BUSINESS
Ethics in Business Starts With You and Me
This article examines ethical behavior best practice and the role that People and cultures play in the Business world
In the 70s, the USA introduced the Foreign Corrupt Practices Act (FCPA), amended in 1998. The purpose of this initiative was to curtail the payment of bribes to influence decisions of foreign officials, political parties, or candidates to secure foreign political office.
By definition, allow me to paraphrase business ethics proposed by Blackwells:
The study of business situations, activities and decisions where the issues of right and wrong are addressed.. meaning morally right and wrong as opposed to, for example, commercially, strategically or financially right or wrong.
Ethics in business encompasses 4 elements:
- Analysis — The study of moral principles in decision making.
- Development: The development of standards and processes for moral decision making.
- Standards — A code or set of rules to govern what a person should do when ethical issues present.
- Action — Using a decision-making process to make ethical decisions.
Ethics is not:
- Preaching
- Our opinions
- Our beliefs
- Legal compliance
- Obeying social demands
- Folding under pressure
- Obeying the demands of your role at work
This article will discuss the broad elements of business ethics.
The Value of Ethical Behaviour
Ethical behavior is simply the right thing to do.
Often prescribed by laws and regulations, ethical behavior is demanded by customers, governments, and the media today. So unethical practices risk attracting unwanted attention.
Ethical behavior is good business, enhancing corporate image and sales opportunities.
Companies with a strong reputation have an advantage when hiring, motivating employees, negotiating with partners, or dealing with international governments.
Principles and practices
The basic elements of ethical conduct are:
- Responsibility — Exercising professional, and moral judgment.
- Public interest — Honoring social trust.
- Due care — Competent, diligent, prompt, and thorough effort.
- Integrity — Performing responsibilities with a high level of integrity.
- Objectivity — Unbiased, impartial, and independent. Absent of self-interest and independently validated in fact and appearance.
- Scope and nature — Principles observed when considering the scope and nature of services.
So why worry about ethics? Well, it’s the right thing to do, plus:
- Self-respect and reputation
- Avoid stakeholder conflict, lawsuits, new regulations, and rising costs
- Avoid brand damage from unfair practices
That said, the most common violations are evident all around us:
- Sexual harassment
- Lying to supervisors
- Falsifying records
- Stealing
- Drug or alcohol abuse at work
- Conflicts of interest
- Verbal or psychological abuse
Other examples include:
- Deceit, fraud or influencing buying
- Concealing information
- Taking advantage
- Misrepresentation or misleading like “passing-off”
- Divulging company secrets
- Abuse of organizational or leadership power
- Or being an accessory to any of the above
Ethics in business arises from what a business or a company representative does, how they behave, and how they do it.
Many businesses operate in sectors with strong ethical dimensions, like entertainment (gambling), legal, alcohol brands, and weapon suppliers. They are regulated by strict laws in most countries.
Then again, so are financial institutions, and we all know what happened there in 2008. In fact, it’s ongoing.
Ethical Dimensions
A code of business conduct may read something like this:
We maintain a code of conduct that applies to all employees, requiring staff to engage in proper business conduct, to avoid conflicts of interest, comply with laws, regulation, and protect the company during their work.
Bribery and conflicts of interest
A business conduct code may include a clause relating to bribery and conflict of interest, such as:
- If any employee is found guilty of accepting or offering a bribe
- Disciplinary action defined
- An Employee hotline to report suspicious activity
- Political lobbying
- Political contributions
- Dealing with government officials or political parties
- Political financial support
- Payments to officials or employees in the government
Giving of gifts in business
- Europe — Don’t risk the impression of bribery by spending too much on a gift.
- The Arab world — Do not give a gift when you first meet someone, it can be interpreted as a bribe.
- Latin America — Gifts should be given during social encounters, but not during the course of business.
- China — Gifts should be presented privately with the exception of collective ceremonial gifts at banquets.
Anti-Trust and competition laws
Anti-trust and competition law regulations vary by country, but controls are similar to those in the U.S. to regulate how business carried out in foreign countries.
Corruption
Corruption is an exchange between two parties that:
- Has influence on the allocation of resources either immediately or at a point in the future
- Involves the use or abuse of public responsibility for private needs
Not all corruption may be regarded as illegal.
In developed economies, the “underground economy”, the portion of economic activity that’s not reported to the public accounts. for part of the Gross National Product (GNP) is one example.
If you get a plumber to fix a leaking sinking and pay cash for an hour's work, would you expect an invoice and Vat receipt?
If not, are you corrupt?
That’s small change for most. What’s worrying is that researchers estimate that payments of ten to twenty percent of the value of a procurement project may be paid to officials involved or influence a deal.
Causes and Consequences
Corruption tends to be of less importance in developing, transitional economies. According to Transparency International (TI), factors supporting corruption include:
- Low public sector pay
- Immunity of public officials
- Secrecy in government
- Accelerated privatization
- Media constraints
- Financial liberalization
- Accelerated foreign direct investment (FDI)
- International trade
It has been proven that culture contributes to corruption, yet corruption impedes growth and progress.
Measuring corruption
Transparency International (TI) publishes the Corruption Perception Index (CPI) to measure corruption, calculated from an array of survey responses in a variety of countries.
The TI Corruption Perceptions Index (CPI) is a composite survey. Collated data that reflects the perceptions of businesses and country analysts, both resident, and non-resident.
Corrupt practices include:
- Bribery
- Smuggling
- Tax avoidance
- Money laundering
- Counterfeiting
- Piracy
Ethics management
The considerations for ethical decision-making include:
- Stakeholder interests and concerns
- Organization factors: Values, culture, industry and peer influence
- Individual factors: values and moral beliefs
A better understanding of business ethics leads to:
- Succeeding through ethics
- Establishing principles and values
- Setting out core responsibilities
- Assessing the benefits and risks
- Looking beyond borders for the future of humanity, and planet Earth
Global examples
№1 — Japan: In the past, Mitsubishi Electric, Olympus, Nissan, Bridgestone, and Sanyo Electric were exposed, concealing defects in tires, faulty devices, financial irregularities, emissions, and solar-cell systems.
Top food companies and nuclear power plants have shown little sense of urgency where corporate social responsibility is concerned.
No specific law against sexual harassment exists. There’s a general tendency not to hire or promote women into management ranks.
While lobbying is acceptable, some feel that Japanese business interests are at odds with local business interests. In fact, it’s unadvised for prominent local personalities to agree to represent Japanese interests.
№2 — China: The Chinese government imposes very strict control over the dissemination and distribution of information.
Freedom of speech is severely limited.
Compared to western economies, the Chinese consciousness of environmental issues is much lower. Environmental deterioration, notably air pollution, soil erosion, and the steady fall in the water table is a huge threat to China.
Punishment for safety violations is minimal, often compensatory damages.
Neglected stakeholders in Chinese corporations are the employees who are often forced to work long hours, in low paid unsafe jobs.
An economic dichotomy that exists between Northern and Southern China is the driving force that persuades large American corporations to relocate.
- Northern factories are highly regulated by the government
- Southern providences along the coast above Hong Kong are mostly without regulation
- There’s a significant cost difference between the Northern and Southern regions of China.
- Women’s retirement age is 60
- Men’s retirement age is 65, preventing women from reaching upper management levels
There’s also concern about compromising ethical practices in Hong Kong, coinciding with the 1997 transfer of sovereignty to China. Recent events have shed light on this unfolding power-struggle.
Final Thoughts
To conclude, allow me to leave you with some food for thought, a dilemma to consider.
Ethical dilemma
Imagine you’re a manager visiting a factory owned by an affiliate in Peru. During your visit, you discover the use of child labor at the plant.
You’re appalled.
Then you’re informed that without an income from their children’s work, families can go hungry. If children are dismissed from the plant, they are likely to turn to other sources of income:
- Prostitution
- Drug dealing, or
- Street crime
What would you do? Would you raise the issue on the grounds of the immorality of child labor or turn a blind eye and look the other way?
Should you view developing countries through the eyes of western economies? Let’s not forget that not that long ago, about 100 years or so, child labor was commonplace.
“In 1900, 18 percent of all American workers were under the age of 16.” (History.com, 2020)
Who are we to judge?
The final takeaway is a 6-step model for companies to adopt when building a code of ethics.
6 steps of an effective ethics program
- Assess risk to put in place standards and a code of ethical conduct
- Provide leadership, and managerial oversight to ensure compliance
- Train employees to communicate on agreed standards
- Establish a system to monitor conduct, and enable employees to report abuse
- Robustly enforce standards, rewards, discipline, and punishment consistently across the organization
- Regularly review the code of conduct system, taking steps to revise and improve ways of working
Business aside, ethics starts and ends with you and me.