The role of business ethics in the corporate environment - Essay Example

ETHICS AND CORPORTATE GOVERNANCE ISSUES Contents Contents 1 Introduction 2 Main body 3 References 14 Introduction Business ethics is a part of the corporate governance practices of a business. Ethics is not just an academic, legal or moral aspect but in the long terms scenarios of business management, corporate ethics is aimed to be established as the essential behavioural traits and part of the organisational philosophy of a corporation which would further strengthen the brand equity of the company and also ensure stable and sustainable growth for the company in the future years. Also, with time, considerations are made regarding the individual consciousness about the application of business ethics in their work which would help to establish self regulation as an integral part of ethics and corporate governance. Despite the corporate entities, academic institutions, researchers, scholars and practitioners all over the world focusing on the aspect of business ethics and highlighting its role in conducting a profitable and sustainable business, the realm of ethical problems continue to persist on the corporate environment and as a result of which a number of unethical activities and incidences in the corporate environment is often identified. As a result of this, questions arise as to how far the ethical aspects of business management are actually been integrated into the individual an organisational approaches of corporate functions and the global stakeholder groups remain sceptical about the integration and real life implementation of business ethics within the overall business domain. This report is aimed at assessing and analysing the role of business ethics in the corporate environment from the individualistic as well as organisational viewpoints. Additionally, the views of the public regarding the actual implementation of business ethics in the corporate environment and their impacts on the functioning of the firms and the values created for the shareholders are also studied. The report is suitably concluded by highlighting the findings and providing recommendations about how business ethics can be more stringently established as a part of corporate governance and self regulation approaches to business conduct and individual behaviour. Main body Business ethics or corporate ethics is a type of applied ethics which is applied in the professional and corporate frontiers of work. Business ethics or professional ethics encompasses the examination of the ethical principles and the ethical or moral issues that arise within a corporate or business environment. Business ethics can be applied to all aspects of corporate conduct and it is highly relevant for the conduct of organisations and the individual entities associated with these organisations (Duska, 2007) .There may be normative and descriptive approaches and dimensions of business ethics. In its application in the corporate practices and career specializations, corporate or business ethics takes up a primarily normative approach of implementation and practical application (Elliott and Turnbull, 2005). The quantity and range of ethical problems and approaches in a business are reflective of the interaction of the business objective of profit maximisation with the corporate social responsibilities of the organisation and the ethical and moral compliances that are to be fulfilled by the organisation. The need for promoting the commitment towards the non economic values created by the company is identified as one of the core pillars for developing corporate sustainability. For example, each and every corporation operating in the contemporary integrated business environment has to mandatorily focus on the ethical compliances and social responsibility charters not only because these include legal implications but also beastie without suitable levels of investments made into and steps taken for developing ethical and responsible businesses, such organizations are likely to become obsolete in the long run. Interest in corporate ethics has significantly increased during the 1990s, triggered by the number of ethical non compliance issues in different organisations and their impacts on the functioning of such organisations as well as on the stakeholder groups of these companies. Today the national governments and national and international bodies focus on developing and implementing regulations to guide and monitor business behaviour which is considered to be ethical and are oriented towards beneficial directions seen from the perspective of the organisation as well as all the stakeholder groups who are directly and indirectly involved with the functioning of the organisation. These include the local communities, employees, customers, business partners, suppliers, distributors, society, governments, nongovernmental organizations as well as the environment of the planet (Drahos and Braithwaite, 2002). Ethics are to be implemented in all areas of behaviour and units of the business and its entities to ensure that higher sensitivity to the local communities and the overall external environment of the corporate entities are proactively developed. Factors like the emergence of large multinational corporations and the widespread globalisation which enables large corporations to enter into natural resource rich areas and extract the benefits of the region, have made it more important to focus on the formal ethics regimes that are to be followed but these companies and the individual entities linked with these organisations to show higher concern and responsibilities towards the people as well as the planet (Weaver, Trevino and Cochran, 2009). A general framework that can be referred to for understanding how ethical practices can be implemented by individuals and corporations is given below. Figure 1: Framework for Considering Ethical Theory Initially, the firms operating in the integrated and competitive business domain try to maximise profits by focusing on their own benefits without any sensitivity or concern shown towards the other lenities of the society and the governments of respective countries also did not have much focus on the ethical and moral perspectives related to business operations and conduct (Longstaff, 2008). However, after the 1990s, the increasing number of ethical non compliances and corporate frauds and scandals and their impacts on the economic and social lives of people across the globe, more and more number of corporate entities started highlighting their ethical and corporate social responsibility stature and the governments and other legal bodies also started establishing stringent regulations over the business conducts in different areas and types of functions (Dobson, 2007). One of the most significant lapses that are found in the domain of business ethics was the collapse of Enron (Eaglesham and Parker, 2003). Enron was a multinational and powerful company which dealt with the buying and selling of natural gas and other energy sources. At a point of time, Enrol was experiencing an unexpected rate of growth in its operating periods over almost 10 years and the prices of the stock prices of Enron plummeted at a rapid rate. However, later it was found out that the accounting system of the company was misrepresentative of the financial information in front of the public. The accounting reports of the company falsely showed profits and overall financial stability in their financial systems and annual reports to misguided the shareholders while in reality the company was going through a weak financial phase. When the misrepresentation of the accounts of the company was identified and exposed in public, the shareholders of Enron were greatly impacted by the unethical behaviour of the company as a result of which the share prices of the company fell from USD 70 per share to USD 0.25 per share within a period of one year following which the entire company collapsed and could never recover from the financial damage. As a result of this unethical behaviour, not only did the shareholders of Enron suffer major losses but also the company became liquidated thereby affecting the existing shareholders as well as the stock market movements and conditions (Boldrin and Levine, 2008). The idea of corporate or business ethics is intensely focused on in the current position of the academic as well as corporate environments. This is done to such an extent that business ethics is included as a core subject for study within the academic curriculum of various schools, colleges and universities (Jacques, 2004). This has been done with the ultimate aim of educating people from their student life about the need and importance of business ethics so that they can later understand the importance of the field and try to practically apply ethics in their work when they join the corporate world (Van Beek and Solomon, 2004). The inclusion of business ethics as a core academic subject for study is expected to spread awareness among the student groups regarding the need, role and use of business and professional ethics in the corporate working scenarios (Makkreel and Luft, 2010). Today, business ethics acts as a reflection of the philosophy of conducting compliant and value adding businesses (West, 2010). Business ethics plays a major role in determining the fundamental goals and philosophy of an organization (Paul, Miller and Paul, 2005). Therefore, educating the employees and other internal and external stakeholders of a company regarding the implications of business ethics is a necessity to develop an ethical and responsible global corporate environment and prevent or reduce the number of unethical incidences including corporate frauds, bribery, exploitation of people and resources and unauthorised use of natural resources etc. which largely hinder the profitable and sustainable functioning of the corporate entities (Metzger, Dalton and Hill, 2004). Despite significant efforts being taken up by the academic and corporate entities regarding the establishment of business ethics in the corporate domain, many discrepancies related to ethical functioning and compliance still comes into the forefront when the corporate functions are evaluated or assessed in a scrutinising manner (Jones and Parker, 2007). Though business ethics has been recognised to be a positive aspect for implementation in the businesses, yet there have been many legitimate criticisms made for the business practices with ethical considerations because of the impacts like infringement of freedom of the business owners and entrepreneurs regarding corporate and management decisions of their companies (Jhingran, 2001). As a result of this, the discourse of corporate ethics and the potential of this field in the corporate environment have been scuttled in both the individualistic and media domains (Trevino, Weaver, Givson and Toffler, 2009). In case a company’s sole purpose is to maximise the returns for its shareholders, then the sacrifice of profits to the other associated aspects and concerns of the company would be a violation of the ethical, social and fiduciary responsibility of the business organisation (Jennings, 2008). In countries like the United States of America, United Kingdom and almost in all other developed and developing nations, any corporate entity is legally considered to be a person or entity due to which the “corporate persons” are liable and legally responsible for fulfilling their liabilities as well as entitled to their rights as specified for the citizens of these countries (Frederic, 2002). In such sense, the corporate entities have to consider setting up ethical standards and roles that would govern their business management decisions (Wiehen, 2000). Ethics should thus, not only act as a guideline or internal code of conduct in an organisation but instead should be established and integrated within an organisational construct as a self regulated mechanism and core behavioural traits of each and every individual associated with the business. Both the professional and corporate organisational and individual entities have to develop ethical considerations and a sense of right and wrong that they would implement in their daily job roles, functions and strategic decision making aspects (Dandino, 2004). The ethical dimensions of a business in the present day situation involves a number of aspects including environmental sustainability, responsibility to the local communities and societies in which the company functions, the management of the interests of the employees, stakeholder value creation, conducting all the business operations in legally and morally compliant manners, taking up corporate philosophies that are valuable to the overall external environment as well as the business itself and establishing an overall socially responsible and ethically compliant portfolio of business operations and strategies (Jacobs, 2004). Thus, to establish ethical principles of functioning, money has to be made by the companies while adhering to the basic rules of the society including the rules set by the law as well as the rules imposed by the social customs (Shaw, 2010). While earlier, globally recognised economists like Milton Friedman stated that a business cannot directly bear the responsibilities towards the society and such responsibilities are instead to be taken up but the individual corporate executives working in the respective organisations, today, the concept has been expanded to a level in which both the individual professional executives as well as the organisation as a separate entity should focus on implementing ethicality in each and every aspect to attain sustainability, success and acceptance from the global citizens and stakeholders (Hofstede and Geert, 2002). The ethical dimensions in a company should include the rights as well as the liabilities of the business towards its customers, suppliers, distributors, employees and the community and the fiduciary responsibility and accountability of the company to its shareholders (Shomali, 2001). Any issue concerning the relations between companies, aspects of corporate social responsibility, entrepreneurship, corporate governance, political contributions and other corporate aspects have to be built on ethical and sustainable policies enforced in the company (Murphy, 2002). The major areas in which non compliance to globally established ethical principles are identified in different corporations include corruption and bribery, corporate tax avoidance and executive pay and remunerations. Other ancillary areas in which the managers have to deal with ethical issues include employee relations, vendor management, customer relations and overall strategic management of the business (Anderson, 2006). The managers have to deal in all these areas with extensive focus on unbiased behaviour and honest communication which if taught to them in their academic curriculum previously can significantly add to their managerial abilities. Thus, though individual ethics can be majorly based on factors like social background, personal experiences and individualistic viewpoint, the development of ethical approach can be further strengthen through the teaching of business and corporate ethics in the academic curriculum including graduate and post graduate curriculum of an individual learner (Hamowy, Kuznicki and Steelman, 2008). Conclusion Thus, it can be concluded from the above analysis and discussion that business ethics or corporate ethics plays a highly significant role in all types of corporations and business organisations. This is not only important for the success of the organisations, the effective functioning of the corporate environment but it is also equally significant for the development of responsible citizens, for protecting the natural resources, for managing the interests of the respective stakeholders and also for implementing the people and planet aspects in business management. 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