a few real-life instances from the corporate world where ethics commitment is exceptionally strong.

(a) Johnson & Johnson—J&J has a long-standing ethical commitment to consumer health and safety. Many people perished as a result of ingesting poisoned Tylenol capsules. Because it involves a sensitive subject where public safety is paramount, the managers seized all capsules from all corners of the globe.

The New Ethics Concepts

This problem served as a catalyst for improving J & J’s reputation in the eyes of customers all around the world.

(b) JBM treats employees ethically in order to gain their loyalty; there are no thefts, cheats, or scams to be found there.

“Just as good health necessitates training the habits of obtaining adequate sleep and eating nutritious food, Aristotle believed that correct action resulted from the development of sound moral habits. In a business setting, this entails training and, at the most fundamental level, what we refer to as corporate culture.”

—United Parcel Post Service Chairman and CEO Jim Kelly

Important Factors in Ethical Infrastructure Building

The following are some significant aspects of establishing an ethical infrastructure in an organization:

Top-level management commitment

Because the senior executives are the leaders, if they take an ethical stance, it will be easier to disseminate the word.

Top management should be completely supportive of ethical actions. If they are committed to ethics, they must set an example for their staff on a personal level.

A separate ethics committee has been established by some boards to oversee the establishment and execution of the ethics program.

Some companies, such as USAA, a diversified financial services company, have full-time ethics officers. Robert T. Herres, the chief executive officer, is also the chief ethics officer, and he hires an ethical coordinator to manage the program.

Internal and external directors may be included on this committee. This committee, according to Koontz and Weihrich, will undertake the following duties:

Meetings to discuss ethical issues on a regular basis.
Dealing with ambiguous situations.
Informing all members of the organization about the codes.
Verification of suspected code infractions.
Enforcing the rules and regulations.
Rewarding good behavior and penalizing bad behavior.
The committee’s operations are reported to the board of directors.
Ethical Code

Formal codes of ethics for organization members must be framed in order to develop and support ethical behavior. The quality and substance of these business codes of ethics vary.

A collection of precise regulations, such as a list of dos and don’ts, is included in some of them.

The standards of conduct are similar to a generic value statement that lacks a framework of meaning and purpose, as a code of ethics defines an organization’s essential and primary principles as well as ethical rules.

Theory and Practice of Business Ethics

Codes of conduct aren’t just laws and regulations; they have a far broader scope!

A code of ethics can’t possibly cover all types of ethical and unethical behavior. Certain managerial and staff standards for making ethical judgments should be included in a decent business code of values and behavior.

“Codes of conduct should be regulations that are easy to read, because those who don’t like to read can’t read, readily comprehended by others, or respond far better to visual information,” Northrop Grumman’s ‘Frank Doly’ has recommended. Allow yourself some leeway when it comes to the presentation.

Some companies have pared down lengthy codes of conduct to only a few fundamental ideas. For example, Texan Instruments, a multinational semiconductor business, simplified its codes of conduct to three words: Integrity, Innovation, and Commitment.

The following is a list of codes of ethics:

Do not use abusive language
Maintain good personal financial management
Demonstrate civility, respect, honesty, and fairness
Maintain good attendance
Conduct business in accordance with the law
Follow all accounting rules and controls

Ethics and Communication

The most effective ethics program is one that is well-communicated. Communication should take a variety of formats and take place on a regular basis. All codes of ethics and basic principles can be communicated in a simple way—in textual form, with some questions in the form of feedback. Employees and managers might gather to discuss ethical issues.

To institutionalize ethics, it is necessary to have a well-designed communication network.

As a result, Purcell and James Weber propose three approaches:

Using a formally established ethics committee
Teaching ethics in management

Ethics Education

Employees may believe they understand all aspects of ethics and ethical decision-making, but they may be uninformed of the concepts of the real evaluation process, implementation, and implications of the decision-making.

As a result, ethical training programs are critical. Employee participation in open discussion of genuine ethical concerns is an important component of effective ethics training.

Clarify ethical values and increase employee ethical awareness.

Establish guidelines for making ethical decisions within the company.
Being meticulous and thorough in order to complete any big task.
Investigate the ethical environment, analyze the activities, methods, resources, policies, and goals, and continue to enrich them after studying them.

Officer in Charge of Ethics

A full-fledged member of the board of directors is an ethics specialist. He has a “kitchen cabinet” that he uses as a sounding board and to ensure that the program is owned by everyone in the company. He serves as a model for ethical behavior and decision-making.

The ethics officer provides various resources for help to the organization’s employees so that if they discover any wrongdoings while on the job, they can report them to him immediately.

For example, at USAA, the ethics coordinator reports to the CEO and collaborates closely with the company’s ethical council, a group of top executives who assess important issues and take appropriate action.

Enforcement and Reaction

One of the most difficult tasks for businesses is to regularly implement an ethical program. There are numerous requirements that must be met in order to respond consistently to ethical dilemmas, including– Reward system (for those who have demonstrated ethical character), built-in incentives, and the checklist approach can be used to supplement this.

Employees can be taught to use the following checklist when confronted with an ethical problem, according to Bennett:

Recognizing the problem
Gather information
Make a list of all of your choices.
Put each option to the test
Come to a conclusion.

Consistent enforcement can be achieved by carefully collaborating with human resources professionals or by forming an ethics coordinating committee that can examine or hear disciplinary appeals.

Recognizing the problem
Gather information
Make a list of all of your choices.
Put each option to the test
Come to a conclusion.

Consistent enforcement can be achieved by carefully collaborating with human resources professionals or by forming an ethics coordinating committee that can examine or hear disciplinary appeals.

Audits, revisions, and refinements are all part of the auditing process.

Audits should be conducted to determine whether or not communication concerning ethical codes of behavior is effective. What have been the outcomes of the training program? A thorough examination of any legal or regulatory infractions. Executives of the organization or outside consultants can serve on the audit committee as experts. Many organizations are using surveys, focus groups, and extensive exit interviews, which are often conducted by independent consultants for unbiased feedback, to assess the performance of their program.

A program of value review must be permitted. In this dynamic world, circumstances change every month, every year, requiring managers to reevaluate the goals and content of their program. Sometimes, after the evaluation, managers discover that they need to start over with a fresh look and a courageous hand to stop the continuation of an idea that has outlived its usefulness.

Theory and Practice of Business Ethics

SUMMARY

The new economy has increased the complexity of the business environment, changing the ethical dimension and raising new ethical issues. Some of the major driving forces are technology advancements, intangible assets, globalization’s effects, and the war for talent. Recognizing unethical behavior and addressing it at its source has become critical. Despite the fact that ethical management is being given a higher priority by the management team, a large body of evidence suggests that managers are still unsure about how to proceed with strategic thinking and cultural building in order to foster ethical behavior in the firm.