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Unit 9:Business Ethics
TOPIC AREA: BUSINESS GROWTH AND ETHICS
SUB-TOPIC AREA: BUSINESS GROWTH
Key unit competence:
To be able to behave ethically in life and business.
Knowledge to be acquired
Meaning of ethics and business ethics.
Importance of business ethics.
Factors influencing ethical behaviour.
Ethical practices towards different stakeholders.
Consequences of non-ethical behaviour for business.
Application to daily life
Evaluate whether business practices are ethical or not.
Assess the impact of ethical and nonethical behaviour on businesses.
Practice ethical behaviour in society.
Show concern for non-ethical behaviour in business and society
Introductory Activity
Ethics concern an individual’s moral judgements about right and wrong. The decision to behave ethically is a moral one; employees must decide what they think is the right course of action. This may involve rejecting the route that would lead to the biggest short-term profit. Ethical behaviour and corporate social responsibility can bring significant benefits to a business. For example, they may:
- Attract customers to the firm’s products, which means boosting sales and profits.
- Make employees want to stay with the business, reduce labour turnover and therefore increase productivity.
- Attract more employees wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees.
- Attract investors and keep the company’s share price high, thereby protecting the business from takeover
Questions
1 What are the benefits of ethical behaviour in a business?
2 What are the costs of unethical behaviour in a business.
9.1: Meaning of Ethics and Business Ethics
ACTIVITY 9.1
Based on your everyday experiences,describe any 3 of the acceptable ways or behaviours in the following places:
(a) at home
(b) in a business
(c) at school
ACTIVITY 9.2
From activity 9.1.
(a) How do we call the acceptable behaviours in the above places?
(b) From S.1 and 2, mention any 3 acceptable behaviours of an entrepreneur.
(c) What do you understand by ethics and business ethics?
Ethics are moral principles that govern a persons behaviour or the way an activity is conducted. Ethics are a system of moral principles and a branch of philosophy which defines what is good for individuals and society. Ethics investigate the questions “What is the best way for people to live?” and “What actions are right or wrong in particular circumstances?” In practice, ethics seek to resolve questions of human morality by defining concepts such as good and evil, right and wrong, virtue and vice, justice and crime.
Business ethics refer to a set of moral rules that govern how businesses operate, how business decisions are made and how people are treated. In case of professions such as lawyers, media, medical personnel, they should operate within the legal boundaries by observing the professional code of conduct.
Business ethics guide the way a business behaves and ensures that a certain required level of trust exists between consumers and various forms of market participants with businesses. For example, a manger must give the same consideration to the family members and small individual investors. Such practices ensure that the public receives fair treatment.
9.2: Factors Influencing Ethical Behaviours
ACTIVITY 9.3
For a business to operate successfully, there are some acceptable behaviours it should observe in its operations. What do you think are the factors that influence ethical behaviours?
There are many factors that influence ethical behaviours among people as well as in business organisations. These factors are categorised into three as discussed below:
- Laws: Laws and a person abiding by them influence ethical behaviour. Fear of prosecution and punishment is a great deterrent and as such, many do not break the law. In the United States, ethical behaviour is defined by law, such as not stealing or not causing property damage. The level of punishment is roughly tied to the level of crime. A person knows that, for example, if he is caught shoplifting, he could go to jail. This deters him from shoplifting.
- Family background: Family refers to a group of people related by blood or marriage. Family influence is the strongest influence in our lives when we grow up. Our parents’ characteristics, the behaviour of our siblings, our family’s socio-economic status, their education, the place they lived in will shape the children’s most vulnerable time. The earliest time people learn ethics from society is through their interactions with family.
Parents, siblings and other family members are parts of society and the way they interact with a child can have a profound influence on the child’s ethical standpoint. For example, in a loving family in which sharing and caring for others is emphasised, a child may learn compassion and develop an ethical standard that involves giving and caring for fellow humans.
In a neglectful family setting, the same child might begin to develop an ethical framework in which everyone is out for himself, and learn that it is best to take what you can get in any way possible, because nothing will be given to you.
- Management style of the organisation’s leaders: Is it a mild-mannered group of managers who operate on group consensus or do they have an authoritarian style of leadership that demands rigorous adherence to company rules and ethical standards? If the latter, then there’s a greater chance of a stronger ethical environment up and down the organisational ladder.
- Culture: This refers to the outlook, attitudes, values, goals, and practices shared by a group, organisation, or society. Culture reflects the moral values and ethical norms governing how people should behave and interact with others. Local customs can define the ethical behaviour of those living within that culture. What is considered normal in one culture can be completely unnatural in another; what is ethical in one culture can be unethical in another.
- Situational factors: People may display different ethics in different areas of work in certain situations because they may see no way out. For example, a manager may record fictitious sales in order to cover losses within his area of responsibility. Individuals may exhibit different ethics in workplaces because they feel it is inevitable to display such behaviours.
- Religion: This refers to the belief in a supernatural power or powers regarded as creating and governing the universe. Those who tend to report being spiritual, religious or both tend to behave pretty well. Research supports the view that spiritual and religious practices (such as, meditation, church sponsored social justice ministries, religious service attendance) have certain physical, mental, community health and ethical benefits.
- Social pressures: Social forces and pressures have considerable influence on ethics in business. If a company supplies sub-standard products and gets involved in unethical conducts, the consumers will become indifferent towards the company. Such refusals shall exert pressure on the company to act honestly and adhere strictly to business ethics. Sometimes, society itself may turn against such a company.
9.3: Business Ethics Practices towards Different Stakeholders
ACTIVITY 9.4
Businesses have different stakeholders with whom they retain a good relationship with. These stakeholders play a vital role in the efficient running of the business. Whom do you think are the stakeholders that a business should exercise ethical behaviours to?
Business ethics go beyond just a moral code of right and wrong. It attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways. Unethical behaviour by comparison, may damage a firm’s reputation and make it less appealing to stakeholders. Profits also could fall as a result. Business ethical practices should be applied towards different participants in business as discussed below:
9.3.1: Business Ethics towards Customers
ACTIVITY 9.5
“A customer is king.” Without customers,a business is as good as dead. A business exits to serve customers’ needs as it gains profits in return. It therefore needs to attract and retain its customers by practicing acceptable behaviours towards them. What do you think a business should do in order to attract new and retain its old customers?
A customer is an individual or business that purchases goods or services produced by a business. Attracting customers is the primary goal of businesses, because it is the customer who creates demand for goods and services.
There are many moral issues in the business world relevant to customers. In particular, businesses have moral duties to customers and some actions taken in business are morally preferable that have an impact on customers.
One of the benefits of maintaining high ethical standards is increased customer satisfaction which retains customers and can lead to valuable word-of-mouth endorsements of the business to other potential customers.
Ethical practices that every business should practice towards customers include:
- Provision of high quality products: When a product is purchased, customers are not usually just buying an unknown objects. They are usually buying an item of sufficient quality that performs a certain expected function. Every business has a duty to provide consumers with whatever they pay for and products should be of good quality.
- Use of right measures and weights: Product safety is an ethical obligation. Consumers lack the means of checking or verifying the accuracy of measures and weights. It is therefore ethical for every business to provide goods of correct weight and measures to their customers.
- Being honest to customers as far as prices, quantities and quality of the products are concerned. Honesty and transparency in financial transactions and accounting procedures. Complete accuracy of all transactions and accurate bookkeeping are a must for customers and other stakeholders to trust the company.
- Keeping promises made to customers at the time of making a scale. Businesses must strive to maintain the integrity of customer service at all times and at all costs. Each customer interaction and experience must be an over-deliverance of the promises made to customers. This after sales service integrity is a major building block to form solid and long term relationship with customers.
- No misleading advertisements: In an effort to out-do one another and sell more of the goods, businesses often give misleading information about their products to persuade consumers to buy them. It is ethical for businesses to give correct information about the products to the customers.
- No overcharging customers: Most customers are likely to be overcharged because of their inability to evaluate the prices of goods in relation to the costs involved in production. Therefore, it is the business’ duty to charge the appropriate prices to the customers.
- Giving rightful information: Promotions and advertisements of products and services must be true to the actual offering. Exaggerations and overselling tactics ultimately cause customers to have no trust in such a business. In other words, businesses should advertise without giving wrong information or exaggerating.
9.3.2: Business EthicstowardsEmployees
ACTIVITY 9.6
The human resource (employees) are very important in the success of the business. When employees are happy, they work hard and the business thrives competitively in the market. What ways do you think a business can keep a smooth relationship with its employees?
An employee is anyone who has agreed to be employed, under a contract of service, to work for some form of payment. This can include wages, salary or commission. Like any other participant in the business, employees play a great role in running of businesses and need to be treated with lots of respect and humanity. This can be achieved through:
- Giving employees a timely and fair pay. Depending on the size of the business and level of performance, the employer should pay his/her employee the agreed amount if the employee arrives for work and can work.
- Treating employee fairly and with respect. It is the company’s obligation to see that individual managers do not abuse their power or mistreat their subordinates. Kill-the-messenger behaviour at any management level is improper, as is any active or passive encouragement of dishonest reporting. Employees should feel free to raise ethical or other issues without fear of retaliation.
- Providing training and development to employees to improve on their skills. This greatly shows that you attach value to your employees and that you look forward towards working with them on a going concern.
- Maintaining openness between the employer and employees: In order to have happy employees, they should not feel intimidated by management. Instead, they should be empowered to report problems and issues. Openness helps to quickly address issues and in turn, makes employees feel that their ideas and opinions are valuable.
- Providing employees with job security: Employers should not lay off employees unless it is absolutely necessary. Employers should value their employees, not just as a means for work to be completed, but as a long-term investment.
- Ensuring good welfare of employees: It is not a question only of fair pay and good working conditions, there should be a real and enduring concern for the well-being of employees. While the welfare of the company and other co-workers must remain the dominant consideration, an ethical employer is willing to make decisions and implement policies in a manner that demonstrates a genuine concern, even when there are associated costs which impact profitability.
- Giving assistance to employees when need arises for example, listening to worker’s problems, showing that you are with them in times of happiness and sorrow. This helps in creating an environment that is so conducive for workers and their employers.
- Providing employees with good working conditions: Employers should pay their employees a good wage, offers health benefits, and excellent working conditions. This greatly improves on the employment relationship between the employer and the employee.
- Creation of a healthy and safe working environment: Employers have to protect the health of its workers and make sound business decisions that will keep employees safe. Employers have moral responsibilities towards their employees.
- Avoiding discrimination at the work place. Employers should have a policy of equality for all in the workplace, with no discrimination on the basis of race, religion, nationality, age, gender, marital status, sexual orientation, disability, union membership or political affiliation. This helps the employees to see themselves as the same and equal.
9.3.3: Business Ethics towards Suppliers
ACTIVITY 9.7
There is no business that can operate efficiently without suppliers. Each business should have suppliers to rely on its business supplies. How do you think a business can maintain its good relations with its suppliers?
A supplier, also called a vendor or a manufacturer is a person or company that provides goods and/or services to other companies as one of the contributors to the development process on the way to the ultimate customer. Suppliers like any other participant in business, need to be treated well by the business owners.
Some of the ethical behaviours towards suppliers include:
- Businesses should pay for goods and services purchased from suppliers. By doing this, suppliers are powered to supply more goods and services in time hence avoiding shortages in the market.
- Businesses should offer proper advisory services to suppliers about the market trends. This will enable the suppliers to supply what is really required in the market at the right time.
- Businesses should carry out market research for suppliers.’This will lead to sales promotion of supplier’s products hence increased sales volume.
- Businesses should pay for the goods and services bought on credit in time.
- Businesses should not hoard any supplier’s product but should sell the products from the suppliers firm only.
9.3.4: Business Ethics towards Government
ACTIVITY 9.8
The government regulates all business activities in the country. It is responsible for the conduct of each business in its jurisdiction and at the same time the businesses have to observe the regulations set by the government. What do you think a business should do in order to relate well with the government?
The government constitutes of the political and legal environment in which business operates. The government plays a very important role in controlling and providing an environment in which business activities can thrive. Therefore, businesses should promote ethical behaviours as they carry out their activities. Businesses operate under the laws stated by the government. In the due course of carrying out its activities, it should operate in line with the behaviours required by the government as stated below.
- Paying taxes and other dues as imposed by the government.
- Observing the law of the country. In other words, businesses should comply with the laws and regulations set by the government.
- Meet production standards as far as quality is concerned.
- Maintaining standards of health, safety and hygiene regulations established by the government.
- Maintaining discipline and order when carrying out business.
- Following the procedures required by law when starting businesses.
- Complying with the environmental regulations established by the government.
9.3.5: Business Ethics towards Shareholders
ACTIVITY 9.9
1. How would you define a shareholder?
2. Write down one thing a shareholder does in a business.
3. How would a business keep a good relationship with its shareholders? Present your findings to the class.
A shareholder refers to a person, company or other institutions that own at least one share of a company’s stock. Shareholders are company owners. They have a right to its profits if the company performs well, but that comes with the potential to lose if the company performs poorly. A shareholder may also be referred to as a “stockholder’:
Every business should treat its shareholders well and according to the laws laid down. The ethical conduct that businesses should practice towards its shareholders are mentioned below:
- The business should pay dividends to the shareholders whenever a profit is made and also inform the shareholders in case a loss is made.
- The business should provide information tot eh shareholders about the performance of the business. This helps them to know the amount of profits made by the business and appropriate action to be taken.
- The business should give shareholders the right to vote out and replace incompetent directors with new ones capable to perform the job better.
- Listening to the shareholders complaints or views that need to be addressed by the management.
9.3.6: Business Ethics towards the Community
ACTIVITY 9.10
A community supports a business by providing it with labour and income by buying its products or services. Write some of the acceptable behaviours a business can portray to the community in order to maintain a positive relationship with it.
The community constitutes the social and cultural environments in which a business operates. It is made up of people who are the inhabitants of the area or region in which a business operates. The cultural environment of a community consists of the system of values, beliefs, attitudes, ideas, customs, manners and rituals of the people.
All those must be protected by any business that is carried out in that community. Some of the ethical behaviours of businesses to the community include:
- Conserving and preserving the environment to avoid environmental degradation.
- Providing employment opportunities to the local population.
- Providing goods and services that are in line with the culture and norms of the society.
- Contribute towards community development through development of infra-structure.
- Providing societal needs.
- Protecting peoples’ health.
- Respecting customs and beliefs.
- Creating employment opportunities for the people in the community
9.4: Importance of Ethics in Business
ACTIVITY 9.11
You have discovered the different stake holders in business and ways a business practices business ethics towards its different stakeholders. With that knowledge, justify the importance of ethics in business.
As we have discussed earlier, business ethics refer to the moral principles or rules of fair play in business activities. Business ethics can also be defined as the moral principles and values that govern and control the activities of business organisations to ensure fair play in business. The observation of business ethics is important in business because they:
- Increase employee productivity. Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale. When employees complete work in a way that is based on honesty and integrity, the whole organisation benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organisation.
- Attract customers to business products thereby boosting sales and profits to make employees want to work and stay with the business, reduce labour turnover and therefore increase productivity. This reduces recruitment costs and enables the company to get the most talented employees.
- Attract investors and keep the company’s share price high, thereby protecting the business from takeover.
- Develop investor, customer and employee loyalty: Companies perceived by their employees as having a high level of honesty and integrity are more profitable than companies with a low level of honesty and integrity. Ethical climates in organisations provide platform for: efficiency, productivity and profitability. Business ethics are important because they help to develop customer and employee loyalty and engagement and contribute overall to a company’s viability.
- Lead to customer satisfaction. Consumers respond positively to socially concerned businesses. Being good can be extremely profitable. Customer satisfaction dictates business success. A strong organisational ethical climate places customers’ interests first. Research shows a strong relationship between ethical behaviour and customer satisfaction leads to expansion of the market. Business ethics towards customers attracts new customers,retains old customers
- Contributes to employee commitment: Employees are willing to make personal sacrifices for the organisation. The more dedication on the part of the company, the greater the employee dedication. Concerns of the employees include: a safe working environment competitive salaries and benefit packages and fulfilment of contractual obligations.
- Increases positive public image: With consistent ethical behaviour comes increasingly positive public image, and there are few other considerations as important to potential investors and current shareholders. To retain a positive image,. businesses must be committed to operating on an ethical foundation as it relates to treatment of employees, respect to the surrounding environment and fair market practices in terms of price and consumer treatment.
- Help a business win a competitive advantage: An integrity approach to business can yield strengthened competitiveness by facilitating the delivery of quality products in an honest and reliable way. This approach can enhance work life by making the work place more fun and challenging. It can improve relationships with stakeholders and can instil a more positive mindset that rosters creativity and innovations among the stakeholders. The purpose of ethics is to enhance our lives and our relationships both inside and outside of the organisation.
- Reduces risks: A company which sets out to work within its own ethical
guidelines is also less at risk of being fined for poor behaviour, and less
likely to find themselves in breach of one of a large number of laws
concerning required behaviour.
- Increases business profits: Businesses guided by ethics and values are profitable in the long run, though in the short run they may seem to lose money. Tata group, one of the largest business conglomerates in India was seen on the verge of decline at the beginning of 1990’s,which soon turned out to be otherwise.
- Help in protection of the environment: The natural world can be affected by lack of business ethics. For example, a business which does not show care for where it disposes its waste products,or fails to take a long-term view when buying up land for development,is damaging the world in which every human being lives, and damaging the future prospects of all companies.
9.5: Business Costs of Unethical Behaviour
ACTIVITY 9.12
You are now conversant with business ethics towards the different stakeholders of the business. Use that knowledge to answer the questions below;
1. How would you define unethical behaviour?
2. Compose a list of unethical behaviours that might be carried out by a business.
3. What do you think are the negative effects that may arise to a business as a result of not implementing acceptable behaviours in their day to day activities?
From activity 9.12, business unethical behaviour refers to the lack of moral principles or rules of fair play in business activities. Some of the unethical behaviours by businesses include:
- Dumping pollutants into the water supply rather than cleaning up the pollute area properly.
- Releasing toxins into the air in levels above what is permitted by the Environmental Protection Agency.
- Coercing an injured worker not to report a work related injury to workers’ compensation by threatening him with the loss of a job or benefits.
- Refusing to give an employee a final pay check for hours worked after the employee leaves the company.
- Not paying an employee for all of the hours worked.
- Incorrectly classifying an employee as an independent contractor and not as an employee in order to reduce payroll taxes and avoid purchasing unemployment and workers’ compensation insurance.
- Engaging in price fixing to force smaller competitors out of business.
- Using bait and switch or false advertising tactics to lure customers in or convince them to buy a product.
- Refusing to honour a warranty claim on a defective product.
Many businesses sadly make it part of their operational policy to cut corners, accept and give kick-backs in order to get juicy contracts and maximise profits.
In today’s business environment, the line between right and wrong is fade. Workers with high moral standards are helpless against unethical behaviour they notice in their colleagues, and to make it worse, many unethical conducts go unpunished because of legal insignificance.
Some of the business costs of unethical behaviour include;
- Leads to emotional and health problems of employees: An employee working for an employer or company with unethical, deceptive, and dishonest conduct will be directly affected physically and mentally, and may even come down with emotional and health related problems because of it. Workers involved in unethical practices are almost always directly or indirectly held accountable for their actions. Even though they may not be found guilty by any court of law, the physiological impact of immoral acts leads to intense mental and physical stress. When a company is found guilty of financial improprieties, the workers undergo a series of questions from investigators and if they are found to be involved, they may be blacklisted or their professional license revoked. Many workers involved in immoral behaviour may not know the source of anxiety or other health issues, but the human conscience has a strong effect on our physical and mental stability.
- Litigation: Stealing or abetting thieves could land you into a serious court case, and also stain the reputation of those who buy from you innocently. One must always weigh the consequences before thinking of getting involved in any form of unethical business practices. The consequences are usually high and they far outweigh the advantages of such involvement. Businesses that act unethically in ways that break the law may face large fines and other penalties.
- Poor employee performance: A lack of ethics within a company affects the way employees do their job. People can decide that because leaders can break the rules, they can too. This can lead them to damage the company. They may also become discouraged or not see the need to work hard in an unethical environment.
- Poor company credibility: When a company is unethical, it affects its reputation. Not only will the leaders and company lose respect from employees, they will lose credibility with the general public as well. This can result in reduced sales, lost customers, and significant financial harm.
- Harm sales of goods, as customers may boycott goods produced by a company known for unethical behaviour.
- Leads to a drop-in stock price: Investors will be unwilling to buy shares from companies known to transact business dishonestly. Investing in dishonest firms will result in poor returns.
- Builds a work atmosphere of malice and mistrust: Workers tend to go further down the drain when they are surrounded with people who practice unethical behaviour. This will lead to lower productivity, promote conflict, and subsequently cripple the company.
- Leads to monetary loss: Business customers could suffer monetary loss as a result of the company’s insincerity to them. When a customer buys a refurbished machine from you and takes it to run the business as a new machine, the machine is bound to break down sooner or later. When this happens, it would cost him monetary losses; it would also cost money and time to get a new machine to replace it.
- Leads to loss of lives: Selling fake consumables or drugs to a client could result in loss of lives because of the toxic effects those drugs may have on ones health in the short term or in the long run.
- There is increased risk of doing business and the possibility of bankruptcy and severe damage of the company brand and image.
Unit Summary
Ethics are moral principles that govern a person’s behaviour or the conducting of an activity.
Business ethics refer to a set of moral rules that govern how businesses operate, how business decisions are made and how people are treated.
Factors influencing Ethical Behaviours
- Laws
- Management style of the organisation’s leaders.
- Religion.
- Culture
- Social pressures:
- Situational factors.
- Family background.
Business ethics towards customers
- Provision of quality products.
- Use of right measures and weights.
- No overcharging of customers.
- No misleading advertisements to customers.
- Being honest to customers.
- Keeping promises #
- Giving rightful information.
- Giving employees a timely and fair pay.
- Providing training and development.
- Creation of a healthy and safe working environment.
- Giving assistance to employees.
- Treating employee fairly and with respect.
- Ensuring a good welfare of employees.
- Providing employees with good working conditions.
- Providing employees with job security.
- Maintaining openness between the employer and employees.
- Avoiding discrimination at the work place.
- Pay for goods and services purchased.
- Offer proper advisory services.
- Carry out market research for suppliers.
- Pay for the goods and services bought on credit in time.
- No hoarding any of the supplier’s products.
- Paying taxes and other dues as imposed by the government.
- Observing law of the country.
- Meet production standards as far as quality is concerned.
- Maintaining standards of health,safety and hygiene regulation.
- Maintaining discipline and order when carrying out business.
- Following the procedures required by law when starting businesses.
- Complying with the environmental regulations established by the government.
- Pay dividends to the shareholders.
- Provide information to the shareholders
- Giving shareholders the right to vote.
- Listening to the shareholder’s complaints.
- Providing employment opportunities to members of the local community
- Providing goods and services that are in line with the culture and norms of the society.
- Contribute towards community development through development of infra-structure.
- Providing society’s needs for instance helping the needy. Protecting peoples’ health.
- Respecting customs and beliefs.
- Preserving the environment.
- Creating employment opportunities for local population.