What does it mean for a business to be ethical?

What does it mean for a business to be ethical?

In business, ethics is about doing things right where the interests of all stakeholders are respected and upheld as much as possible. This has implications on the type of operations to be undertaken, how the organisation treats employees, and even the amount of money the business can make at a time. The concept of ethics is widespread and is seen from a cultural perspective in different cultures including Jeintinho in Brazil, Blat in Russia, Jugaad in India, and Guanxi in China (Berger and Herstein, 2014, p.779). These different cultural interpretations have a common factor in the emphasis on upholding trust and conducting business in a manner that upholds the rights and interests of other parties. Since businesses are mainly established to maximise wealth by making profits, emphasis on ethics leads to the question of how important ethics are to business organisations and whether it is prudent for organisations to invest in them. This essay argues that even though ethics may come at a cost to the organisation, ethics can lead to businesses benefiting from stronger relationships with partners, employees, and consumers.

An organisation is ethical when it consciously makes decisions that can be said to uphold the interest of all stakeholders with a view to upholding what is practical, sensible, and acceptable (Archidvili et al. 2015, p. 417). This conscious effort ought to be in writing and enshrined in its corporate values to provide guidance on the decisions employees make from time to time. This means that whenever the organisation is faced with a choice, they’d deliberately choose the decision which is most effective in upholding their ethical values. The consistency with which an organisation makes ethically acceptable decisions is what determines whether or not it can be said to be ethical. It’s, however, difficult to make straight judgements on whether a business is ethical based on decisions made. This is because some ethical dilemmas are two-faced and a decision can be made in favour or either side with sound ethical considerations in mind. An example of an ethical dilemma is the question of international recruitment as discussed by Young (2013). Young explores two main ethical dimensions pitting the interest of two categories of people against each other. On one hand are the professionals in the developing countries intending to seek for jobs in the UK while on the other is the health professional who is a citizen of the UK (Young, 2013, p. 189).

The question that can be addressed is: is it ethical to deny an immigrant professional a job opportunity because of the need to keep the citizens employed (Young, 2013)? This is an ethical question that could be answered in either way depending on the values of the organisation. For instance, an organisation focusing largely on the local population would consider it ethical or part of its responsibility to the local community to employ locally and avoid employing immigrants. This could come at a cost to the organisation since professionals from developing countries would often charge lower fees. On the other hand, an organisation which prioritises the rights of the immigrant to an opportunity can similarly be seen to be ethical as they’d be upholding the right of a person to equal treatment. Such an ethical dilemma can be resolved by finding in favour of the local employee or the immigrant and the organisation cannot be said to be unethical depending on the decision taken. But in many scenarios, it is possible for one to gauge whether an organisation is ethical or not. 

In the process of ethical decision making, the ethical organisation is expected to come up with sets of values that guide individuals in their routine decision making. Ismail (2015, p. 148) makes a distinction between individual and organisational decision making where the distinction is dependent on the ability of the organisation to create a set of universal values. The organisation must understand that its employees are drawn from multiple backgrounds. They are therefore unlikely to agree on many ethical questions depending on their respective personal and cultural backgrounds. This is why it is important for the organisation to have a value system. The ethical decisions made should be in line with the value system. Ismail (2015, p. 147) address the factors that affect ethical decision making among auditors in Malaysia. They establish that personal factors such as emotional intelligence are as influential as organisational factors in determining the ethical decisions made by the auditors. The implication is that for an organisation to be ethical; there must be a set of common values guiding all business decisions.

Being able to align ethics into all organisational systems and processes is also an important characteristic of the ethical organisation. An important area in which this could be manifested is the area of human resource management HRM. Greenwood (2013, p. 361) recommends that all HRM systems and processes be reviewed to ensure that they uphold the ethical values of the organisation. The employees should be granted working conditions that are acceptable and also policies crafted with their welfare in mind. Issues of procedural justice and fairness in promotion and reward should also be focused on with a view to ensuring that no unethical practices are tolerated. This also applies to the fairness in recruitment processes. This is in addition to conducting regular research studies to identify emerging areas of concern for the employees.

Organisations should be able to uphold ethics even if it comes at a cost to their profitability. Ethics in business will in most cases require that the decisions made are in the best interest of all parties; even when it translates into fewer profits for the organisation. A good example can be drawn from Peifer (2014, p. 636) where the conduct of mutual funds is discussed. One of the means used to uphold ethics is screening where the mutual fund managers decide to rule out investing in activities or funds that are deemed to engage in unethical business. This means that the mutual funds would be contributing to promoting good ethics in the market in addition to upholding good ethics themselves. The other approach is advocating for the upholding of shareholder rights by using their numbers to lobby for a favourable position (Peifer, 2014, p. 636). This helps to protect minority shareholders and this is seen as evidence of commitment to good ethics. A commitment to these ethical standards may mean loss of business opportunities, especially where a potentially lucrative investment is avoided because it is deemed to be unethical. This leads to the question on whether good ethics are good for business.

Berger and Herstein (2014, p.781) seem to endorse ethical business as likely to be competitive due the level of confidence it attracts among business partners. The viability of a business is dependent on its ability to attract and sustain meaningful partnerships. When a business is committed to good ethics, it improves the level of certainty and reliability more effectively than where legally binding contracts are used. This is the view of Berger and Herstein (2014, p.781) where they make a comparison between the Chinese and the Western business culture. In their observation, the Western business environment is backed by strong legal structures. These make it easy to monitor performance and enforce contracts. On the other hand, the Chinese business environment has weaker legal structures forcing businesses to resort to social means of controlling transactions and conduct of businesses. This compels prospective business partners to look into the ethical record of the organisation before choosing to work with it. The implication is that a good record in ethics is an investment.

Another benefit that ethical businesses can expect to gain is enhanced loyalty of their customers. Peifer (2014, p. 647) conducted an empirical study to compare the commitment to ethics and the level of customer loyalty. He established that mutual funds which were keen on positive screening to invest only in ethical activities tended to attract higher levels of customer loyalty. The implication is that customers form positive perceptions about the organisations that conduct their business positively. This translates into them being loyal to the organisation and it comes with benefits such as sustained revenues and positive word of mouth marketing. This view is consistent with that of Belghitar et al. (2014, p. 61) where they establish that even though financial benefits of ethical behaviour cannot be determined decisively, there are many non-financial benefits the organisation stands to gain. This finding is also reiterated by Kim et al. (2014, p. 124) who also link loyalty in the finance sector to the perceived ethical standing of the organisation.

In conclusion, the ethical organisation is one that upholds positive business values in all its activities, systems, and decisions. This may at times involve making sacrifices and letting go of various opportunities that may be profitable to the organisation. But as the discussions above have demonstrated, the direct cost made by the ethical organisation tends to attract various benefits including the loyalty of customers. These benefits have the net impact of improving the competitiveness of the organisation.

References

Ardichvili, A., Jondle, D., Kowske, B., Cornachione, E., Li, J. and Thakadipuram, T. (2012) Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China, Journal of Business Ethics, 105(4), 415-428

Belghitar, Y., Clark, E. and Deshmukh, N. (2014) Does it pay to be ethical? Evidence from the FTSE4Good, Journal of Banking & Finance, 47, 54-67

Berger, R. and Herstein, R. (2014) The evolution of Chinese business ethics, Management Research Review, 37(9), 790-778

Greenwood, M. (2013) Ethical Analyses of HRM: A Review and Research Agenda, Journal of Business Ethics, 114(2), 355-366

Ismail, S. (2015) Influence of emotional intelligence, ethical climates, and corporate ethical values on ethical judgment of Malaysian auditors, Asian Journal of Business Ethics, 4(2), 147-162

Kim, M., Surroca, J. and Tribó, J.A. (2014) Impact of ethical behavior on syndicated loan rates, Journal of Banking and Finance, 38, 122-144

Peifer, J. (2014) Fund Loyalty Among Socially Responsible Investors: The Importance of the Economic and Ethical Domains, Journal of Business Ethics, 121(4), 635-649

Young, R. (2013) How effective is an ethical international recruitment policy? Reflections on a decade of experience in England, Health policy, 111(2), 184-192