ETHICAL ISSUES & BUSINESS

OPERATIONS
Business & Management
Course Companion, 2009. p31-41
Oxford University Press
Ethical Objectives
Ethics is the branch of philosophy concerned with
the rules of human behaviour.
It considers what is right and wrong and
examines how moral principles and values are
created and evolve.
Setting ethical objectives is therefore a process by
which organizations apply ethical values to their
targets and establish basic principles about their
behaviour in achieving these targets.
Ethical Objectives
Ethical values cover all aspects of business
conduct. This includes:
corporate strategies.
treatment of employees.
treatment of suppliers.
sales and accounting practices
Most activities of business have some ethical
features.



Ethical Behaviour
Ethical behaviour goes beyond the legal
requirements placed on a business, as it concerns
discretionary decisions and behaviour; in other
words, what a business chooses to do, rather
than what it is forced to do.
Business ethics are relevant both to the conduct
of an individual within an organization and to the
conduct of the organization as a whole.
Strategic Questions & Ethical Issues
Is it ethical to reduce costs by exploiting
cheaper resources in less economically
developed countries? Eg: large Western
MNCs have been accused of using child
labour in some of their overseas
factories.
Is it ethical to sell products that are legal,
but known to harm those who use them?
Eg: tobacco.

Strategic Questions & Ethical Issues
Is it ethical to target young children
with advertising messages?
Is it ethical to manufacture products
that are used to kill? Eg: The arms
industry?
Is it ethical to look for loopholes in
the law to avoid paying tax?

Strategic Questions & Ethical Issues
The previous questions are `big questions`
that elicit strong views, but there are many
smaller, tactical issues at an individual level,
which still have ethical dimensions.

Individual Behaviour and
Ethical Questions
Examples of questions about individual
behaviour which contribute to the overall ethical
approach of an organization include:
How do I manage my team?
Should I massage the truth?
Can I ever justify being disrespectful when
selling products or services to my customers?

What makes it ethical or unethical?
In theory, business ethics are shared set of
attitudes, morals and rules of behaviour that
underpin the decision making process.
However, in practice not everybody agrees on
what is ethical and what is not.
After all, individuals in everyday life have very
different moral and ethical standards, so why
should we expect individuals in organizations
to be any different?

Do employees have to accept the
ethical expectations of a business?
Organizations often have identified and clearly
stated corporate cultures, so anyone who
voluntarily joins the organization is signalling at
least some agreement with the existing culture
and the values attached.
Organizations may publish detailed ethical codes
of practice, ethical policies or ethical guidelines,
which guide employees in their responses to
situations that potentially challenge their honesty
and integrity.
Ethical Guidelines or
Ethical Codes of Practice
Ethical guidelines set out general principles
about the organizations beliefs on matters
such as quality, treatment of staff, or the
environmental effects of the organizations
activities.
They detail procedures to be used in specific
ethical situations, such as conflict of interest
or situations where employees are offered
gifts or favors.
STAGES IN DEVELOPING AN
ETHICAL POLICY
1. Set explicit ethical objectives supported by
appropriate policies and procedures.
2. Show the support of senior management for
these ethical policies and procedures.
3. Develop supporting training programmes
and courses.
4. Monitor the success of ethical programmes.

STAGES IN DEVELOPING AN ETHICAL POLICY
1. Set Explicit Objectives
The organizations needs to establish detailed
codes of ethics and expectations, which are
explicit, clearly written and communicated to
employees and other stakeholders.
It is essential that following these codes
becomes part of day-to-day activities.
STAGES IN DEVELOPING AN ETHICAL POLICY
2. Support of Senior Management
Senior managers should demonstrate their
commitment to implementing and enforcing
ethical objectives by making them central to
business planning.
This can be achieved by building ethical success
criteria into employee appraisal and the award of
bonuses for meeting specific ethical targets.
A clear disciplinary process should exist to punish
breaches of ethical responsibilities.
STAGES IN DEVELOPING AN ETHICAL POLICY
3. Develop Training Programmes
To support ethical goals and policies, all employees and
managers should participate in training courses where
the organizations ethical objectives are carefully
communicated.
This training must help employees recognize and make
ethical decisions.
The same training may be offered to other
stakeholders groups such as suppliers and distributors
to make sure that all those involved in the marketing
and distribution of an organizations goods or services
act to the highest possible standards and do not
undermine the organizations image.
STAGES IN DEVELOPING AN ETHICAL POLICY
4. Monitor the success of programmes
It is an essential part of the success of ethical
codes of practice that they are monitored on a
day to day basis.
Many organizations create channels for
employees to report on ethical conduct and
promise anonymity for whistle blowers who
report unethical conduct.
Why do organizations consider setting
ethical objectives?
Ethics in the market place and workplace are
becoming increasingly important as
organizations more into a period of intense
competition for public and consumer support.
Organizations are under pressure to develop
and maintain policies on business ethics and
social responsibility to ensure that they have
the support of employees and other
stakeholders.
Competitive Advantage &
Ethical Objectives
To help create competitive advantage, most
organizations want to be perceived as
ethical as this brings with it potential
commercial advantages.
However, being an ethical business is a
relatively subjective assessment linked to the
products or services that the business offers, it
founding vision, goals and values and its
reputation among it stakeholders.
What does unethical behaviour mean
for a business?
Unethical behaviour and the resulting negative
press may have significant effect on sales, profits
and even the survival of the business.
Therefore organizations will seek to manipulate
perception through good marketing and PR.
Increasingly, organizations are putting in place
ethical policies to prevent ethical breaches and
preparing contingency plans to react to any
breaches that might damage their reputation.
Ethical Practices and
Business Functions
It is usual for organizations to apply ethical
approaches to all their business functions.
For instance, a business may produce ethical
guidelines and policies for HR, accounting
practices and financial reporting, sales and
marketing methods, production and the
treatment of intellectual property. These would
be published:
internally through departmental handbooks and
procedures.
Externally in annual reports and on business websites.

Ethical Issues & Pressure Groups
Ethical considerations have become
particularly important element in the
corporate agenda, partly in response to the
success of pressure groups such as
Greenpeace and social campaigners, like Ralph
Nader in the US, and partly in response to
success of organizations that have adopted
more ethical and social responsible policies.
CORPORATE SOCIAL
RESPONSIBILITY (CSR)
CSR describes an organizations duties to its
internal and external stakeholder groups, which it
may or may not willingly accept.
In other words, it is the way an organization
behaves towards its shareholders, customers,
employees, suppliers and society in general.
The last stakeholder group is very broad, and
therefore being socially responsible implies that
the organization operates as a good corporate
citizen, both locally and globally.
CORPORATE SOCIAL
RESPONSIBILITY (CSR)
CSR is an umbrella term under which the
ethical rights and duties existing between
companies and society are examined.
There is a distinct crossover between ethics
and CSR, since CSR is often about doing ethical
things.
In both cases the business attempts to
maximize its positive impacts on stakeholders
and society and minimize its negative impacts
What is the difference
between ethics and CSR?
Ethics are the concerns of individual managers
and employees.
CSR is a concern of the entire organization.
Legal Issues and CSR
All organizations will need to comply with the
legal requirements in day to day operations,
but CSR means going beyond these legal
duties and accepting that the sole function of
a business is not just making profit for its
shareholders.

Is CSR just a marketing tool?
The question is whether acting responsibly is
merely a marketing tool or whether it is a
genuine part of accepted set of values that
guides all that a business does.
Perhaps the acid test of an organizations CSR
credentials is when the economy is in
recession and survival is a priority - Does the
business put social responsibilities before
profit then?
Why should businesses act in socially
responsible manner?
Business Image
Its improves the image of the business and its
goods and services and can provide it with
competitive advantage.
Attracts New Customers & Customer Loyalty
Its attracts new customers and can create
customer loyalty and repeat purchase behaviour.
Research has shown that customers are more
likely to choose products they perceive as being
produced in a socially responsible manner.

Why should businesses act in socially
responsible manner?
Attracts like minded employees
Its attracts like-minded employees to join the
business.
Improves Motivation of existing employees
With increased motivation, staff turnover may fall
and productivity may increase.
Reduces possibility of Negative Publicity
It reduces the likelihood that pressure groups will
act against the organizations interests.

Why should businesses act in socially
responsible manner?
Goodwill among stakeholder groups
It ensures goodwill among all stakeholder
groups, which may prove beneficial at times of
crisis.
Eg: Suppliers and employees may be prepared
to wait for payment during a cash flow crisis,
because they feel a sense of loyalty to the
organization, which has treated them well.

Short Term Costs
Long Term Benefits CSR

Like many other business decisions, acting
responsibly should be considered as a long
term benefit, that may have short term costs.
The question is whether the business is willing
to accept these short term costs when
competitors are not.
Famous Quotes about CSR?
Conducting your business in a
socially responsible way is good
business. It means that you can
attract better employees and
that customers will know what
you stand for and like you for it
(Anthony Burns, CEO Ryder Systems (1944-)
SOCIAL AUDITING
The purpose of a social audit it to assess the impact of
an organizations operations on its stakeholders and
wider society.
It is a similar process to a financial audit as the
organization generates a set of a `social accounts` that
evaluate social performance against non-financial
criteria and benchmarks.
However, unlike financial auditing there are no legal
obligations on an organization to carry out a social
audit, although it helps the business address potential
problems that might later lead to legal liability.
SOCIAL AUDITING
A strong emphasis on health and safety may
mean the organization avoids prosecution for
any accidents caused by the negligence of the
organization and its employees.
Social auditing should also result in more
informed planning and better management.

Who conducts social audits?
Social audits are usually conducted by an
independent group that prepares a published
report assessing the organizations wider
external impact.
This report helps clarify social objectives and
encourages the business to come up with
action plans to sort out any deficiencies that
have been identified.
Practical Objectives &
Outcomes of Social Auditing
A business is not socially responsible just because
it carries out a social audit of its operations.
What counts is that its responds to the audit and
changes business practices where necessary,
even if that involves financial costs.
Social auditing is increasingly being considered
part of quality initiatives and integrated within
management approaches, such as TQM.
Social Auditing will result in new
objectives and targets relating to:
Environment
This includes, pollution, waste disposal, and
resource depletion.
Energy use - business practices to improve
energy efficiency.
Human Resources
HR and the treatment of employees and other
individuals in the distribution chain this could
cover issues relating to recruitment, promotion,
health, safety and remuneration.
Social Auditing will result in new
objectives and targets relating to:
Community Programmes
The business helps organize or fund
community based initiatives in education, the
arts or the environment.
Product & Service Quality
There is an emphasis placed on the durability
and safety of the products sold and honesty of
services provided.