Business Ethics

A stakeholder, governance and risk approach

Bob Tricker, Gretchen Tricker

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9780415815000
• eBook ISBN: 9781135075330
• Topic: Business
• Subtopic: Business General
• Index: Business

Traditionally, books on business ethics focus on CSR, companies' relations with their stakeholders, and corporate citizenship. More recently, green credentials and sustainability have been added to that agenda. Unconventionally, this book argues that business ethics are basic to running business, not a separate subject. They are inherent to the governance and management of every organization, not an optional exercise in corporate citizenship. Business ethics concern behaviour in business and the behaviour of business. Decisions at every level in a company have ethical implications – strategically in the board room, managerially throughout the organization, and operationally in all of its activities.

The use, and sometimes the abuse, of corporate power, the process of corporate governance, raises ethical issues. Business involves risk-taking, whether decisions are at the strategic, managerial, or operational level. Exposure to ethical risk needs to be part of every organization's strategy formulation, policy making, and enterprise risk management.

Designed to be read by both undergraduates and postgraduates, this book is a primer on ethics in business. It is also relevant to ethics courses that are now part of many legal, accountancy and other professional examinations. The book is not about moral philosophy, nor does it prescribe appropriate standards of behaviour or recommend economic, legal or political solutions. Rather it enables readers to recognize ethical issues in business, to respond appropriately, and to embed ethics in business processes. The book not only considers what business ethics are, and why they are important, but offers practical approaches on how to develop a successful corporate ethics culture.

Part One

Business ethics – principles

1 Business ethics affect everyone

Learning outcomes

In this chapter we:

– see that ethical issues arise throughout the business world;

– define morality and ethics;

– understand that ethics are imbedded in and reflect cultures;

– consider the relationship between law and ethics;

– note some philosophical theories to provide a context for our study;

– recognize that business ethics involve choices;

– understand the importance of trust in business;

– take a stakeholder view of business ethics;

– wonder why do people behave the way they do; and

– see that corporate governance and risk management inherently involve ethics.

Ethical issues arise throughout the business world

Ethical issues arise throughout business, in all types of organizations, at all organizational levels, and in every country and culture. The following eight examples illustrate the scope of the topic.

• A municipal township in China called internationally for tenders to construct river facilities, including docks, bridges, and roadways. An Australian contractor was surprised to find, attached to the tender documents, a requirement for a 2% ‘facilitation fee’, payable to a local company, for services required if an overseas company was awarded the contract. The Australian company feared that this fee was really a bribe to city officials responsible for making the contract decision.

• International bank HSBC was criticized for arranging the listing of Samling, a Malaysian timber company, which was accused of destroying tropical forests and abusing local communities. The Chief Executive of Samling, however, said that they had the necessary logging permits and were not breaking any laws. Critics of HSBC said that their involvement made a mockery of its forest policy and commitments on climate change

• British-based Barclays bank was fined £290 million by US and UK regulators for colluding with other banks to rig the interest rates set for loans between them. Misstating the rate improved the financial standing of the bank and increased traders’ bonuses. The British regulator said that ‘the misconduct was serious, widespread and extended over a number of years … There was a cultural tendency to always be pushing the limits … a culture of gaming, and them gaming us. The problem came from the tone at the top’.

• A whistle-blower in Enron, then one of America’s largest companies, warned the directors and the external auditors that accounting techniques being used by the company could ‘implode in a wave of accounting scandals’. She was fired. The company finally collapsed in the largest bankruptcy then seen in America, and top executives were jailed.

• A multinational company was accused of ‘aggressive tax avoidance’ by using a network of tax havens and complex inter-company loans and trades to reduce its world-wide exposure to tax. The government of a high-tax country, in which the multinational generated a lot of profit, complained that it was being defrauded. The company responded that its role was to maximize long-term shareholder wealth and that its tax planning was legitimate and entirely within the law of all the countries involved.

• A German pharmaceutical company had a written policy on drug abuse among its employees. No drugs were to be brought into or used on the firm’s premises. Fearing that this policy was being ignored, the company introduced random drug-tests, particularly for those working in its laboratories. Union representatives complained to the supervisory board that this infringed employees’ rights. ‘As long as employees were capable when at work, what they did in their own time was no concern of the company’, the union said.

• A sales representative of a South African company met a competitor’s sales rep at a trade exhibition. They spoke about products and prices in the market. As they chatted, it became clear that they were both facing stiff competition from a third brand. Eventually, they realized that each knew different things about this competitor’s prices and products. They agreed to share this information. Memory sticks with this market information were exchanged.

• An experienced estate agent (realtor) was instructing a new member of his sales team. ‘When a prospective buyer shows an interest in a property, he is thinking about whether it’s good value and whether he can afford it. Your job is to change his mind set. We use the “old reserve trick”. You call me in the office. I tell you I have an offer for the property and have reserved it. You say to your client that despite this, you may be able to swing the decision his way. Now he is no longer worried about whether he can afford it, but whether he can get it.’

We will be studying some of these cases later in more detail. In this chapter let us be clear what is meant by business ethics.

Defining morality and ethics

Peoples’ relationships and behaviour have always interested civilized man. Since the times of the ancient Chinese and Greek civilizations, thinkers and rulers have been concerned about behaviour in society. Morality¹ is the set of beliefs about right and wrong that a society, a religion, or an individual recognizes. Typically, a perception of morality involves a collection of values that are reflected in moral principles. Essentially, morality is about fairness, treating people well, and not harming them. Concepts of justice, respect, or tradition may be relevant to achieving morality but are not morality. Morality is not about duty, loyalty, patriotism, or piety, although they may be the means for achieving it.

Ethics are the rationalization of moral principles into useful concepts that can be applied in practical situations. For example, integrity, fairness and trust are ethical concepts relevant in the business world. Ethics reflect beliefs about right and wrong, and are rooted in the prevailing morality and its principles. However, ethical standards vary depending on the relevant culture, as we shall see.

Ethical concerns can raise important philosophical, ideological, and moral issues, which are reflected in societal, religious, and cultural contexts. Are business ethics different from other ethics? Yes and no. Business ethics are ethics applied to business situations, just as medical ethics or ethics in education are ethics applied to those situations. Business ethics are concerned with the conduct of people in business organizations and the way business organizations behave in society.

Ethics are imbedded in and reflect cultures

What is meant by culture? Every group of people acting together develop shared beliefs, values and attitudes. This forms their culture. The group could be a family, a tribe, or a nation. They could be involved together as an ethnic group, a religious organization, or a company.

A group’s culture reflects its accumulated skills, knowledge, and experience. This culture is mirrored in its traditions, folklore, and symbols; in the roles that people play; and in the stories that are told about the past. Culture embraces the group’s ethical perspectives. It embraces what is considered morally right and wrong. It includes beliefs about what is acceptable, encouraged, and expected; and about what is not. Culture influences the way people act without them really thinking about it. Culture evolves as situations change and experiences occur. Over time, culture is learned, passed on, and imitated.

Companies develop cultures, which differ depending on their situation, their experiences, and the people involved. A company’s culture is apparent when people say ‘that’s the way we do things around here’. Three examples will illustrate the significance of corporate culture and how it evolves.

• The original corporate culture of Japanese car manufacturer Toyota emphasized superb product design and engineering excellence. Control of the company was centralized at the top in Japan. As the company expanded worldwide, manufacturing shifted to other countries involving extensive supply-chains. However, control still came from Japan. Standards were not maintained. Quality began to fall. A spate of faults forced a huge recall of cars around the world. A change of the centrally-dominated corporate culture was needed.

• The CEO of Royal Bank of Scotland (RBS), Fred Goodwin, had a background in marketing, not banking. He created a culture that emphasized cost-cutting and revenue growth. His reputation for downsizing earned him the nickname ‘Fred the shred’ in the company folklore. RBS was involved in the risky subprime derivatives mortgage market and, unable to raise funds, had to be bailed out and was effectively nationalized by the British government. New top management was appointed and a different culture began to emerge. The full story is in case 8.4 RBS and Fred ‘The Shred’. (p. 255)

• The Ontario-based company ‘Research in Motion’ (RIM) created the BlackBerry mobile cell phone. Founded by Jim Balsillie and Mike Lazaridis, RIM was confident that it was in the technological vanguard, the market leader, the trend setter. However, in 2011 the company faced a debilitating loss of network service, fell behind its SmartPhone competitors in both technology and market share, and lost tens of billions in market value. The founders resigned, passing control to an experienced executive from the electronics industry. ‘There comes a time in the growth of every successful company when the founders recognize the need to pass the baton to new leadership’, Lazaridis said.

As we shall see, what is regarded as ethical behaviour, what is considered acceptable, varies around the world influenced, for example, by history, religion and tradition; it also evolves over time.

The relationship between law and ethics

Law defines behavior required in a given jurisdiction. It sets the parameters and the boundaries. In the case of business, for example, the law regulates employee conditions, consumer rights, health and safety, copyright and patent protection, and much more. Company law provides the foundations under which companies are incorporated, regulated, and run.

Some laws have an ethical underpinning, which is where the law and ethics overlap as shown in Figure 1.1. Laws concerning human rights, personal injury, or ownership, for example, are all based on beliefs about right and wrong, and are rooted in the prevailing morality. Of course, the scope and the nature of the law differ between jurisdictions, reflecting national and sometimes religious cultures.

– Laws relating to mandatory retirement age vary...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• List of cases and ethical dilemmas
• List of figures and tables
• Acknowledgements
• Introduction
• Part One Business ethics — principles
• Part Two Business ethics — practice
• Index