Importance of Business Ethics

The issue of ethics can be rated as one of the oldest subjects ever to be discussed. The discussion can be dated as back as 2500 years during the days of great philosophers like Socrates and Plato. This topic which tries to explain what is the right thing to do has had different perspectives with some analysts purporting that doing a good thing depends on one’s moral principles while others argue that doing a good thing depends on the situation at hand. This depends on one’s own choice. On the other hand, morals values have been considered as the guidelines that show us how we are supposed to behave while ethical principles are the statements that show the application of these values. The issue of ethics covers all walks of life. It forms the basic foundation of the family, the ground to which institutions are built, the socio-political foundations of a nation, and above all the economic cornerstone of each country. Ethical values contribute highly to the image of an organization, one thing that later defines success or failure. Being a cornerstone of any sustainable development and success, business organizations thus should observe business ethics in all circumstances to ensure that they succeed not only in a short term but for a surety of a long business life span.

What is ethics when it comes to the business realm? In business situations, ethics are referred to as business ethics. McNamara (2008) defines business ethics as the knowledge of right and wrong at the workplace and choosing the right. This decision has to be made based on the goods or services offered and the relationship to the stakeholders. This tries to give an obligation to business organizations to choose between serving the customer faithfully, taking into consideration the welfare of its workers, caring for the environment, and faithfully adhering to the statutes of the government.

Reasons that Lead to Unethical Behavior

Although this is the expectation, not all organizations follow the rules of ethics. There have been many instances of scandals associated with big corporations in terms of a breach of business ethics. This comes in terms of tax evasion through the wrong announcement of their profits, negligence of their employee welfare, accounting manipulations, the inclusion of poisonous substances in their products to enhance addiction, etc. the big question to be asked is, why do organizations indulge in these unethical activities? There are several reasons why corporate can indulge in unethical behavior. A study by Cai et al (2005) showed that business competition can lead to unethical behavior. Their study concluded that those business organizations that are faced with stiff competition in the market and those that are placed at a disadvantageous position stand a high chance of hiding a larger part of their profits. This means that whenever a country enacts policies that promote competition, it should also enact policies that will offer a level playing ground for all the organizations within the bracket.

Another thing that contributes to engagement into unethical activities by business organizations is lack of proper business ethics training and education (McPhail, 2002). Most of the business training centers still offer ethics as an optional course that can be learned by the managers-to-be with their own volition. From a research quoted by Barlow (2009), business students are ranked lowest when it comes to ethical issues and that they are the most likely to engage into ‘amoral’ activities.

An organization’s culture can highly influence its position in terms of unethical behavior. With most organizations upholding strict measures on whistleblowers, the workers may live under fear of dire consequences in case of blowing up an underground unethical behavior. This culture has been cultivated by the past experiences of whistle-blowers who have, in some instances failed to secure another job because other employers fear employing someone who can betray them. Barlow (2009) indicates that 68% of whistleblowers have found it difficult to secure another job. This, therefore, encourages a culture of sitting on unethical behavior as the employees fear for the future of their careers.

Finally, Barlow (2009) points out that bureaucracy can encourage unethical behavior. A business organization where the decision-making body is far distanced from the other arms of the organization can lead to such behavior. For example, a multinational with headquarters in New York can make decisions for its branch in Malaysia or South Africa without really feeling the weight of the consequences. She goes on to quote McPhail’s argument that there exists an “inverse correlation between an individual’s willingness to be cruel to someone and their proximity to their victims.” (McPhail, 2001).

Cases of Unethical Behavior Scandals

The above-mentioned reasons have led to several reputable organizations to find themselves into news headlines as a result of scandals that resulted from unethical behavior. Among the scandals include Fannie Mae’s accounting scandal, Exxon’s Mesothelioma scandal, Enron’s tax evasion scandal among others. The following is a brief explanation of these scandals.

Fannie Mae’s Accounting Scandal

In 2004, Fannie Mae, a company that had been chartered by the federal, which deals in purchasing mortgages and selling them in form of securities found itself in a great accounting scandal (Gross, 2004). This prompted a deeper investigation by the Office of the Federal Housing Enterprise Oversight’s Freddie Mac. The result of the report showed that the company had been operating with pervasive standards of accounts misapplication. In addition to this, the company did have internal controls of a poor quality that could encourage scandals. This notwithstanding, the company’s rewarding structure was made in such a way that it encouraged unethical instincts. The executive had an offer of a reward in case of attainment of a set target figure. This is one of the things that encourage manipulation of figures to make sure that the target is achieved qualifying the responsible director for a reward.

Fannie Mae used its relationship with the federal to imply some sense of security to the investors. This was the use of inaccurate information to attract investors making them oblivious of the risks involved in the investment decisions that they were making (Gross, 2004).

Exxon’s Mesothelioma Scandal

This is another scandal that hi the great Exxon. This one was based on the welfare of the workers. Since 1937, Exxon has always known that their machinery and equipment contains deadly agent that causes cancer, known as asbestos. An inhalation of this substance causes the dangerous particles to line on the lungs causing a type of cancer called Mesothelioma which is incurable (Justice News Flash, 2008).

Exxon has known about this danger that its asbestos workers face but it made no effort to put in place appropriate measures to protect its workers. This went on until one Mr. Bruce Spillman lost his life. This case opened up other issues about Exxon’s awareness of the dangers exposed to its workers and also other horrible conditions that its workers underwent but they kept all undercover (Justice News Flash, 2008).

Spillman worked for Exxon fro four years before being diagnosed with Mesothelioma. He later died of the same. His family was highly compensated for the damage caused by the loss of their family member (Justice News Flash, 2008).

Enron’s Tax Evasion Scandal

Enron is one of the corporations with reputation whose declaration of bankruptcy was one of the greatest news in the United State’s history (Schifferes, 2003). An investigation in the company’s operations revealed a very complex tax evasion schemes that had assisted the company evade paying taxes for some time. The schemes were so complex that it was even difficult for the Internal Revenue Services to determine what was the total amount that had been evaded by Enron in the five years of tax evasion. In addition to this, the schemes were so complex that it was difficult to prove whether they were illegal.

In the report, the company devised complex schemes with names like Apache, Condor, Renegade etc whose sole reasons were to shift income to sheltered tax categories through fake transactions by banks and other financial institutions. Through these schemes, they afforded to report to the tax authorities a loss of $3bn while their shareholders were informed of having made a profit of $2.3bn (Schifferes, 2003).

Another scandal that was spelled out at Enron was its enormous rewarding scheme for the executive (Schifferes, 2003). In 1998, the total earnings of the in terms of salary, and bonuses was $193 before they increased their earnings in 2000 to $1.4 billion. Sad to say, this was one and a half times what the company was making. The chairman of the company, Ken Lay, had his salary increased from $15 million to 168 million. The chief executive, Jeffrey Skilling had his salary increased from $12 million to $139 million. This is very ridiculous because the company was headed for the rocks.

Other inclusions into the compensatory basket were Mr. Lay’s $77 million company loan for life insurance, one of the executives was awarded as a present, personal ownership of a company jet.

As a penalty, every person who had a hand in the perpetration of the crime was to be stripped off his professional privileges. This was because they colluded in the crime while understanding the incorrectness, incompleteness and inconsistency of the information that they supported (Schifferes, 2003).

Importance of maintaining business ethics

An organization that observes business ethics is bound to experience several benefits. Among them is improvement of quality of production (Flexible learning, 2009). If employees are developed in a culture of ethical strength, they are likely to be devoted to their work giving more profound returns to the organization.

The company’s image is created by its indulgence in business ethics (Flexible learning, 2009). This is important because it gives the organization a favorable outlook from the customer thus giving it a competitive advantage. This leads to more sales because more customers will more likely choose to work with an institution with honesty as compared to another. This means that although most organizations indulge in unethical activities aiming at maximizing profits, strengthening the ethical base can still increase the profit margin.

Finally, ethics can save the company from criminal activities. The company will not suffer loss from defrauding activities including petty offenses like carrying home the company stationery to large defrauding cases that may cost the company billions of money (Flexible learning, 2009).

Conclusion

Most organizations indulge into such activities with one solid aim: to maximize the profits. The fact remains that at some point, the company may instead end up in a loss due to loss of customer due to organization’s lack of faithfulness and dirty image. They also may be fined great sums of money which might still eat into their profits. Criminal activities might also cost the company greatly.

On the other hand, organizations that observe ethics have straight activities which encourage a greater clientele due to their honesty and quality. It is therefore evident that business ethics are a cornerstone of any sustainable development and success, business organizations thus should observe business ethics in all circumstances to ensure that they succeed not only in a short term but for a surety of a long business life span.

References

Barlow, C., (2009). “Explanations for the continued prevalence of unethical behavior in business.” Nottingham University Business School. Web.

Cai, H., Liu, Q., Xiao, G., (2005). “ Does competition encourage unethical behavior? Case of corporate profit hiding in China.” Hong Kong University. Web.

Flexible learning. (2009). “Organizational values.” Web.

Gross, D., (2004). “The truth about Fannie.” Slate magazine. Web.

Justice News Flash.com. (2008). “Dallas mesothelioma lawyer sees new Exxon scandal.” Web.

McNamara, C., (2008). “Guide to ethics management: An ethics toolkit for managers.” Free Management Library. Web.

McPhail, K. (2001) “The other objective of ethics education: Re-humanising the accounting profession – a study of ethics education in law, engineering, medicine and accountancy” Journal of Business Ethics, Vo. 34 (3/4) pp.279=298.

Schifferes, S., (2003). “Enron’s trail of deciption.” BBC News. Web.