Business Ethics Of Organisations

Introduction

1.1 Meaning of Business Ethics

Business ethics are the moral values, norms or moral standards which determine and govern the business practices and decisions. It is an applied ethics which deals with the factors of business environment, corporate issues in the organization and conducting business in an honest way fulfilling the expectations of stakeholders. (Velasquez, 2001)

1.2 Characteristics of highly ethical organisation

They have definite vision and objectives.

They focus primarily on the interests and fulfilling the needs of their stakeholders and interact with them constantly.

They provide quality of goods and services timely through their every conduct.

Every individual of the organization is responsible for his/her professional duties and work responsibilities.

(McNamara, n.d)

Johnson and Johnson is an example of the highly ethical organization.

1.3 Teleological and Deontological Theories

The teleological theory states that if the outcomes of an action are desirable then the action is acceptable and morally right whereas if the outcomes are not desirable then the action is unacceptable and wrong. It is also called as the consequentialist theory because the decision of whether a particular activity is morally right or wrong is based on the end or the aim of that activity.

On the contrary, the deontological theory suggests that the actions are acceptable if the principles or the guidelines under which those actions are conducted are morally right. It is also called as the non-consequentialist theory or approach. Deontologists suggest that the judgement regarding an action is done not on the basis of consequences of the action but on the basis of desirability of the underlying principles. Moreover, they said that we have duty to perform certain acts following the set of morally acceptable principles regardless of its outcomes. (Crane and Matten, 2007)

Critical Analysis of views of David Rosser and Dr Barry Morgan

Analysis of the views of David Rosser

“Business reputation has been on a downward trend for too long and is a concern to a growing number of business leaders…..at a time of increasing transparency and rapid dissemination of information, ethical business standards will increasingly be critical to gaining and retaining a licence to operate from customers and employees.” -David Rosser

2.1.1Ethical Environment for any business enterprise

An organization can run successfully if it complies with the ethical norms and values of the society and functions by fulfilling the ethical standards of business. It should respond and respect the interest of its stakeholders such as shareholders, general customers, employees, suppliers, business associates, lawyers, creditors, financial institutions, government and social groups etc. Reputation of the organization also depends on the level of the trust that the stakeholders have on the organization. It should ensure that whether the executives and employees at the different levels of management are fulfilling their duties ethically or not. (Brooks and Dunn, 2009)

The organization is accountable for every activity that it conducts. If it fails to satisfy the expectations of stakeholders then it will negatively affect the organization itself. If the necessary actions and sound decisions are not made at the right time then it may collapse from the industry. Examples of such companies are Enron, WorldCom and Arthur Anderson. (Anon, n.d)

Enron, the 7th largest company in the USA, was found guilty for concealing its actual profits and accused for not revealing its debts and cancelled projects in its accounts. It was bankrupted due to the unethical business practices in the year 2001. (Anon, 2002).

2.1.2 Analysing business ethics with an integrated approach

An integrated approach involves taking business decisions considering various aspects of the business like the economic, legal and moral factors. This approach can be best explained by analysing the response given by Johnson and Johnson to Tylenol crisis.

Tylenol is one of the well renowned products of Johnson and Johnson. In the year 1982, it faced severe challenge as the report stated that several people died in Chicago after consuming extra-strength Tylenol. The company took immediate action and quickly cleared the bottles of capsules from the stores in Chicago and recalled those which were identified as septic. It responded to the public concern effectively and suspended the advertisement of the Tylenol temporarily. After the first death in this case was identified the company made a recall of the 31 million bottles of the regular as well as extra strength Tylenol that were unsold from the entire nation. In order to save the brand name of Tylenol business strategies were redesigned. However, the major concern was on the welfare of the consumers. After two months, it launched the improved form of the capsules in a fully protected i.e. “Tampered resistant” form in the month of November, 1982. Soon the company was able to gain the confidence of the customers. The public realized that the company was a victim of a senseless crime. It was successful in achieving this aim because it had enjoyed the goodwill from the public for more than a decade. It has been able to establish strong bond of trust in the society as it has followed its credo and was able to take right decisions at the right time. (Boatright, 2009)

From the above analysis the statement given by David Rosser can be justified and we can say that it’s important for any business enterprise to follow the ethical business standards to get approval from its stakeholders then only it can survive in the industry.

2.2 Differences between the views of David Rosser and Dr Barry Morgan

‘Dr Morgan believes an oath for those with the MBA, which lays out a code of principles like the Hippocratic Oath does for doctors, would help with responsible leadership in business.'(Anon, 2011)

MBA graduates are the future business leaders. They should be aware of every business and ethical issues. Dr Morgan emphasized that they should take a formal Oath which comprises of the set of the ethical business standards. It will compel them to be sincere towards their duties and help in establishment of the effective leadership.

After analysing the business trend, it’s apparent that many companies collapsed as they failed to adhere to the ethical standards. Also, the recent banking crisis badly affected the world economy. The banking culture of distributing large amount of bonuses to the bankers even when they are earning huge salary and the MPs’ scandal of misusing their allowances and expenses have created anger among the general public. Thus, Dr Morgan said that a change is must in the business world. These incidences showed that immediate actions are needed to be taken and every business organization must be aware about conducting their activities ethically.

“The MBA oath is something worth considering because in the end conventional regulation cannot cure moral blindness or rule out greed.” -Dr Barry Morgan

The variations in perception, personal values and beliefs have important impacts in the professional decisions of the business personnel. Therefore, oath is necessary as it acts as a set of standards or principles on the basis of which any business personnel conducts his/her functions and takes professional decisions.

To achieve financial success an enterprise may not follow the ethical standards and it is where the importance of effective leadership is required which could lead the organizations complying the codes and standards of the Oath.

The view of Dr Barry Morgan is deontological. He emphasized that MBA graduates should take Oath so that the business decisions are made ethically and business activities are conducted accordingly.

David Rosser, a director of CBI Wales, stated that at this age of technological advancement the business position and the financial status of an organization are apparent to the public. It should act ethically in conducting its business operations to satisfy the expectations of the stakeholders.

“The business activity which generates those profits must be ethical, and where based on taking of high risk, the consequences of failure must fall on the shareholders and those employees – not on the public purse.”- David Rosser

He argued that an organization has to act ethically in a way of profit generation. If an enterprise fails due to the risk factors then the consequences must be borne by itself not by the general public. Due to the banking crisis public suffered huge loss in their investment for example many companies like Enron, Worldcom, Lehman Brothers, General Motors, Washington Mutual and Refco Inc. bankrupted. However, he stated that the payment of bonuses to the bankers is not an immoral act because the banks must reward their employees and whenever the banks think of making payment to anyone then they firstly consider their employees and executives. The main reason behind this is that by using their expertise the banks have been able to function and they have been coping with the financial crisis.

The main concern of David Rosser is that the business activities which help to grow the business organization need to be ethical to gain the support and approval of the stakeholders so that the organization can run successfully. He did not give much importance to whether the business executives are receiving high level of bonuses or not. The statement of David Rosser holds the view of teleological concept.

But after analysing the views of Dr Barry Morgan we can say that the reward the bankers are getting must be reduced as the amount can be invested in the small business sectors and the business leaders must follow the set of standards of business ethics which will be mentioned in the Oath.

Motivation/Principles

Hippocratic Oath taken by the MBA graduates

Actions

Business Activities and decisions

Outcomes

Fulfilling the expectations of the stakeholders and gaining success in the business

Non-consequentialist Ethics

Consequentialist Ethics

Fig: Consequentialist and Non-consequentialist Theories

Source: Crane and Matten, 2007

Conclusion

In the present business scenario, it’s vital for any business enterprise to follow the ethical standards and it should be able to fulfil the expectations of its stakeholders to survive and run the business successfully. It makes the society aware about the development in the business environment and addresses the questions of what are wrong and right business activities and decisions. It acts as a foundation to analyse the causes and implications of the business malpractices and to reduce its negative impacts on the general people.

The views of David Rosser and Dr Barry Morgan are analysed in this report and contrast is also made. Dr Barry Morgan believed that in this competitive business age, the success of any business enterprise could not be judged only on the basis its financial gain. The most noticeable and vital factor is the extent to which the enterprise adhere to the ethical business standards. In the conference of Profession Wales Group, Dr Barry Morgan said that the bonus culture of the banks to the bankers is immoral and all the MBA graduates should take the Hippocratic Oath as taken by physicians so that they fulfil their duties complying with the codes of business ethics. His views are based on the deontological theory. On the other hand the views of David Rosser are teleological. He said that payment of bonuses is not immoral and gave importance to the ethical business activities that helps in generating profits for the business organization.

4. Recommendations

Dr Barry Morgan addressed that financial crisis, the bonus culture and expenses scandal of the MPs’ showed a decline in the moral values of the business professionals. The Hippocratic Oath that is taken by the MBA graduates will help in the establishment of effective leadership in the business world. This will enable those entering the business world to act ethically in their business dealings. In fact, it will work as reminder and motivate them to be consistent with their duties ethically time and again.

In 2009 the students of Harvard Business School took the Oath that they will serve for the betterment of the society. If the business schools comply with the Dr Morgan’s recommendations then this will help to bridge the gap in between the courses that the students learn and the real business practices. It’s important to learn the principles on the basis of which real business world operates. Thus, every business schools should have such provision so that those starting their career can have grasp on the values and principles of the business. Further, it creates foundation to take the ethical business decisions. In this highly competitive market where ethical business norms have been neglected following such provision is productive and vital.