Business Ethical Models Analysis

Introduction

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?” in business transactions (William, 2007) Although no one “best” definition of business ethics exists, the consensus is that business ethics requires reasoning and judgment based on both principles and beliefs for making choices that balance economic self-interests against social and welfare claims. Today’s companies are more aware of business ethics and try to prevent any problems related to this area. They are implementing responsibility departments into their organizational charts or developing different strategies to satisfy their intern and extern interlocutors. In fact, in today’s wild capitalist order, companies do not care really about ethics or responsibility, but they try to adapt their organization to popular concepts and to convert the advantages of ethical thinking in maximizing their performance. And there are more different motives for companies to concern about ethics.

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First of all, they want to avoid bad publicity and damage to the reputation, and in long term decrease of shares. If a problem rises about ethical issues, this means expensive court cases, change in strategies, bad advertising of the company, etc. On the other hand, companies use business ethics to motivate their employees. People are happier working for firms that they regard as ethical, and people are a firm’s most valuable assets in today’s business. They are implementing strategies like code of ethics and conduct, trainings, free and open atmosphere, feedback mechanisms in order to create an ethical corporate culture. This helps also to boost the brand value of the firm. Customers will choose ethical engaged products and brands among a large diversity of products.. Some critics argue that business is, or should be, conducted with honesty and integrity. Moreover, the managers of business organizations have a set of social obligations and responsibilities that go beyond those stakeholder interests, which are articulated by a desire to profit, maximize. For example, Marianne (2005) maintain that fairness, honesty, and trust are essential in any business activity while Joseph (2004) argue that in order to be ethical companies have to ensure that employee tasks are compatible with employee interests.

Ethics is matter of Ethos, participation in a community, a practice, a way of life. Business Ethics is a function of the business ethos. Ethics are the norms that a community defines and institutionalizes to prevent individuals from pursuing self interest at the expense of others. An assumption of ethics is that persons will not usually self regulate – that without the opprobrium of society, and threatened punishment for non – conformance people will slip into behaviour that maximizes personal advantage. The high level of improbity, in different cultures and in societies reflecting a variety of religious traditions confirms that human beings are essentially similar. People will yield to temptations particularly when the payout is rich (William, 2007).

In this essay, we explore the ethics in business into two steps: Social responsibility of corporation, and corporation behaviors. The concept of corporate social responsibilities originated in the 1950s, when American corporations rapidly increased in size and power as the nation confronted pressing social problems, such as poverty, unemployment, race relations, urban blight, and pollution, etc.

Kenneth (2006) views social responsibilities as a four-stage continuum. Beyond economic and legal responsibilities lie ethical responsibilities, which are “additional behaviors and activities that are not necessarily codified into law but nevertheless are expected of business by society’s members.” Thus, corporate social responsibilities can be defined as “bringing corporate behavior to a level where it is congruent with the prevailing social norms, values, and expectations of performance” (William, 2007) nowadays, most corporation recognize these responsibilities and make a serious effort to fulfill them. Here, some examples of general activities of social responsibilities are list as follow. They are: firstly, choosing to operate on an ethical level that is higher than what the law requires. Legal only define the base line of human activities. Sometimes, antipathy of the public will be course by the behavior, which are legal but not ethics, even if it aims at making more profit. Furthermore, law itself often employs moral concepts that are not precisely defined, so it is impossible in some instances to understand the law without considering matters of morality. Secondly, contribute to civic and charitable organizations and nonprofits institutions, Such as donation to society. One of popular social donation in China is called “hope project”, charged by an individual committee. They use the donation from enterprise or individual person to improve outlying region’s education. Now this project has gained great achievement, which helped hundred thousands poor children come back to school. The third general ethics in social responsibility is providing benefits for employees and improving the quality of life in the workplace beyond economic and legal requirements. Although it cost money and hardly see the instance profit, the ardor of employee can be enhanced by these changes. Moreover, corporation can take advantage of an economic opportunity that is judged to be less profitable but more socially desirable than some alternative. Finally, use the corporate resource to operate programs that address some major social problems. Sexual harassment is a sharp problem within corporation arrangement. In China, male is more easy to find a job than female. If a man and a woman compete for one place, and they have the same degree level or even better than man, man has preferential matriculation. Most female will be told: if we have other choice for men, we will consider them first. It is obvious unfair but also the fact.

From another point of view, corporations are dependent to a large extent on their stakeholders to execute business goals successfully in society, and also depend on and obligated to each of their constituencies in different ways to achieve their combined aims. Normally, a corporation’s stakeholders include its stockholder, customers, and suppliers, employees worldwide, political and environmental groups that influence its transactions, unions, and international governments. According to Laura (2007) can help managers to determine what responsibilities and obligations the company has to each stakeholder (Figure 1). More and more organizations find that stakeholder approach is a response to the growth and complexity of the modern corporation and to its influence on the environment, the economy, and the public. It includes moral, political, ecological, and human-welfare interests as well as economic factors. A pragmatic way of understanding multiple, competing political, economic, and moral claims of a host of constituencies can seen by using this approach.

The Stakeholder Moral Responsibility Matrix
Figure 1: The Stakeholder Moral Responsibility Matrix

Now let’s look at some ethic issue for the primary stakeholders of corporations. First, the most important stakeholders are customers. “Customers care” (Fraedrich, 2007) has been a popular theme for almost all organizations. That’s why managers often confront ethical dilemmas in their jobs because they frequently use power and politics to accomplish their goals. Managers’ behavior must satisfy certain criteria to be considered ethical. The first criterion is the utilitarian outcomes. Managers in a company must optimize the satisfaction of internal and external customers of the organization. They are not only responsible of the workforce, but the shareholders, consumers, society, media, government, etc… In other words, an ethical manager is to think the greatest good for the greatest number of people. The second one is the criterion of individual rights. The manager must respect the rights of free consent, free speech, and freedom of conscience, privacy of his people inside or outside of the firm. The final one is the criterion of distributive justice. The manager’s behavior respects the rules of justice. It does not treat the people arbitrarily but rather equitably and fairly.

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Despite customer, employee is another important stakeholder for corporations. The ethical environment in a company can influence the attitude and performance of its current employees, as well as the caliber of future employees, which the company can entice to work for them (Laura, 2007). On the one hand, if a company promotes a cutthroat environment, the employees will be less likely to have any loyalty towards fellow employees or to the company as a whole. On the other hand, an environment in which employees are encouraged to act ethically will inspire a cooperative atmosphere which will create motivated and loyal employees.

One of other primary stakeholders is supplier. Company must also consider the suppliers with whom they choose to associate. Being linked to a supplier who violates human rights can be very damaging to a company’s image. Companies are establishing policies regarding their suppliers. For instance, in 1992, Sears, Roebuck and Co. signed an agreement with the American Clothing and Textile Workers Union, promising to reject Chinese goods with forced or child labor. Salton – Maxim, who imports about 60 per cent of its inventory from Hong Kong, personally inspects its suppliers’ factories to make sure that there are no human rights violations occurring. (Linda, 2006) Unfortunately, even establishing such policies does not necessarily ensure that human rights violations will not occur. Nike is am typical example; they not only made the employees working in force, but also use children with very low salary in China. Once I went to visit the one of a factory of China by opportunities, it is wondered that whether this place is a factory or a prison or hell. However, it does show that social responsibility now stretches beyond the confines of both corporate and country lines. Companies can no longer justify their position by pleading ignorance or excuse their actions by cultural relativism.

Most people would argue that a company’s ultimate responsibility is to the people who own the company: shareholders. Since it is the shareholders’ capital, which allows the company to stay in business, the company will strive to do what is in the shareholder’s best interests.

To illustrate the power one individual shareholder can have, consider the example of a Procter & Gamble shareholder who submitted a resolution in 1990 to boycott coffee from EI Salvador. Initially, Procter & Gamble did not respond to the shareholder’s resolution, which, in the meantime, gather support from other shareholders around the country. Procter & Gamble’s lack of responsiveness eventually led to media coverage of the problems in EI Salvador, which in turn forced the company to reconsider its business dealings in EI Salvador. The shareholder’s concern has led Procter & Gamble to become more careful in its dealings with EI Salvador and to adopt a policy where it deal with small coffee growers and is more sensitive to the political situation of the country (William, 2007).

Other stakeholder includes investors, media, government, and so on. Sine the limitation of words, the detail of these stakeholders is not given in this essay. However, they also play important role when consider business ethic.

On moral grounds there should be some level of equality of treatment between shareholders and other stakeholders. However, the idea of equality of treatment may appear attractive or fair but in many circumstances the choice is “either shareholders or stakeholders interest”. That is why there has been debate on application of shareholder theory or stakeholder theory in the corporation. e.g., a company which buys a machine to replace skilled workers might raise returns to shareholders but damage the lives of employees and the local economy if it makes skilled workers redundant. “The right decision” for directors managing for shareholder interest would be to buy the machine, if managing for the stakeholder interest it would not. Another example, suppose a company is emitting harmful waste which is not illegal but it could spend shareholders money on a machine to prevent the omissions. With shareholders theory managers would say “don’t clean up unless there is some specific benefit for shareholders or unless the emission becomes illegal”. (Farrell 2002) However, managers in the stakeholder world should make decision on stakeholder angle. The logic being if a company pollutes the environment then that act will rebound on the good name of that company at some time. This may affect the company’s ability to compete or their ability to motivate staff and suppliers to serve the company as well as possible.

These behaviors are base on the different strategy of each specific corporation. The relationship between strategy and social responsibility can be very close. Key strategic moves by organizations such as acquisitions, rationalization, relocation, product diversification and so on, inevitably result in an increase in satisfaction for some stakeholders but, dissatisfaction for others. Modern organizations facing an increasingly turbulent environment often need to make significant strategic moves for defensive or offensive reasons. To help us understand the different aim of strategy in each level of business objectives, the Hierarchy of Business Objectives Model (Figure 2) will be introduced. In this model, “the strategic aim, or mission, is what the business exist to achieve, while the lower level objectives are distractions form the ultimate objective which have first to be satisfied. If any of the lower level objectives cease to be satisfied they become dominant, and the lower the level the stronger is its dominance when not satisfied.”( Fraedrich, 2006)

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A Hierarchy of Business Objectives
Figure 2: A Hierarchy of Business Objectives

As Fraedrich (2007) described, “the strategic aim is today widely envisaged as a concise statement which clearly identifies the organization’s strategic direction expressed in a form which is readily communicable and capable of motivating people in the organization.” Some famous example involves NASA’s “Put a man on the moon by the end of the decade” and Coca-Cola’s “Put a Coke within arm’s reach of every consumer in the world” Furthermore, the strategic aim drives the business. When other objectives intervene, the business is blown off course. For instance, the customer ceases to be pleased the organizational focus is distracted from its real strategic aim. Many businesses remain stuck at this customer focused level on the hierarchy. Some one argued that corporation should have “passion” for customers, but this hardly rational. The supplier customer relationship should not be passionate, but it should be balanced. In some case, providing customer with an overabundance of some product attribute is simple wasteful and may be directly counterproductive. Moreover, sticking at this level inhibits the unique achievement of a strategically focused firm.

Satisfying stakeholders is the second level of hierarchy, which has been fully discussion in first part of this essay. Consequently, we not mention it here again.

Liquidity and profitability are measures of performance, which define minimum levels necessary for independent survival and to enable the business to focus its attention on the higher-level objectives. From time to time, the lower level needs inevitably become dominant and then the firm has to shift its attention. On the other hand, the failure to satisfy the minimum needs of society would result in that lower level objective becoming predominant.

The hierarchical view of objectives provides a systematic way in which a firm may balance the conflicting priorities of various opposing interests. It helps management to balance the long – term interests of the firm’s financial environment. Identifying the position of social responsibility in the objectives hierarchy demonstrates provides the key to how businesses might manage their ethical stance whilst rejecting the less realistic blandishments of ethicists. Now, two specific corporation behavior will be state in following paragraphs to give a better understand of business ethic behaviors. Such examples include misleading pricing and product safety and design.

Companies should clearly be responsible for the safety of their products. Because consumers want and expect safe products although they seldom activity seek safety. Consumers depend on governments to guarantee that manufacturers and retailers will not sell unsafe products. However, firms sometimes face an interesting challenge: safer products cost more but consumers are not willing to pay for increasing cost. Even worse, in some countries, highlighting safety features could cause some consumers to question what the previously had assumed was a safe product. For example, Regina Corporation, a small appliance manufacturer in the United States, devised an immersion detection circuit interrupter for its home spa products. This device interrupts the circuits should someone accidentally drop an appliance in the water. Regina Corporation did not advertise the benefits of this new device because they believed it would frighten potential buyers (Laura, 2007)

Another behavior usually happen is misleading pricing. Sale pricing, the use of price comparisons, and the provision of manufacture’s suggested retail prices have been the target of complaints from consumers all over the world. Customers criticized the company for setting the initial price of goods at a high level for a brief period in order to advertise a sale and draw customer. With the introduction of seasonal sales in Japan, Consumers have complained that the regular prices are exorbitant.

Conclusion

In conclusion, since there is no exact definition for business issue, the essay avoids using too many words to find the real definition, but use different example to make readers have the brief of business ethics. Then the social responsibility of corporation was fully discussed next, which brings corporate behavior to a level where it is congruent with the prevailing social norms, values, and expectations of performance. Five general responsibilities were explained with examples. In addition, corporation is dependent largely on their stakeholders. The corporation behavior was introduced by using the Hierarchy of Business Objectives Model, which helps organization to make appropriate strategic plan. Finally, business ethic becomes increasingly important and necessary for an organization, with the increasing demand by society.

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References

Kenneth E. Goodpaster, (2006) Conscience and Corporate Culture (Foundations of Business Ethics), Publisher: Wiley.

Joseph R. DesJardins, John J. McCall, (2004) Contemporary Issues in Business Ethics. Publisher: Wadsworth Publishing; 5th Editions.

Laura P. Hartman, Joseph R. DesJardins, (2007) Business Ethics: Decision-Making for Personal Integrity & Social Responsibility. Publisher: McGraw-Hill.

Marianne M. Jennings, (2005) Business Ethics: Case Studies and Selected Readings.

Publisher: South-Western College/West; 5th Edition.

Linda K. Trevino, Katherine A. Nelson, (2006) Managing Business Ethics: Straight Talk About How To Do It Right. Publisher: Wiley; 4th Edition.

Fraedrich John, Linda Ferrell, (2007) Business Ethics: Ethical Decision Making and Cases. Houghton Mifflin Company; 4th Edition.

Fraedrich John, (2006) Business Ethics. Publisher: Houghton Mifflin Company; 7th Edition.

William H. Shaw, (2007) Business Ethics Publisher: Wadsworth Publishing; 6th Edition

Farrell B., Cobbin D., and Farrell H., (2002), ‘Codes of Ethics’, The Journal of Management Development Vol. 21 No. 2

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