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Friday, April 15, 2011

Reaction paper on Business Ethics, social responsibility and Accountability

Business ethics is the application of ethical principles and standards to business behavior. Ethical principles in business are not materially different from ethical principles in general because business actions have to be judged in the context of society’s standard of right and wrong”. (Thompson, A.A., Strickland, A.J. & J.E. Gamble)
Now a day’s even in those companies who are believed to be practicing ethical code in the organization just have window dressing ethics and core values.  These organizations mainly used or link their strategy, values and ethics stems mainly due to a desire to avoid the risks of embarrassment and of possible disciplinary action.
In most societies, people believe that companies should not pillage or degrade the environment in the course of conducting their operations. In most societies, people would concur that it is unethical to knowingly expose workers to toxic chemicals and hazardous materials or to sell products known to be unsafe or harmful to the users. To the extent there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, there exists a set of universal ethical standards to which all societies, all companies, and all individual can be held accountable. (Thompson, A.A., Strickland, A.J. & J.E. Gamble)
Truly speaking, there is no universally applicable standard of ethical values and norms that can be implemented globally. This is because whatever is deemed right or wrong, fair or unfair, moral or immoral ethical or unethical in business context depends partly on the context of each countries local customs, religious traditions, and societal norms. Therefore, in reality businesses need some room to tailor their ethical standards to fit local situations and demand. A company has to be cautious about exporting its home country values, traditions, belief and ethics to foreign countries where it operates.
It is true that there are so many contributing factors or drivers of an unethical behavior like pressure from the top level management to achieve the performance target regardless of how employees achieve those targets. The culture of the company that promote such unethical practices and behavior in the business by putting employees performance ahead of an ethical behavior, any business organization still got so many reason for operating ethically. For example, if we operate ethically we can avoid fines and litigation, we can reduce the damage to the firm’s reputation goodwill, we can be competitive in the market in the moral grounds and finally the most important one is we can avoid the internal corruptions within the organization and plant socially acceptable culture within the organization.
The apparent pervasiveness of immoral and amoral business people is one obvious reason why ethical principles are an ineffective moral compass in business dealings and why companies may resort to unethical strategic behavior. But apart from the thinking that the business of business is business, not ethics.” One of the drivers of an unethical behavior in the business is when business or the manager put the pursuit of personal interest more than any other factors then it can be a strong incentive to its employees or the managers to behave unethically. Beside this when organization give some degree of discretion to their employees or the managers then there is the high possibilities that those employees or the managers will act more in his personal interest rather than organizational interest and benefit. Furthermore, autonomy in decision making granted by the organization to their officers and the employees also leads to unethical behavior from the part of the employees or the officer because the more freedom and autonomy they receive the more they may act in their personal interest and benefit.  In addition to this “organization’s orientation can also drive unethical behavior. An orientation towards results regardless of how they are achieved can send the message that the ends justify the means.” (Simon King). Those managers and employees, who have excessive desire to accumulate wealth, their greed, power, status, and other self-interest often, push ethical principles aside in their ambitions, and they often disregard the ethics and values of the business by promoting unethical strategic maneuvers and behaviors at companies. 
Today, even customers are very conscious about the business organization ethical code of conduct. If the customers knew that the manufacturing company or the service industry is practicing unfair ethical practices or unethical business practices in terms of wages and employment practices or risky working environment then they will lose their market reputation and customers. Not only this but also organization can lose their employees morale and there will be higher employees turnover. Furthermore, due to the high turnover rate, recruiting costs will go up in the organization leading to the erosion of the efficiency of the organization. And, finally it will be difficult for them to attract new talented customers in the organization.
No business organization operates in a vacuum rater they are dipped in the universe of relationship with multiple stakeholders of employees, government, shareholders, competitors, customers, etc. One of the reasons why the company or the business organization should act ethically and morally is because of the emergence of the globalization cultural sensitivity among consumers group and increase in the number of social activist who are highly sensitive towards their own culture, norms, values and traditions system. And those multinational companies and international corporation who transcends their national boundaries while doing businesses is the major target for ethical and moral issues in their organization.  
For example Wal-Mart which is the one of the most successful retailer of the world. Personally speaking, I love Wal-Mart because they are able to provide their product and services in very low price than that of other retailers. One of the issues Wal-Mart is facing globally is people think that they pay low wages to their employees and that’s the reason why Wal-Mart is able to sell their products in low price. But in my opinion, Whatever Wal-Mart is doing is not completely unethical. Effective supply chain management is the key reason for their ability to sell their products in exceptionally low price rather than their wages scale.
Beside this, now the global economy is in recession. Unemployment is increasing everywhere. Companies are no more hiring aggressively rather hundreds of company around the world are decreasing their employees due to the recession. But, Wal-Mart on the other hand is doing good job even in this critical situations. Therefore, we need to have clear consensus about what is ethical and unethical in terms of business situations in particular local settings and business organization on the other hand should operate considering those ethical framework.
Globalization and business ethics are linked as they affect a company’s ability to commit to its shareholders, in particular to external investors, and preserve the trust needed for further investment and growth. Therefore it is increasingly important for companies to deal with ethics as a corporate strategy that, if uniquely implemented could achieve competitive advantage for the company rather than waiting to react to possible ethical issues of importance to the targeted stakeholders. (Rania Ahmed Azmi) Therefore company should be ethically proactive rather than ethically reactive.
In my opinion, ethics is a kind of cost of the organization that helps the organization to improve the relationship among the employees or peoples within the organization and between the insiders and outsiders of the organization. However, now we have a globalized economy and we do business globally. Therefore, if we talk about ethics and moral of the business, it all depends on the local culture, customs and value system of the organization where it is located. For example, in our country Nepal, we don’t have effective child labor policy in hand to restrict the business organization to employ child labor in the organization. Basically there are two reasons why our child labor Act is unsuccessful. The first one is that if all the organization stops providing the employment to those underage children then they will find another way to earn money. Secondly, if underage people do not find any way to make money then it might encourage them to involve in immoral way to earn money and they even be criminal. Therefore, it is hard to draw a line between what is ethical and what is unethical.
There’s ample room for every business organization to create its social responsibility strategy to fit its core values and business mission, thereby making its own statement about “how we do business and how we intend to fulfill our duties to all stakeholders and society at large”. Now a day’s some company use corporate citizenship and consistently demonstrate ethical strategies and business behavior by addressing unmet noneconomic needs of the society.
Some of the accounting rules that are commonly applied in the US accounting practices can also be consider as unpractical, for example, rule relating to Goodwill of the company. Goodwill is simply difference between purchase price of that company and fair market value. When one company ‘A’ buy another company ‘B’, at the end of the fiscal year, company ‘A’ has to record all the information about  company ‘B’ also. According to FASB142 rules of accounting, Goodwill is not amortized but the value of the goodwill is reduce/increase based on appraisal. Therefore, Company ‘A’ simply hires the appraising companies and let them calculate the goodwill of the Company ‘B’. The appraising company who calculate the highest value of goodwill will be recorded into A’s financial statement. The system of recording value of the goodwill is not appropriate. To avoid the tax, companies excessively appreciate the value of the goodwill. This system is inappropriate and unethical if we evaluate in some other countries rules of accounting system and vice versa. This will adversely affect the economy as a whole.
Therefore, in conclusion we can say that there is no universally applicable standard way of being ethical while doing business. Business managers or CEO’s have to be local minded or they should think globally and act locally to pass the ethicality test of the society and its consumers.













Reference:
Thompson, A.A., Strickland, A.J. & J.E. Gamble (2008) Crafting and Executing Strategy: The Quest for Competitive Advantage 17th edition. New York, McGraw-Hill Irwin

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