Africa: Ethical and Legal Issues in Business Environment

Introduction

Many legal and ethical issues characterize the modern business environment. Particularly, many firms overlook the significance of adopting moral and ethical practices in their operations. I have worked with a mining multinational company in Africa. Throughout my employment period, the company’s main objective was to increase the value of the shareholders by making huge profits. This was at the expense of the society and communities that live around the mines. Should mining companies adopt ethical practices? Should they be held accountable for product liability? This paper seeks to explore various aspects of business ethics and legal issues in modern business contexts. Besides, the paper will highlight various legal and ethical issues that are apparent.

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Background

Extractive companies have increased at an unprecedented rate, particularly in Africa. Due to the vast resources available on the continent, many foreign firms have invested extensively. Corporate investments have come at a high cost not only for the governments but also for communities. This is in spite of the important role that foreign direct investors play in African countries. At the outset, I worked for a multinational mining company whose major investments were in Africa. The company did not emphasize the need to uphold ethical and moral practices in its operation. This is despite the importance of gaining ‘social license’ from the communities in which its activities are located. This implies that not all of its activities coincided with the needs of the communities. After a successful entry into the mining sector, the company began to produce other products relating to the extracted minerals. In fact, it employed a myriad of foreigners in the country to manage its manufacturing plant. This was at the expense of the communities living around its operation.

It is important to highlight that the company reduced its social responsibility activities in a significant way. In addition, the company began to compete with the communities over water resources owing to its rapid expansion. This is in lieu of the fact that the communities depend heavily on water for agriculture and livestock keeping. Besides, water and air pollution increased at the cost of the communities. It is imperative to notice that the company continued to make supernormal profits and consequently, it paid all its taxes in line with the tax regime. However, ethical issues surrounding the company’s operations led to huge demonstrations and protests across the country. To that end, it is important to highlight various ethical and legal issues arising from the company’s activities and operations.

Various legal and ethical issues are apparent in the company. First, the firm ought to adopt moral principles that should guide its operations, behavior, and activities. It should be able to make a distinction between right and wrong when making decisions regarding its operations. Although ethical practices are relative and differ from one context to the other, it is imperative for the company to take care of the interests of all stakeholders. In other words, both internal and external stakeholders ought to participate in the decision-making processes of the company (Duska, 2007). For instance, it was essential for the company to involve all communities before setting up a mine and a factory. It ought to have explained the impacts of its operations on their livelihoods and other issues pertinent to the people (Weiss, 2009). This way, the company would gain acceptance from society and subsequently, increase its profit margin and revenues.

Although the main objective of any corporate organization is to increase the value of the shareholders, contemporary business practices dictate that a company ought to increase the value of the community and other stakeholders. According to Milton Friedman, there is a thin line between ethics and law. As such, a company ought to draw guidance from the law as opposed to relying on the opinions and views of the society (Weiss, 2009). Friedman’s theoretical framework undermines the importance of involving the community and instead subscribes to the perspective that a company ought to follow the law (Duska, 2007). This is by way of paying taxes and ensuring that its corporate governance is appropriate to all shareholders. Despite Friedman’s criticism of ethics and moral principles, it is clear that successful companies in the modern business environment have embarked on intensive corporate social responsibility (CSR) activities. This has not only improved their public image for companies but also enhanced social acceptance by communities within their areas of operations (Duska, 2007). To that end, it is important for the mining company to ensure that it embarks on community projects that alleviate poverty that the community faces.

Other than ethical issues that confront the company, it is important to highlight legal issues that the company faces. The mining company faces litigations regarding environmental degradation. According to international law, any multinational company should not engage in an activity that undermines environmental custodianship (Duska, 2007). As such, the company violated the law by utilizing excessive water to facilitate its mining operations at the expense of the environment. Besides, communities suffered from chemicals that the company disposed of into the rivers. This has not only had severe effects on the livelihoods of the communities but has also endangered their lives (Weiss, 2009). It is therefore important for the company to ensure that it abides by an internationally defined code of ethics and face the consequences of legal violations.

Another legal issue that ought to guide business activities is the code of conduct. Despite efforts to ensure that the company met its tax obligations, it ought to have drawn guidance from its internal code of conduct. When designing an effective code of conduct, it is imperative to involve all key stakeholders including government agencies, employees, communities, and shareholders (Duska, 2007). It is significant to highlight that an effective code of conduct does not only benefit the company but also other stakeholders. Moreover, the company ought to comply with global standards when designing an effective code of conduct. Particularly, it failed to comply with Extractive Industries Transparency Initiative (ETI) rules that ensure that companies reveal all information regarding the taxes they pay to the government, which in turn should publish it for public scrutiny (Weiss, 2009). Although the company files its tax returns, it does not show all the costs it incurs. Besides, the company has failed to comply with regulations set up by the Global Reporting Initiative (GRI) that ensure the sustainability of mining activities (Weiss, 2009). To this end, the company’s code of conduct falls short of ethical and legal practices implying that the company might face litigations.

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Bagley (2006) argues that the failure of a company to abide by the code of conduct and to act ethically leads to litigations. Particularly, the company faced numerous litigations regarding its activities and a lack of transparency. Demonstrations and protests became typical of its business environment leading to poor financial performance. According to the country’s jurisdiction and corporate law, the company failed to demonstrate its ability to safeguard the environment and take care of communities’ interests. Subsequently, the court ruled that the company should relocate and downgrade its operation in the best interest of society. Weiss (2009) says that litigations are counterproductive for a company. The rationale is that they lead to a negative public image implying that the company’s products have no competitive edge over others (Weiss, 2009). For instance, Nike Sportswear Company faced allegations of deploying child labor in its plants at the start of the 21st century. Consequently, Nike’s revenues decreased substantially following the ruling that established the credibility of the allegations (Weiss, 2009). This illustrates that unethical behavior and activities by corporate organizations lead to poor performance and deprive shareholders of a significant proportion of profits.

Companies that uphold ethical practices stand to reap myriads of benefits. At the outset, it is important to recognize that acting ethically is not free of financial costs. While it is apparent that profitable companies seek to minimize their operational costs, it is important to compare the costs associated with ethical practices and the benefits. The company stands to enjoy an improved public image. Weiss (2009) says that companies should exploit their competitive advantage in order to remain profitable. In addition, ethical practices lead to increased appreciation and recognition of social and economic issues affecting the community (Duska, 2007). This implies that a company attracts a highly skilled and talented workforce from the society of its operation. According to the scenario presented above, the company hires foreign employees and fails to appreciate diversity in its workforce. This does not only limit the company from accessing a pool of talented workers in the society but also increases its costs associated with labor (Duska, 2007). Hence, the company loses immensely from unethical activities.

While many companies have adopted ethical practices in their operations, others are convinced that the major goal of a corporate organization is making profits. Weiss (2009) argues that the private sector ought to be guided by applicable law within the jurisdiction of its operations. According to him, acting legally is synonymous with acting ethically (Weiss, 2009). Although there is a thin line between what is ethical and what is legal, it is imperative that corporate organizations adopt moral principles that define their behavior (Duska, 2007). The rationale is that companies bear liability regarding their products and activities. Any form of negligence and shoddy workmanship should lead to litigations. The activities and products of any company should not be contrary to the interests of society and should not cause harm to the consumers or communities (Duska, 2007). As such, it is important for corporate organizations to uphold ethical practices to avert the risk of litigation.

Conclusion

In essence, I worked for a mining company in Africa. The company faces many legal and ethical challenges. It lacks an effective code of conduct and consequently, it has faced innumerable court cases in recent years. They range from environmental degradation to non-compliance with international law and initiatives. Specifically, the company has endangered people’s lives due to the misuse of natural resources and pollution. As such, the company has recorded a decline in financial performance. Therefore, it is important to reinstate the thesis statement that extractive companies ought to act ethically and should bear activity and product liability.

References

Bagley, E. (2006). Managers and the Legal Environment: Strategies for the 21st Century. Minnesota: Westport Publishers.

Duska, R. (2007). Contemporary Reflections on Business Ethics. Boston: Springer Books.

Weiss, W. (2009). Business Ethics: A Stakeholder and Issues Management Approach with Cases. Ohio: Cengage Learning.

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