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

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

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.