Journal of Exclusive Management Science – April 2018 - Vol 7 Issue 04 – ISSN 2277-5684

The Need and Importance of ‘Conducting Business in an Ethical Way’

Prof. P.V.S.Sai
Management Consultant and Founder Chairman, Shreya Foundation, Kompally, Secunderabad-500014
Abstract
“Ethics deal with right and wrong way of doing an act” (Fernando 2007p.1). “Business ethics is
the study of business situations, activities and decisions where issues of right and wrong are addressed”
(Crane 2007 p.5). Is Business Ethics an oxymoron? (Collins 1994). Oxymoron means bringing together two
contradictory concepts. Hence, can we say that ethics cannot exist in Business? Answer is obviously no.
There are many companies which became successful because of their ethical approach to manage
business and vice versa. There are different approaches to decide what ethical behaviour is. Teleological
approach, Deontological approach, virtue based ethical approach gives different criteria to decide ethical
behaviour.
Purpose: The purpose of this paper is to make people understand the need and importance of conducting a
business in an ethical way.
Data: An American multi-national company’s case has been taken to demonstrate how certain allegations
can be made against a company for its business practices and how it damages the image of such a big
company. While discussing about the allegations made against the company, the author has taken all
published data from various sources. The purpose is to highlight the importance of ethical way of
conducting business and not to criticise any company.
Results: The sample company faced allegations of product safety, anticompetitiveness, racial
discrimination, channel stuffing, and intimidation of union workers, pollution and depletion of natural
resources. The company has dealt with a number of these issues, some via private settlements, and some
via court-battles while others remained unresolved. It has generally responded to these problems, by
trying to improve its detection and compliance systems.
An attempt has been made, in this paper, to establish how important ethics in business is by
elaborately discussing the crises faced by one of the American Multi National Corporation in its Global
markets.
Key words:
Ethics, amoral business, oxymoron, utilitarianism, deontological approach, virtue based ethics, channel
stuffing, anticompetitive practices, depletion of natural resources.
I. Introduction:
According to Chambers Dictionary “Ethics is a code of behaviour considered correct” (Fernando
2007 p.1) Ethics has also been defined as “the study and philosophy of human conduct, with an
emphasis on determining right and wrong” (Farrell 2013 p7). What the society considers as right may
have been arrived by the crystallization of consumer pressure on corporations, Government and
regulatory forces. It is the science of morals describing a set of rules of behaviour.
Business ethics is derived from ethics, which includes fair labour practices, free and fair trade,
health concerns, euthanasia to animal welfare, environmental concerns etc. “Business ethics is the
study of business situations, activities and decisions where issues of right and wrong are addressed”
(Crane 2007 p.5). Is Business Ethics an oxymoron? (Collins1994). Oxymoron means bringing together
two contradictory concepts. Examples include „perfect estimate‟„ open secret‟, „act naturally‟ „found
missing‟ etc. When business ethics is used as an oxymoron, one means to say that business and ethics
cannot go hand in hand. According to this view, either business should be immoral or amoral. What is
amoral business?
II. The Myth of Amoral Business:
“The Myth of Amoral Business expresses the ambivalence of many towards business” (DeGeorge
2010 p 3). According to the myth, business and people in business are not explicitly concerned with
ethics. They are neither unethical nor immoral; rather they are amoral because they feel that ethical
considerations are inappropriate in business. They believe that business of business is business.
Although some businesses are acting neutrally with ethics, some of them act unethically
involuntarily. Some businesses adopt unethical practices, not because they have a desire to do evil, but
because they want to earn profit, and disregard the consequences of such unethical practices. The turn
of twentieth century, witnessed many such incidents and global companies like Enron, Arthur
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Anderson, WorldCom and Satyam Computers demonstrated the don‟ts of a professional business. They
faced many lawsuits, paid compensation in millions and billions of US dollars to settle the cases.
Added to this, consumer activism, environmentalists‟ campaigning about environmental protection,
active role by exchequer, forced business to adopt ethical way of doing business (Hartman 2007 p. 155).
III. What is an ethical business and what is not?
As mentioned earlier, ethics decide what is right and wrong and as such an act is considered to
be ethical if it is considered as a right behaviour and unethical if it is a wrong behaviour. How and who
will decide what is right and wrong? From ancient times, society and people in the society approve or
disapprove a particular act and decide it as ethical or unethical (Mathur 2012 p. 123). The ethics can be
classified as Descriptive ethics, normative ethics and Metaethics.
Descriptive ethics decide what is ethical based on morality of people, their culture and society.
This approach prepare a base to decide what is ethical under normative ethics model. Normative ethics
believe that most of the moral rules are justifiable. Generally, people brought up in a society; learn
which actions that society considers right and which as wrong. For example, according to those who
learn ethical behaviour from society, „telling a lie‟ is unethical (because society treats it as unethical) but
if they are asked why, in many cases, they cannot answer it (no logical understanding).
To curtail this kind of unreasonable following of ethics, normative ethics groups various actions
as ethical and try to keep them as such for long time. It prescribes the basic principles on which one
can decide what is ethical or unethical. Finally, it provides a way through which conflicting and
confronting norms can be adjudicated and particular cases are decided.
Meta ethics, on the other hand, first deal with the meaning of moral terms. Next it studies the
logic of moral reasoning. Finally, Meta ethics analyses hidden presuppositions and brings them to light
for critical analysis and scrutiny.
IV. Approaches to decide what is ethical: Teleological, deontological approaches and virtue
ethics:
The teleological approach to ethics is also known as Consequentialism, Utilitarianism or End-
based approach to ethics. Actions are considered as ethical or unethical based on their consequences.
“Utilitarianism” is an ethical theory that holds that an action is right if it produces, or if tends to
produce, the greatest amount of good for the greatest number of people affected by the action.
Otherwise the action is wrong. An action is considered as good if it ensures ultimate possible balance
of welfare over harm, value over disvalue. This is the “principle of utility” (DeGeorge 2010 p. 48). Utility
has been variously interpreted.
Some Hedonists like Jeremy Bentham argue that to decide what is ethical or unethical, one
should take into consideration, mere pleasure over pain and should keep in mind the other dimensions
of the issue like, intensity, duration, certainty or uncertainty, propinquity and remoteness, fecundity,
and purity (Benet 2017p. 3).
However, John Stuart Milland later utilitarian‟s opined that, it is the aggregate of many intrinsic
values, things most or all persons want (e.g. health, freedom from pain, beauty). Hence, this is the
pluralist version. (Mary Warnock 2003 p.2). „Act Utilitarianism‟ weighs every action to decide whether it
is ethical or unethical while „Rule Utilitarianism‟ uses the theory to support moral rules, which are
provisional in nature, that tend to produce good consequences.
The positive aspects of this approach include, its impartiality, its usefulness in simplifying
macro-decisions through cost benefit analysis and avoiding conflicting values, While the negative side of
this theory includes its difficulty to know the way in which the consequences are to be understood and
weighed, its inability to include marginal groups in the analysis, not considering one‟s special
obligations to his kith and kin and sometimes violation of moral and social standards (Hartman 2007
p.38). Hence, according to utilitarian approach, killing some innocent persons is ethical if it is going to
give benefit to maximum number of people affected by the action.
Contrary to the above approach, the deontological approach is based on duty of a person.
Hence in this case, the source of morality is to be found in ourselves and our reason not in anything
external to us. We act morally when we knowingly choose to act in the way reason demands Actions are
right and wrong for reasons other than their consequences. „Natural laws‟, „the social contract‟, „reason‟
are the grounds to know and determine the duties of an individual.

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The standard deontological approach is compatible with writings of Immanuel Kant whose
morality is based in a rational respect for a person. His categorical imperative prescribes to “Act only on
the basis of a rule you could will for all people in similar circumstances to follow” This reflects how
consistency and universality are important in deontological approach. The second order imperative
prescribes “treat always other persons as ends in themselves and not as means”.
“Virtue is a set of acquired traits or character that enable a person to lead a good life” (Andrew
Crane 2007 p 110). One acquires virtues by practice. A virtuous person will have a good moral
character coupled with reason. Moral conduct becomes a habit for such person. The main difference
between virtue ethics and utilitarianism is, the former is based on means while the latter is on ends, to
decide what is ethical or unethical. For example, act utilitarianism suggests that „giving punishment or
doing injustice to an innocent person is ethical, if it is going to benefit a large group of people affected
by the decision‟.
But virtue ethics does not approve such thinking and based on intellectual and moral virtue it
decides such behaviour as unethical. For a virtuous person, a virtue is a habit and it is manifested in
every action. Hence, for such a person, under any circumstances, doing injustice to an innocent person
is unethical. The second difference between utilitarianism and virtue ethics is that the “utilitarianism is
applied deductively to problems, whereas the virtue ethics is applied inductively” (Farrell 2013 p 163).
The next difference between utilitarianism and Aristotle‟s virtue ethics is that “Aristotle was
ultimately interested in the final outcome of an activity or a person's entire life as a measure for
happiness” (Joshua sipper 2017 p. 1). For example, if one spends one‟s entire life being a good person
even in the face of oppression, and he/she is honoured for his/her goodness and good works, in
Aristotle's view, he/she has led a fulfilling life and attained happiness.
V. Alleged Unethical Business Practices by Multinational Corporations:
Multinational corporations (MNCs) are public companies that operate on a global scale without
significant ties to any one nation or region” (Farrell 2013 p 284). MNCs are featured with highest level
of commitment to international business and focus on opportunities throughout the globe. In today‟s
business the MNCs have grown to such an extent that their revenues are more than the GDP of some of
the Less Developed Countries (LDCs). “Wal-Mart revenues are more than the GDPs of Greece and
Denmark” (Farrell 2013 p.284).
In many cases, MNCs are subjected to ethical debates, because of their size, money power and
clout. They are charged on different grounds. Following are some of the common allegations against
MNCs.
a. MNCs keep their manufacturing centers in Less Developed Countries because of the availability of
cheap labor. They transfer maximum number of jobs to these LDCs
b. They adopt labor saving devices and thereby increase unemployment in their host countries.
c. They pay comparatively higher salaries than the local employers and thereby attract the best talent
in the host country to work with them. In this way they weaken the local competitors
d. They are accused of increasing the gap between the rich and poor in less developed host countries.
e. With their enormous money power and international lobbying they control money, employment,
supplies and economic well-being of the LCDs. For example, UNCOL pressurized Myanmar government
to introduce forced labor to its citizens and made them to work with UNCOL.
f. They are also accused of exploiting natural resources of their host LCD countries. They buy raw
material like minerals, metals, water and other natural resources for a very cheap price and convert
them into finished products and sell them for a very high price. In this way, they loot the wealth of
LDCs and do not allow them to grow.
g. They are also accused of bribing high level officials and rulers of the host countries and make these
rulers to design policies, in such a way, that they are highly beneficial to the MNCs. By offering bribes
to the highest level officials and administrators of their host country they ensure monopoly in their
business.
h. They are accused of borrowing money from local capital markets for higher interest rates and thereby
make the money unavailable to their local competitors.
In the following section, an attempt has been made to discuss if not all, some of the above
allegations with a case i.e.., Coca-Cola
VI. Legal and ethical crises faced by Coca-Cola:
The Coca-Cola Company, which is headquartered in Atlanta, Georgia but incorporated in
Wilmington, Delaware, is an American multinational beverage corporation, and manufacturer, retailer,
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and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its
flagship product Coca-Cola, invented in 1886 by pharmacist John Stith Pemberton in Atlanta, Georgia.
The Coca-Cola formula and brand were bought in 1889 by Asa Griggs Candler (December 30, 1851 –
March 12, 1929), who incorporated The Coca-Cola Company in 1892. The company has operated
a franchised distribution system since 1889, wherein The Coca-Cola Company only produces syrup
concentrate, which is then sold to various bottlers throughout the world who hold exclusive territories.
The Coca-Cola Company owns its anchor bottler in North America, Coca-Cola Refreshments. The
company's stock is listed on the NYSE (NYSE: KO). Muhtar Kent serves as chairman of the company
with James Quincey as president and chief executive officer.
From 1990s onwards, Coca-Cola was accused of unethical business practices, in areas like product
safety, anticompetitiveness, racial discrimination, channel stuffing, intimidation of union workers,
pollution and depletion of natural resources. The company has dealt with a number of these issues
successfully, some via private settlements, and some via court-battles. Some of them are still
unresolved. Coca-Cola has generally responded to these problems, by trying to improve its detection
and compliance systems. The presence of Coca-Cola products in every corner of the globe reflects its
success as a corporate. However after 1990‟s it lost its place in the „list of ethical businesses in USA‟. In
the year 2000, Coca-Cola failed to make the top ten of Fortune‟s annual “America‟s Most Admired
Companies”. In 2001 it did not find place in the top 100 of Business Ethics magazine‟s annual list of
“100 Best Corporates Citizens”. However, by 2010 it is able to regain its reputation by securing 8th rank
in 100 Best Corporate Citizens list publishes by Corporate Responsibility magazine.
VII. Crises faced by Coca- cola between 1990 and 2010:
In June 1999, 30 children in Belgium became sick, after consuming coke products. Coca-Cola
was slow in responding to these crises and issued an isolated product recall from Belgium market.
However, the Belgium government eventually ordered the recall of all Coca-Cola products. This triggered
the regulatory authorities of Luxemburg and Netherlands to issue the same order in their markets also.
Same incident took place in France i.e., 100 people became sick after consuming coke products and as
a result, the French government temporarily banned all Coca-Colaproducts. Coca-Cola also had the
bitter experience in Poland when a shipment of Bonaqua, a water product of Coca-Colaarrived in Poland
contaminated with mud. This crisis was escalated and by December, 1999 the Belgium government
issued an order to Coca-Cola asking it, to stop its “restore” marketing campaign.
In the same year, Coca-Cola tried to purchase Orangina a French beverage company. This was
stopped by French government under the antitrust laws. Again in the same year, Italian Government
also won a court case against Coca-Cola for alleged anticompetitive prices. Apart from this, PepsiCo also
accused Coca-Cola for its anticompetitive prices. It accused Coca-Cola for offering higher discounts for
its products to have aggressive push in the market.
Once again in 1999, 1500 African- American employees of Coca-Cola filed a suit against the
company on the grounds of racial discrimination. Another 2000 the then current and former employees
of the company also alleged Coca-Cola for its racial discrimination practices. They accused that the
company has shown discrimination for these employees for their pay, working conditions and
promotions. This dented the image of Coca-Cola as non-discriminated company. Coca-Cola to resolve
this crisis, paid $183 million to settle the claims and also constituted a diversity council to prevent this
kind of happening in future.
During early 2000‟s Coca- Cola was accused of channel stuffing in Japan market which means
shipping extra unrequested inventory to show inflated demand and profits. Such unrequested inventory
may be consumed or returned by the customer at a later date. In this way by showing future/ non-
existent demand the company inflates its profits and misleads its investors. Coco-Cola settled the
seallegations. However, Security Exchange Commission of USA confirmed channel stuffing by Coca-
Cola in Japanese market.
Coca- Cola suffered a severe setback in its Colombia market. It was accused of intimidation
practices against the union workers in its factories in Columbia. Around 1,989 employees of Coca-Cola
were killed, 48 were forced into hiding and 65 received death threats. The local unions accused Coca-
Cola for all these deeds. However, Coca-Cola denied these allegations and mentioned that these deaths
were a part of Columbian civil war.
Coca-Cola was also accused for depletion and contamination of ground water in its Indian
market. In the year 2003, Centre for Science and Environment confirmed that the beverages
manufactured by Coca- Cola and other companies in India are containing high level of pesticides
because these companies are using contaminated ground water. In Varanasi of India, Coca-Cola was
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also accused of contaminating ground water with waste water. When the company established plants in
drought areas in India, it was alleged that the ground water level were depleted because of this plant.
The Kerala high court also confirmed that the Coca-Cola plants in the drought areas contributed to
water depletion but maintained that the company was not solely to be blamed for this.
VIII. Effective handling of ethical crises by Coca-Cola:
The Coca-Cola effectively handled most of the above allegations. It is able to win some of the law
suits because some of these allegations are false. The Belgium health report confirmed that there were
no toxicants in Coca-Cola products and the sickness of children was not because of coke products. It
also confirmed that there are no structural violations in Coca-Cola plants in Belgium.
The racial discrimination allegations were successfully handled by Coca-Cola by creating a fund
of $ 50 million for minorities and constituting an Ombudsman service for this purpose. Any such
practices will be reported to Ombudsman who in turn will inform directly to the CEO for rectifications of
such mistakes.
The Columbian case, where the company was alleged of intimidation of Unions and accused
murders of employees, threats of kidnapping and murdering were all dismissed in a court in Columbia
and also in USA, as the court found these murders as a part of the civil war in Columbia.
To handle allegation of depletion and contamination of ground water in India, Coca-Cola
collaborated with NGOs, schools and communities to establish rain water collection facilities across
India. The sole purpose of this initiative is to conserve water resources. By these initiatives, Coca-Cola
received many CSR awards in India, in the areas of water conservation, water management and
community development.
IX. Conclusion:
To conclude, what is ethical and unethical is decided on the basis of the rightness and
wrongness of an action. Most of the ethical aspects are covered by law. Hence, in many cases, what is
illegal may also be immoral. However, it may not be in every case. Modern business cannot afford to be
amoral because this attitude may sometimes lead to immoral and unethical way of doing business. The
companies will be forced to face severe lawsuits for such immoral practices and pay huge amounts as
compensation. Hence, most of the modern companies realised and decided to adopt ethical practices in
their business operations to avoid future litigation and court battles.
There are three approaches to decide what ethical business is. Utilitarian and Deontological
approaches focuses on the action while virtue ethics focus on the person who indulged in the act.
Utilitarians believe in ends while deontologists believe in means.
When we analysed Coca-Cola‟s business practices globally, it was found that the company faced
many legal and ethical issues and cases throughout the Globe. Being a large American multinational
corporation, it is able to handle all these issues effectively. However, between 1990 and 2010 there was
a dent on its image, fall in share price, slow growth because of these business practices. Hence, one
needs to understand that the companies must run business in an ethical way so as to enable itself to
have high growth, success and sustainability.
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