Importance of business ethics
Why should we consider business ethics? Ferrell, Fraedrich and Ferrell (2011) suggest that the study of business ethics does not just mean moralising about what should or should not be done in a particular situation. Rather, it systematically links the concepts of morality, responsibility, and decision-making in organisations.
These authors classify the ethical issues relevant to most organisations into four key areas.
Conflicts of interest
Honesty and fairness
Relationships within the organisation.
Business operations managers make many practical decisions every day (such as finance, marketing, manufacturing, R&D). In many cases, these decisions do not only involve business practices, but also have ethical implications which need to be identified and resolved- an example is a decision to outsource manufacturing to a low cost country to increase the company’s profits, but with major implications for job losses in Australia. There are many alternatives available to management from immediate retrenchment of Australian workers, to upskilling and transfer to other sections of the company with a lower company cost saving on the short to medium term. When we deal with ethical business practice, we rely on our inner principles to help us choose the right path.
Companies that allow unethical business practices – at times even breaking the law-pay the price in fines, legal fees, compensation for those who were wronged or even jail terms for individuals. When individuals start to believe that compromising standards and cutting corners is common business practice, the costs may be hard to quantify, but they can be damaging to the entire company.
The Institute of Chartered Accountants (Australia and NZ) link ethical behaviour to a company’s reputation which “makes the effective management of reputational risk and ethical business conduct an integral part of what drives company’ success.” Economic performance alone no longer guarantees success and defaulting to what’s legal doesn’t cut it anymore, as some multinational corporations are finding in Australia where they have been criticised for their adherence to tax minimising regimes that offshore their profits.
According to the Institute, the top ethical issues confronting business institutions today revolve around:
Illegal political contributions
Health or safety violations
Improper use of competitor’s information