Managing Business Ethics Effectively Management Essay

The main purpose of my paper is to explore ways to manage business ethics effectively. To achieve this, first of all, I reviewed the concepts and importance of business ethics together with its components, such as corporate ethics codes and corporate social responsibility. Next, I revealed five ways to manage business ethics efficiently. Based on these suggested ways, I recommended four practical actions for managers to have good management skills in this field. These recommendations are setting up an effective corporate ethics code, acting and behaving ethically in any circumstances, setting up rules and regulations, and advancing CSR in a very wise way. My paper concludes with two issues for future researchers. These issues are whether corporations need a business ethics manager or specialist and how companies motivate their employees to act ethically.

Managing Business Ethics Effectively

Business ethics was such a new concept that not many people were concerned about it (Garone, 1994; Mitchell, 2003). Things have changed over the time, and now business ethics plays a very important role in doing business (Garone, 1994; Mitchell, 2003). The need to manage business ethics becomes essential. In addition, not all cases related to business ethics management are successful (Cooper & Nakabayashi, 2010; Garone, 1994; Pedersen, 2006). Therefore, how to manage it effectively is very important to managers.

My research paper helps to answer this question above. Before addressing ways to help business people manage business ethics effectively, the research describes the literature framework and importance of business ethics together with its components, such as corporate ethics codes and Corporate Social Responsibility (CSR).

Next, five ways to manage business ethics effectively are listed: building an effective corporate ethics code (Mitchell, 2003), improving codes of ethics to change behavior (Buckhoff & Wilson, 2008; Lere & Gaumnitz, 2007), protecting against deception (Adler, 2007), making an ethical program work (Grace & Haupert, 2006), and advancing CSR (Porter & Kramer, 2006).

The remaining part of the research reveals my four recommendations and two questions for future researchers. A final part summarizes all of the above.

Review Section

Brief History

Garone (1994) stated that “It is not difficult to remember when the concept of ‘business ethics’ was a novelty to most people. It was taken largely for granted by business executives and it attracted little public attention” (p. 9). Not many people were concerned much about business ethics. In addition, according to Mitchell (2003), there were many CEOs who focused on taking care of their own individual importance rather than their corporation’s functioning and profit. Apparently, these presented above show us that business people were not fully aware of or ignored the significance of business ethics.

However, things have changed over the time, and ethics has recently played an important role in doing business (Garone, 1994). Moreover, “corporations of all sizes, especially multinationals, are more attuned to the bottom-line value of being a good corporate citizen and playing by the rules,” and “individual business people are seeking to do ‘what is right’ rather than ‘anything to close the deal'” (Mitchell, 2003, p. 2). In other words, most business people have changed their minds and attitudes towards business ethics because they have figured out the close relationship between being ethical in doing business and achieving profitable goals in operating their companies.

Although business ethics is already considered to be significant these days and corporations’ ethical standards and morals have been set to manage it, not all the cases are successful. For example, the NYNEX Corporation confronted an ethical dispute for many years (Garone, 1994); Chinese corruption is so popular all over the world that many foreign companies with operations in China have to find ways to deal with this phenomenon (Pedersen, 2006); the scandal of melamine in milk in China revealed the unethical aspects in doing business (DeLaurentis, 2009); additionally, the U.S. and Japanese life insurance markets faced up to serious ethical turmoil “in the marketing and management of insurance products, resulting in an erosion of public trust in the industry” (Cooper & Nakabayashi, 2010, p. 64). From these cases presented above, the significance to know how to manage business ethics effectively is really needed.

Literature Review

Before figuring out the ways to do this, let us have more understanding about what business ethics is:

Business ethics defines how a company integrates its core values – such as honesty, trust, respect and fairness – into its policies, practices and decision-making. Business ethics, of course, also involves a company’s compliance with legal standards and adherence to internal rules and regulations. As recently as decade ago, business ethics consisted primarily of compliance-based, legally-driven codes and training that outlined in detail what employees could or could not do in regard to areas such as conflict of interest or improper use of company assets. (Mitchell, 2003, p. 9)

As what we have seen in the definition above, honesty, trust, respect and fairness are considered to be very important values to the company. They can be called the spine of formulating business ethics. In addition, the company’s rules and regulations must be set to manage business ethics. Without rules and regulations, the company has almost nothing to follow and distinguish what goes right and what goes wrong in case of something related to business ethics happens. More importantly, the code of ethics also plays an important role in letting business people know what they should or should not do.

Understanding the concept of business ethics, now we move to its significance in the business world. Epstein (2007) said that ethics “contributed to ever-escalating standards for corporate performance” (p. 217). In relation to this matter, Mitchell (2003) stated the following:

More and more corporations see business ethics as a bottom-line issue – not an optional one of morality. The acceptance of ethics as contributing to corporate operating profits or losses means they are receiving unprecedented attention. It is for this reason that “behaving ethically and responsibly” may be the wave of the future, if only because the right thing to do can also be the profitable thing to do. (Mitchell, 2003, p. 2)

From this point, we can see that companies did not pay much attention to business ethics before. Many companies perceived that it seemed to be not a necessary part in running a company. “An optional one of morality” (Mitchell, 2003, p. 2) means that corporations so far did not care of business ethics at all, or they only thought of or concerned themselves about it whenever they like. However, things have changed, and the world of business has been changing, too. Corporations now have the ability to figure out the significance of business ethics. Even more, they are aware of the connection between business ethics and their bottom line. Corporations have to admit that there is a relationship between the two listed above, so Mitchell (2003) pointed out that “the right thing to do can also be the profitable thing to do” (p. 2).

Let us move on to the code of ethics that is included in the definition of business ethics (Mitchell, 2003). Kitson (1996), Blodgett and Carlson (1997), Moyes and Park (1997), Hume, Larkins, and Iyer (1999), and Schwartz (2001) defined codes of ethics as “tools that are commonly used as one of the efforts to encourage ethical behavior,” and pointed out “there may be a great deal of room for improvement of existing codes” (as cited in Lere & Gaumnitz, 2007, p. 7). Moreover,

Frankel (1989) lists the following potential reasons for the existence of codes of ethics: 1) provide group guidance for an individual when that individual faces a novel situation, 2) provide a basis for public expectations and evaluation of the organization, 3) strengthen the sense of common purpose among members of the organization, 4) enhance the organization’s reputation and public trust, 5) preserve entrenched organizational biases, 6) create an environment in which reporting unethical behavior is affirmed, 7) provide support for individuals when faced with pressures to behave in an unethical manner, and 8) serve as a basis for adjudicating disputes among members of the organization and between members and non-members. (as cited in Lere & Gaumnitz, 2007, pp. 15-16)

Apparently, without a specific tool to evaluate and motivate ethical behavior, corporations find themselves hard to let their staffs and employees follow the right way or avoid the wrong one. And the code of ethics helps them to do that. Personally, I agree with the reasons why companies have to have their code of ethics like what Frankel (1989) listed above (as cited in Lere & Gaumnitz, 2007, pp. 15-16). When business people come up with any new circumstances that they have to make a decision but they do not know how to do it and what guides to follow, their company’s code of ethics lightens up their mind. Thanks to the code of ethics, the staffs and employees can overcome the pressure of perceiving what they should do to follow the ethical standards and keeping off the unethical ones. Generally, the code of ethics is like a basis for companies to formulate their rules or regulations to orient themselves and their personnel.

Another aspect of business ethics is Corporate Social Responsibility (CSR) which is considered to be very important to build a company’s reputation (Porter & Kramer, 2006). Prieto-Carrón, Thomsen, Chan, Muro, and Bhushan (2006) specified CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (p. 978). Furthermore, Prieto-Carrón et al. (2006) also perceived CSR as

an umbrella term for a variety of theories and practices all of which recognize the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals; (b) that companies have a responsibility for the behavior of others with whom they do business (e.g. within supply chains); and that (c) business needs to manage its relationship with wider society, whether for reasons of commercial viability, or to add value to society. (Prieto-Carrón et al., 2006, p. 978)

These definitions cited above show us that companies and societies do have a close relationship with each other. Chung, Eichenseher, and Taniguchi (2008) stated that “businesses have a social responsibility beyond making profits” (p. 131). Providing more detail, Davies (2003) points out that “corporate responsibility is a pact for mutual benefit between society that needs business for economic and social development, and business that needs a supportive business environment” (as cited in Gugler & Shi, 2009, p. 5).

Sharing the same thoughts, Mitchell (2003) affirmed an interesting point that “the more common view today is that societies can and do have the right to expect business to function at certain levels of ethical standards” (p. 10). Furthermore, Mitchell (2003) emphasized the following:

With large mergers and the development of new markets around the world, major corporations now wield more economic and political power than the governments under which they operate. In response, public pressure has increased for business to take on more social responsibility and operate according to higher ethical standards. (Mitchell, 2003, p. 10)

To me, I consider this matter as a fair one because this is a two-way benefit: the societies create markets for corporations to trade their goods and services to earn profit, survive, and develop, so in exchange, the companies have to do something good and beneficial for their societies. We cannot say it is a must for companies to do that, but they themselves have to be aware of CSR as a fair and good tendency to stick with. I like the way Mitchell (2003) used the phrase “in response” (p. 10) as presented above because it completely tells us that this is really a two-way relationship between corporations and societies. We usually call business people who have contributions to their society philanthropists, but more significantly, when they do something good for the societies, they also show their responsibility and obligation to appreciate what the society gives them.

After understanding the basic elements and significance of business ethics, now we come to the ways to manage it effectively. Followings are five ways to do that: build an effective corporate ethics code (Mitchell, 2003), improve code of ethics to change behavior (Buckhoff & Wilson, 2008; Lere & Gaumnitz, 2007), protect against deception (Adler, 2007), make an ethical program work (Grace & Haupert, 2006), and advance CSR (Porter & Kramer, 2006).

First, building an effective corporate ethics code must be taken into consideration because according to Mitchell (2003), not many companies “have a written code of conducts and ethics” although they have already known about the significance of corporate ethics (p. 90). For instance, seventy one per cent of companies in Australia and seventy per cent of companies in Japan do not have a written code of conducts and ethics (Mitchell, 2003). However, when recognizing that “a code of ethics fulfills many purposes within an organization” and in order “to compete effectively, global companies must ensure that their ethics codes and codes of conduct are culturally coherent to all employees” (Mitchell, 2003, p. 88). How might companies do this? Mitchell (2003) showed us the following interesting point:

A corporate ethics code needs to be more than the rules of the road; it should include a statement of the company’s core values… Code of conduct must provide clear direction about ethical behavior when the temptation to behave unethically is strongest… In a nutshell, the code should be:

Easy to read

Practical and relevant for each business or geographic market

Sufficient but not excessive in detail

Well written and accessible in tone (Mitchell, 2003, pp. 94-95)

According to what I am thinking, what Mitchell stated looks like a magnetic needle, a very clear way, to build an effective corporate ethics code. More significantly, it was emphasized that corporate ethics codes have to be clear so everyone, even in the smallest unit of a company, can understand and follow. This is logical because if a company sets up an ethics code that sounds very well and interesting but is ill-defined, not everyone can understand its basis and what to do. In this point I think, the set code of ethics is useless and has no meaning, and even more seriously, it can make business people confused.

Second, we can manage business ethics effectively by improving codes of ethics to change behavior. In detail, when we talk about changing behavior, we would like to mention about changing perception, which “is formally described as changing the decision maker’s beliefs (subjective probability distribution) as to whether an action is ethical (Lere & Gaumnitz, 2007, p. 9). In general, the purpose of improving codes of ethics to change behavior “can be achieved by careful (1) selection of code content and (2) design of enforcement mechanisms” (Lere & Gaumnitz, 2007, p. 7). Personally, I want to focus more on designing enforcement mechanisms:

An organization choosing to have an enforcement provision in its code of ethics is providing additional incentives (disincentives) to encourage (discourage) selection of certain actions. Although enforcement mechanisms can provide both incentives and disincentives, they seem to generally rely on penalties imposed when an unethical action is taken… Two ways the organization can increase the expected value of the penalty are to increase 1) the size of the penalty and 2) the probability that the penalty will be borne. (Lere & Gaumnitz, 2007, p. 12)

Sharing the same idea above, Buckhoff and Wilson (2008) said that “the costs of dishonesty must exceed the benefits derived from dishonest behavior,” so “people will think twice before doing it” (Buckhoff & Wilson, 2008, p. 55).

In this point, I want to analyze the reason why corporations should have something that we call “enforcement mechanism”, or more specifically, “penalty” (Lere & Gaumnitz, 2007, p. 12). First, human beings are very diversified. We have many different kinds of people, including good and bad ones. Second, different kinds of people have different behaviors when faced with a particular issue. For example, in a travel agent, a tour guide can perceive that he deserves to receive tips from his customer because he has taken a good care of the customer. On the contrary, the agent’s board of management can perceive this differently that taking good care of customers is the tour guide’s responsibility and vocational ethics, and of course he has to follow that. Here the problem appears, or we can say, this makes the related people confused.

Therefore, if the agent’s board of management wants every tour guide not to receive any tips from customers, they have to set regulations to let the tour guides know that. This is a must, but it is not enough. Together with the regulations, the management board has to impose a penalty on their tour guides who receive tips from their customers. The penalties can be eliminating ten per cent of monthly wage, three days off, or five percent of yearly bonus. To me, I believe that such kinds of penalty can let all tour guides think more seriously and carefully before receiving any tips or presents from their customers. On the whole, when we see this in a big picture, we can be aware that business people will be discouraged to do something violating ethical principles thanks to thinking of penalties they would suffer.

Third, managing business ethics effectively can also be achieved by protecting against deception (Alder, 2007). Nowadays, we are living and working in an informative technology period of time, so we know for sure that information plays a very important role in doing business, especially making decisions. However, wrong information can be approached by business people because of deception, such as telling lies. Unfortunately, “one of the enduring truths about human beings is that we lie – frequently and often quite casually…Lying is a central aspect of human behavior” (Adler, 2007, p. 69). There is a fact that “according to the most conservative estimates of human resource managers, 25% of all résumés contain significant lies” (Adler, 2007, p. 69).

Especially, lying is extremely pervasive in the negotiation process. According to Adler (2007), although we do not have any perfect tool to protect ourselves completely from this pervasive phenomenon, we “can greatly minimize the risk of lies in bargaining through a series of steps designed either to expose lies and liars before negotiations begin or to provide protection from lies” (p. 71). For example, before negotiations begin, “preparation is particularly critical when facing opponents for the first time and the stakes are high,” and this preparation can be “researching the other side’s character and bona fides, and participating scenarios that might play out in the negotiation” (Adler, 2007, p. 71). How about during the negotiation process? Adler (2007) advised us eight ways to detect lies. In person, I pay attention to “ask questions in different ways, take notes during negotiations, and trust but verify” (Adler, 2007, pp. 72-73).

The reasons I want to raise this issue are that the negotiation process is usually a part of doing business, and telling lies is considered to be violating business ethics. An ethical negotiator or an ethical business person participating in a negotiation process cannot allow himself/herself to tell lies to provide inexact information only in order to achieve his/her personal goals. As I have mentioned above, the phenomenon of telling lies happens often. Moreover, according to my own experience in the negotiating environment, I recognize that we should have some tips, or ways, to protect ourselves from deception. And thanks to the advice above, I have the opportunity to pay more attention to preparation and in negotiation process.

Here, I want to generalize this issue, or I want us to see this issue in a big picture. That is, when we want to protect ourselves from deception in doing business, it is a must that we have good preparation and skills to reveal deception. First, good preparation in thinking of everything that can happen, checking our business partners before cooperating with them, and investing in ways or solutions to deal with any problems can help us be more confident. Second, skills in revealing deception need to be learned and practiced more often so that no one can tell us a lie or cheat us in doing business.

Next, let us move on to the fourth way to manage business ethics effectively. That is, making our ethical program works (Grace & Haupert, 2006). There is a framework called ESD that “encourages everyone to work ethically, supports those inclined to work ethically, and deters those who may be tempted to veer from the path of ethical behavior” (Grace & Haupert, 2006, p. 66). Or, we can say that the ESD program is a combination of encouraging, supporting, and deterring. Three conditions are needed to run this program. First of all, a risk profile needs to be set up. Risk profile is “developed by public accountants, internal auditors, risk-management and legal staff, and perhaps outside help from consultants and error-and-omissions carriers… once the risk profile is created, checks and balances to mitigate these risks can be developed” (Grace & Haupert, 2006, p. 67). Then, the board of management needs to be a mirror for every staff can look at and follow: “management must follow the lead of the board by acting ethically and insisting that the staff do the same” (Grace & Haupert, 2006, p. 67). Last, “staff must also have confidence that management will fully support those who report malfeasance by others, including their superiors” (Grace & Haupert, 2006, p. 67).

As we can see in the ESD program above, all important criteria are listed. Personally, I have a high evaluation of this program. Let me tell you the reasons why. This program emphasizes preparation and checks. The preparation appears at the risk profile. It requires top management to think of every kinds of risk that can happen to their corporations. Only when they are aware of these kinds of risk, they can have strategies to deal with and check what is going on in this process. Moreover, the program points out a perception that if top management wants everybody in their company to follow the rules not to violate business ethics, first of all, managers have to do that. They have to be a bright mirror for everybody in the corporation to look at and follow what they are doing to protect and practice business ethics. This is an important point to me. Furthermore, this ESD program creates a two-way close relationship between top management and staffs. Let the staffs have a chance to talk, to raise their voice, and to announce what is going wrong to their top management. This is very beneficial for a corporation to know what is happening inside the company and inside every staff member’s mind. Thanks to these kinds of open talks and discussions, corporations can be aware of what to do to keep business ethics running in a good way.

The last in the five ways to manage business ethics effectively is advancing CSR (Porter et al., 2006). The interesting point is that

Corporations are not responsible for all the world’s problems, nor do they have the resources to solve them all. Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit. (Porter & Kramer, 2006, p. 92)

The idea is interesting, and I myself share the point of view of Porter and Kramer (2006). Corporations are not completely social philanthropists, so they do not have to worry about or take care of all social concerns, problems, or requirements. Perceiving that doing something good for the society that companies are running in is also doing something good for the companies, top management can choose some social issues only and take care of them. Focusing like this is enough, and this will help corporations have enough time and resources to deal with many other issues.

What is presented above shows us that there are copious ways to help improve business ethics management. Thanks to these methods, top management can have a frame of what needs to be done to take care of business ethics. However, sometimes when standing in front of many ways like this, corporations’ boards of management find it hard to choose which one to follow. The followings are recommendations of some practical ways for managers to deal with managing business ethics more effectively.

Recommendations

Before giving recommendations, I want to sum up some significant points. So far, we have gone through what business ethics, code of ethics, and CSR mean and their importance to business people. In addition, we have figured out the close relationship between doing something good for business and doing something good for society. However, how can companies be successful in managing business ethics? This is a big question to those concerned with this issue. Being deeply aware of the significance of these elements, many scholars pointed out five ways to help manage business ethics efficiently. Among these methods presented above, personally, I feel interested in four practical ways that can help.

First, managers have to set up an effective corporate ethics code. This recommendation comes from Mitchell (2003). How can we know if the corporate ethics code is effective or not? It is effective when written carefully, simple for everybody to understand, and applicable for every company member from top managers to staff to follow. Moreover, I want to add one more practical criterion: the corporate ethics code set has to be as detailed as possible. This set of code must include all ethical business aspects of a company, so it can be considered as a concession of all matters related to business ethics between all staff members and the company.

Second, managers have to act and behave ethically in any circumstances. In this point, I base my opinion on and totally agree with Grace and Haupert (2006)’s idea. When managers want their employees to go in the same ethical way in doing business, they have to be the first ones to do that. As I have mentioned before, top managers are considered to be bright mirrors that reflect their actions to their staffs to look at. We can easily imagine what would happen if the staff members always see their manager act and behave unethically, but the managers always ask for ethical behavior from their staffs. Apparently, the employees will perceive that it is very unfair for them to follow business ethics while their top managers do not. From this perception, the purpose of managing business ethics from top management cannot be reached.

Third, managers have to set up rules and regulations to manage business ethics in a corporation. This recommendation is accumulated thanks to the ideas of Lere and Gaumnitz (2007) together with Buckhoff and Wilson (2008). Human beings are all different people, so some usually stick with behaving ethically, but the others may not. Therefore, how can managers follow up what is going on related to their actions without rules and regulations? The rules and regulations, in another way, are set to force everybody to follow ethical actions. Furthermore, I want to add my own idea and recommendation. When talking about rules and regulations, we are usually concerned about punishments, or penalties, to treat people when they break the rules or have unethical actions. This is a must, but not enough. I want to emphasize that if we have punishments, we also need to have awards. The awards are to encourage business people to act ethically all the time they are doing business, or we can say in another way, that the awards are set to add more motivation for business people to stick with business ethics. Managers should pay more attention to this.

Finally, managers have to advance CSR in a very wise way. This recommendation comes from the ideas of Porter and Kramer (2006). Once again, corporations are apparently not social philanthropists. Hence, they will not have enough resources to concern themselves with every little aspect of society. Knowing the close relationship between doing something good for society and doing something good for corporations, managers have to select some, not all, social issues to work on. When they are concentrated like this, they will have enough time and resources to invest in making it run well. This is beneficial for both companies and society.

These are my recommendations of four ways managers should manage business ethics more effectively. One more issue I want to mention in the following part is that after going through the researching process, I would love to raise two questions that we need to look at to advance business strategy knowledge related to this business ethics issue. The first one I want future researchers to take into consideration is the following: “Do corporations need a business ethics manager or specialist?” The one in this position will have the responsibility to take care of all the issues and problems that relate to business ethics. For example, he/she will set up business ethics codes, rules and regulations, strategies, and plans for CSR programs. The second question that I want future researchers to think of is this: “How do companies motivate business people to stick with acting ethically?” We did have research about penalties, but we are lacking research about awards and motivation to encourage business people. I believe that having this knowledge of motivation, managers will be more confident to know how to encourage their employees to follow the corporation’s business ethics.

Conclusion

Unlike what happened in the past, business ethics now plays a very significant role in doing business. More and more people are taking care of this matter seriously. With the purpose of discussing more about the topic, my research paper concerns about ways for managers to manage business ethics efficiently.

Beginning with the literature framework and importance of business ethics and its components, such as corporate business ethics and CSR, the research step-by-step comes to the five ways to manage it effectively. Additionally, knowing the importance of business ethics but not knowing how to manage it in a good manner is a hard problem for managers. My research helps to solve this by giving a set of guidelines including four recommendations: setting up an effective corporate ethics code, acting and behaving ethically in any circumstances, setting up rules and regulations, and advancing CSR in a very wise way.

Finally, this paper comes to give my two issues for future researchers to take into consideration, in hopes that they would help. They are whether corporations need a business ethics manager or specialist, and how companies motivate their employees to act ethically.