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business ethics - do businesses behave ethically

Introduction

The word ethics means standards of right and wrong behaviour. Another word often used is morality. This revision note is about whether or not businesses behave in an ethical way. There is a popular image of the cruel and wicked Victorian mill owner. But in the 19th Century everybody in the UK more or less accepted the Christian code of ethical behaviour, and businesses were expected to follow. Some businesses, especially those owned by Quakers such as the Fry and Rowntree families, set very high standards indeed.

The Modern Business Environment Today, things have got more complicated:1. There is no longer one agreed moral code. Most people have a weak sense of religion or none at all. So their morals must come from somewhere else. 2. There are competing religious and social moral codes, especially for multinational companies ("MNCs") operating in different parts of the world and employing people from different cultures. 3. The pursuit of profit has become a goal in its own right, and this puts pressures on people to compromise their standards, not just ethically, but in less important areas also. For example, a very rude manager might be tolerated because he (it usually is a he) makes large profits. So when good behaviour and good profits come into conflict, businesses find it difficult to resist the profits. 4. Businesses are only the people who work there; businesses dont decide anything its the people who make decisions. But businesses have group cultures with their own norms and standards. Individuals have a strong need to fit in and be accepted, so it is very difficult for any individual to stand up against attitudes and decisions they disagree with. 5. Greater wealth in the western economies means people have less tolerance for ethically dubious behaviour. We are no longer so desperate for growth and employment at any cost. People are also better educated and better informed. People are less deferential ie they are less accepting of what people in authority say. So there are higher expectations of how businesses should behave.

6. Businesses have to sell to consumers and employ workers who have their own standards and opinions. They are not going to buy from or work for a business they disapprove of. So there is a competitive pressure for better behaviour from businesses. 7. Many managers and owners have ambitions of social acceptance and recognition eg knighthoods, and so are not going to get caught behaving unethically. 8. Modern technology creates ethical dilemmas which never existed until quite recently. Medical products, and gene technologies, are a good example of this. Should parents be allowed to alter the genes of their unborn children, and should businesses sell the products to do this? You can see that these factors all pull in different directions. It has all got a lot more difficult and a lot more complicated. Some businesses set up special committees to discuss and decide ethical problems, and they may even employ a professional philosopher to help them. Common Ethical Issues

Fairness and honesty Respect for people Conflict of interest Financial management Social Responsibility Social responsibility is the obligations a business has over and above its legal responsibilities to the wellbeing of employees and customers, shareholders and the community as well as the environment. Monday, 1 The Growth of Corporate Responsibility Corporate responsibility is the phrase used to describe businesses which have decide to behave in a deliberately socially responsible manner. Obeying the strict letter of the law doesnt always solve these problems, although it does keep the business out of trouble with the authorities. Laws are general, and dont always act as a good guide to decisions in any one individual case. Laws have to interpreted by courts, and it is not always obvious what is illegal until the case goes to court. Laws dont cover all the areas that people consider important in ethical behaviour. For example, it may be perfectly legal to dump waste at sea, but many people would consider this to be unacceptable behaviour. In many cases different ethical principles pull in opposite directions. For example, closing a polluting factory may be good for the environment, but it is not going to help the local community who need the jobs and the incomes. What should the

business do? Whatever it does, it is going to upset one group of people or another, because society at large cannot clearly answer these questions, and there is no clear guide to the business how to behave. Businesses which get caught acting unethically suffer much more damage than used to be the case. The press is much more active in investigating and publicising such cases. The population at large takes more interest, has their own views, and is more willing to let their displeasure be known. Pressure groups opposed to some activities of business are much better organised, better financed and better able to attack such businesses. Huntingdon Life Sciences has been an extreme example, because the Animal Liberation Movement is prepared to use extreme (and ethically dubious) methods. Not only have employees been threatened, but the employees of shareholders and banks, so the business nearly went bust through lack of finance. This shows that the opponents of business understand business and its weak points very well. The internet now allows very rapid sharing of information across the world (and MNCs operate across the world). There are many web sites devoted to publicising and discussing the behaviour of businesses. Whistle-blowing is more acceptable, and even protected by law in some countries, so access to secret information is now better. Increasing Consumer Activism Consumer campaigns can be very effective. If enough consumers stop buying from a business revenues will fall until the business is forced to change or go bust. Managers dont like the negative publicity, and are sometime s embarrassed by

their own decisions anyway; they know they are dubious decisions. Suppliers may want to switch away from such a business because there is guilt by association. In extremes there may be an investors strike where large numbers of people refuse to buy the shares of such a business and the business cannot raise finance. A large number of US pension funds (especially in the public sector) used to refuse to invest in US businesses involved in apartheid S Africa. Businesses may also have trouble recruiting enough good employees. Benefits of Ethical Behaviour The main benefits for a business of behaving ethically are: 1. 2. 3. Avoidance Better of image expensive with Better and embarrassing and PR better disasters. sales.

consumers

recruitment.

4. Better employee motivation because employees are proud of their jobs. Effects of Ethical Behaviour 1. Increased costs as businesses try to do what is expected eg not pay bottom wages, or dump pollution cheaply at sea. 2. Conflict between profit and ethical standards. 3. Business practice and organisational culture will have to be changed. 4. Changes in relations with suppliers. This may mean passing the same standards down the supply chain, and severing relations with suppliers not prepared to meet the same standards. Alternative suppliers may be more expensive. For example, the

export of Brazilian mahogany is illegal for reasons of conservation, but it is very difficult (and expensive) to buy mahogany that is absolutely guaranteed to come from an officially recognised sustainable source. Should Businesses Be Expected to Behave Ethically? One argument is that businesses are products of the society in which they operate, in which they sell their products, and in which they hire their employees. So businesses should be expected to reflect the ethical standards of the surrounding society. One problem with this view is that society doesnt always have clear ethical standards to which businesses can stick. For example, some people care passionately about animal experiments, and argue it is deeply unethical, whereas many other people say such experiments are justified if real people benefit medically from the research. What is a business supposed to do? The opposite argument is that business are supposed to make a profit for their owners, to create jobs for employees, and to create wealth for society as a whole. Anything else is at best an irrelevance and at worst simply gets in the way of profitable business. See What's Wrong with Ethical Corporate Behaviour for a counter-argument. The middle argument is that businesses in the real world (or most of them, at least) would like to do both, if possible. But there will always be conflicts. What then happens? Does the business stick with the ethical behaviour? Usually the business will go for the profits and it is this which upsets many people, although perhaps people sometimes expect too much and havent really thought through the consequences of their own opinions. Are Businesses Behaving More Ethically?

Research suggests middle and junior managers care quite a lot about ethical behaviour, but that senior managers still care mainly about profit. To the extent that it is senior managers that make the decisions, then little has changed, but middle managers can gradually shift the climate of opinion in a business. Well-publicised cases such as Shell and the Brent Spar suggest businesses have become more sensitive to public opinion about ethical behaviour and have begun to behave more ethically (as opposed to just saying that they do). Cynics argue this is not because of a change of heart, but merely yet another changed response to changed market conditions in the eternal pursuit of profit.

Corporate Ethics Management Council The Corporate Ethics Management Council is comprised of over 40 executives responsible for, in a variety of roles and capacities, all facets of ethics and compliance management in major Canadian public and private sector organizations. We meet in camera three times a year to examine national and international ethics management practices and their relationship to business success.

Ethics Of Corporate Management

Description: Ethics of Corporate Management --- This course, commonly known as the "business ethics" course meets the law/ethics requirement of the MBA program.

The course provides a theoretical background of how to evaluate moral claims in business, provides and introduction to the issues related to corporate social responsibility, and discusses how to manage ethics in organizations. Using a framework describing mangers' economic, legal, and ethical responsibilities, this course draws upon classical oral theory as well as the most up-to-date contemporary business ethics thinking. Though a discussion of dilemmas of executives, employees, and organizations, the course examines topics such as corporate compliance systems, corporate culture, human rights, corruption, and cross-national business ethics. In this course we also examine ethical leadership in terms of acting on your values in an organizational setting and building an ethical organization. Class participation is critical, and active interaction has been a trademark of the class. Even the "lecture" portion is very interactive. The full-scale discussion consistently opens eyes to new dimensions of business behavior.

Managing corporate responsibility and business ethics Our Code of Business Ethics The Code sets out 12 broad principles for how we do business, based on the common values of integrity, honesty, fairness and transparency. It provides the framework for our policies, programmes and procedures for a range of corporate responsibility issues. The 12 principles of the Code of Business Ethics 1. We comply with the law 2. We compete fairly 3. We act with integrity in all our business dealings

4. We treat suppliers, partners and customers properly 5. We treat our co-workers respectfully 6. We contribute to healthy, safe and secure workplaces 7. We respect the environment 8. We contribute to our communities 9. We participate in relevant public debates 10.We respect human rights 11.We have high standards of financial record-keeping and reporting 12.The Code applies to all of us Managing the Code The Code is approved by our Board of Directors and supported by the Chief Executive, directors and management at all levels. The Board has ultimate responsibility for the Code. The Audit Committee monitors the Codes implementation and our compliance with it. The Audit Committee reports to the Board on the effectiveness of our internal controls and on the ongoing process for identifying, evaluating and managing significant business risks, including potential violations of the Code. The Code Compliance Council for the Code of Business Ethics (the Council) acts as the steering committee for our ethics programme. The Senior Vice President Ethics & Compliance reports to the Audit Committee periodically on ethical issues and suspected or actual breaches of the Code. The Chief Executive and his leadership team champion the Code through several routes. These include:

discussing ethics issues and Code compliance at management meetings

reviewing ethics issues in the performance review system for managers, and examining Code compliance issues during site-level internal audits.

Managing specific issues Every Smiths employee must know, understand and comply with the Code at all times. We encourage employees who have concerns or queries about the Code to raise them by contacting line management, human resources, their business or divisional legal counsel or the confidential Smiths Group Ethics Alertline. The Ethics Alertline answers queries and enables employees to confidentially report any concerns or allegations. It is available via email, the internet and tollfree phone numbers in 53 countries, and is staffed by people who speak the local language. All issues are addressed promptly and referred, as required, to relevant functions so they can be properly investigated. We have a non-retaliation policy, which means that any employee who in good faith reports any act of apparent misconduct or unethical behaviour will not be victimised or treated adversely. Information about the Ethics Alertline and Code compliance is available to employees on our intranet in 12 languages. Posters are also on display at our sites and we provide all employees with a printed copy of the Code. To communicate the Code, we provide ethics training to employees across the Group. This training course is available online in English and five other languages, through a custom-built platform, the Global Learning Resource (GLR), and installed on a Smiths training portal accessible through the internet. The course is also available on CD-ROM. The GLR and portal are designed to support future employee training in the areas of business ethics, compliance, safety and security.

Smiths ongoing business ethics programme In 2011, we reviewed and updated all of our policies, including business controls, in order to mitigate changing areas of risk. This is an ongoing process. The Code provides the foundation for our commitment against bribery and any form of corruption. We recently completed a general review of our ethics programme to take into account changes in the law and enforcement procedures in several countries, including the UK and the US. This includes the UK Bribery Act, which took effect in July 2011. We continually review, evaluate and update our ethics programme, systems and procedures for fostering, monitoring and auditing ethical business conduct. FTSE4Good The FTSE4Good Index acknowledges companies that meet globally recognised corporate responsibility standards. Smiths continues to be awarded membership of the index, scoring 91 out of 100 on the FTSE4Good Environmental, Social and Governance rating. While we are not complacent about the ongoing work required, we were pleased to receive this external recognition of our corporate responsibility initiatives and business ethics programme. Ethics and Corporate Responsibility Walmart, the worldslargest retailer, hasgone green. Since 2005 it has worked to plan and execute a sustainability strategy thatincludes using renewable energy sources, reducing its waste, and selling sustainableproducts. A packaging scorecard helps Walmarts 60,000 suppliers learn about Walmartsexpectations and guides the firm in making its purchasing decisions. The company hasbuilt energy-efficient stores and retrofitted others, and it offers reusable shopping bagsmade of recycled materials. Although Walmart doesnt disclose financial details on thegreen

initiative, it says the program is already saving money and resources, and it projectsbillions in savings over time. 1