ETHICAL ISSUES & BUSINESS OPERATIONS

1. ETHICAL ISSUES & BUSINESS OPERATIONS Business & Management Course Companion, 2009. p31-41 Oxford University Press

7. Ethical Objectives • Ethics is the branch of philosophy concerned with the rules of human behaviour. • It considers what is “right” and “wrong” and examines how moral principles and values are created and evolve. • Setting ethical objectives is therefore a process by which organizations apply ethical values to their targets and establish basic principles about their behaviour in achieving these targets.

8. Ethical Objectives Ethical values cover all aspects of business conduct. This includes: • corporate strategies. • treatment of employees. • treatment of suppliers. • sales and accounting practices Most activities of business have some ethical features.

9. Ethical Behaviour • Ethical behaviour goes beyond the legal requirements placed on a business, as it concerns discretionary decisions and behaviour; in other words, what a business chooses to do, rather than what it is forced to do. • Business ethics are relevant both to the conduct of an individual within an organization and to the conduct of the organization as a whole.

10. Strategic Questions & Ethical Issues • Is it ethical to reduce costs by exploiting cheaper resources in less economically developed countries? Eg: large Western MNCs have been accused of using child labour in some of their overseas factories. • Is it ethical to sell products that are legal, but known to harm those who use them? Eg: tobacco.

11. Strategic Questions & Ethical Issues • Is it ethical to target young children with advertising messages? • Is it ethical to manufacture products that are used to kill? Eg: The arms industry? • Is it ethical to look for loopholes in the law to avoid paying tax?

12. Strategic Questions & Ethical Issues • The previous questions are `big questions` that elicit strong views, but there are many smaller, tactical issues at an individual level, which still have ethical dimensions.

13. Individual Behaviour and Ethical Questions Examples of questions about individual behaviour which contribute to the overall ethical approach of an organization include: • How do I manage my team? • Should I massage the truth? • Can I ever justify being disrespectful when selling products or services to my customers?

14. What makes it ethical or unethical? • In theory, business ethics are shared set of attitudes, morals and rules of behaviour that underpin the decision making process. • However, in practice not everybody agrees on what is ethical and what is not. • After all, individuals in everyday life have very different moral and ethical standards, so why should we expect individuals in organizations to be any different?

15. Do employees have to accept the ethical expectations of a business? • Organizations often have identified and clearly stated corporate cultures, so anyone who voluntarily joins the organization is signalling at least some agreement with the existing culture and the values attached. • Organizations may publish detailed ethical codes of practice, ethical policies or ethical guidelines, which guide employees in their responses to situations that potentially challenge their honesty and integrity.

16. Ethical Guidelines or Ethical Codes of Practice • Ethical guidelines set out general principles about the organizations beliefs on matters such as quality, treatment of staff, or the environmental effects of the organization’s activities. • They detail procedures to be used in specific ethical situations, such as conflict of interest or situations where employees are offered gifts or favors.

17. STAGES IN DEVELOPING AN ETHICAL POLICY • Set explicit ethical objectives supported by appropriate policies and procedures. • Show the support of senior management for these ethical policies and procedures. • Develop supporting training programmes and courses. • Monitor the success of ethical programmes.

18. STAGES IN DEVELOPING AN ETHICAL POLICY1. Set Explicit Objectives • The organizations needs to establish detailed codes of ethics and expectations, which are explicit, clearly written and communicated to employees and other stakeholders. • It is essential that following these codes becomes part of day-to-day activities.

19. STAGES IN DEVELOPING AN ETHICAL POLICY2. Support of Senior Management • Senior managers should demonstrate their commitment to implementing and enforcing ethical objectives by making them central to business planning. • This can be achieved by building ethicalsuccess criteriainto employee appraisal and the award of bonuses for meeting specific ethical targets. • A clear disciplinary process should exist to punish breaches of ethical responsibilities.

20. STAGES IN DEVELOPING AN ETHICAL POLICY3. Develop Training Programmes • To support ethical goals and policies, all employees and managers should participate in training courses where the organization’s ethical objectives are carefully communicated. • This training must help employees recognize and make ethical decisions. • The same training may be offered to other stakeholders groups such as suppliers and distributors to make sure that all those involved in the marketing and distribution of an organizations goods or services act to the highest possible standards and do not undermine the organizations image.

21. STAGES IN DEVELOPING AN ETHICAL POLICY4. Monitor the success of programmes • It is an essential part of the success of ethical codes of practice that they are monitored on a day to day basis. • Many organizations create channels for employees to report on ethical conduct and promise anonymity for “whistle blowers” who report unethical conduct.

22. Why do organizations consider setting ethical objectives? • Ethics in the market place and workplace are becoming increasingly important as organizations more into a period of intense competition for public and consumer support. • Organizations are under pressure to develop and maintain policies on business ethics and social responsibility to ensure that they have the support of employees and other stakeholders.

23. Competitive Advantage & Ethical Objectives • To help create competitive advantage, most organizations want to be perceived as “ethical” as this brings with it potential commercial advantages. • However, being an ethical business is a relatively subjective assessment linked to the products or services that the business offers, it founding vision, goals and values and its reputation among it stakeholders.

24. What does unethical behaviour mean for a business? • Unethical behaviour and the resulting negative press may have significant effect on sales, profits and even the survival of the business. • Therefore organizations will seek to manipulate perception through good marketing and PR. • Increasingly, organizations are putting in place ethical policies to prevent ethical breaches and preparing contingency plans to react to any breaches that might damage their reputation.

25. Ethical Practices and Business Functions • It is usual for organizations to apply ethical approaches to all their business functions. • For instance, a business may produce ethical guidelines and policies for HR, accounting practices and financial reporting, sales and marketing methods, production and the treatment of intellectual property. These would be published: • internally through departmental handbooks and procedures. • Externally in annual reports and on business websites.

26. Ethical Issues & Pressure Groups • Ethical considerations have become particularly important element in the corporate agenda, partly in response to the success of pressure groups such as Greenpeace and social campaigners, like Ralph Nader in the US, and partly in response to success of organizations that have adopted more ethical and social responsible policies.

27. CORPORATE SOCIAL RESPONSIBILITY (CSR) • CSR describes an organization’s duties to its internal and external stakeholder groups, which it may or may not willingly accept. • In other words, it is the way an organization behaves towards its shareholders, customers, employees, suppliers and society in general. • The last stakeholder group is very broad, and therefore being socially responsible implies that the organization operates as a good corporate citizen, both locally and globally.

28. CORPORATE SOCIAL RESPONSIBILITY (CSR) • CSR is an umbrella term under which the ethical rights and duties existing between companies and societyare examined. • There is a distinct crossover between ethics and CSR, since CSR is often about doing ethical things. • In both cases the business attempts to maximize its positive impacts on stakeholders and society and minimize its negative impacts

29. What is the difference between ethics and CSR? • Ethics are the concerns of individual managers and employees. • CSR is a concern of the entire organization.

30. Legal Issues and CSR • All organizations will need to comply with the legal requirements in day to day operations, but CSR means going beyond these legal duties and accepting that the sole function of a business is not just making profit for its shareholders.

31. Is CSR just a marketing tool? • The question is whether acting responsibly is merely a marketing tool or whether it is a genuine part of accepted set of values that guides all that a business does. • Perhaps the acid test of an organization’s CSR credentials is when the economy is in recession and survival is a priority - Does the business put social responsibilities before profit then?

32. Why should businesses act in socially responsible manner? Business Image • Its improves the image of the business and its goods and services and can provide it with competitive advantage. Attracts New Customers & Customer Loyalty • Its attracts new customers and can create customer loyalty and repeat purchase behaviour. • Research has shown that customers are more likely to choose products they perceive as being produced in a socially responsible manner.

33. Why should businesses act in socially responsible manner? Attracts like minded employees • Its attracts like-minded employees to join the business. Improves Motivation of existing employees • With increased motivation, staff turnover may fall and productivity may increase. Reduces possibility of Negative Publicity • It reduces the likelihood that pressure groups will act against the organizations interests.

34. Why should businesses act in socially responsible manner? Goodwill among stakeholder groups • It ensures goodwill among all stakeholder groups, which may prove beneficial at times of crisis. • Eg: Suppliers and employees may be prepared to wait for payment during a cash flow crisis, because they feel a sense of loyalty to the organization, which has treated them well.

35. Short Term Costs – Long Term Benefits – CSR • Like many other business decisions, acting responsibly should be considered as a long term benefit, that may have short term costs. • The question is whether the business is willing to accept these short term costs when competitors are not.

36. Famous Quotes about CSR? • “Conducting your business in a socially responsible way is good business. It means that you can attract better employees and that customers will know what you stand for and like you for it” (Anthony Burns, CEO Ryder Systems (1944-)

37. SOCIAL AUDITING • The purpose of a social audit it to assess the impact of an organization’s operations on its stakeholders and wider society. • It is a similar process to a financial audit as the organization generates a set of a `socialaccounts` that evaluate social performance against non-financial criteria and benchmarks. • However, unlike financial auditing there are no legal obligations on an organization to carry out a social audit, although it helps the business address potential problems that might later lead to legal liability.

38. SOCIAL AUDITING • A strong emphasis on health and safety may mean the organization avoids prosecution for any accidents caused by the negligence of the organization and its employees. • Social auditing should also result in more informed planning and better management.

39. Who conducts social audits? • Social audits are usually conducted by an independent group that prepares a published report assessing the organization’s wider external impact. • This report helps clarify social objectives and encourages the business to come up with action plans to sort out any deficiencies that have been identified.

40. Practical Objectives & Outcomes of Social Auditing • A business is not socially responsible just because it carries out a social audit of its operations. • What counts is that its responds to the audit and changes business practices where necessary, even if that involves financial costs. • Social auditing is increasingly being considered part of quality initiatives and integrated within management approaches, such as TQM.

41. Social Auditing – will result in new objectives and targets relating to: Environment • This includes, pollution, waste disposal, and resource depletion. • Energy use - business practices to improve energy efficiency. Human Resources • HR and the treatment of employees and other individuals in the distribution chain – this could cover issues relating to recruitment, promotion, health, safety and remuneration.

42. Social Auditing – will result in new objectives and targets relating to: Community Programmes • The business helps organize or fund community based initiatives in education, the arts or the environment. Product & Service Quality • There is an emphasis placed on the durability and safety of the products sold and honesty of services provided.