Discuss the view that few business make truly moral decisions and that most implement ethical policies to gain a competitive advantage

AS and A Level Religious Studies & Philosophy

Discuss the view that few business make truly moral decisions and that most implement ethical policies to gain a competitive advantage.

Ethics alone tend to be defined as a moral code of conduct that is perceived to be the right thing to do. An ethical decision means doing what is right, as apposed to assessing the most profitable course of action.

In the past, free market ideology was that corporations were kept responsible to customers, shareholders, workers and society by customer and investor behavior, seen in share price. Millions of individual “voters” in the market place ensured they behaved. “Bad” corporations were punished by selling. “Good” corporations were rewarded by buying. “Market forces will sort it all out”. This ideology weakened the idea of business ethics and accountability as the most profitable and secure were the best for investment and how they held and maintained this position wasn’t a consideration.

Today, the increasing involvement of the media in business affairs has resulted in members of the public being more informed and less tolerant of what they consider to be immoral behaviour. The amount of information available to the general public has increased due to the actions of pressure groups and easy access through evolving technology. This trend has meant that businesses have been reluctant to indulge in behaviour that may be considered unethical. Businesses in vast numbers are joining the Institute of Business Ethics, which encourages an ethical approach to wealth creation. One approach to this has been through the introduction of ethical codes of practice. An ethical code states the ways in which a business should behave when faced with decisions that have a moral or ethical dimension. Commonly, businesses publicise their ethical codes and they are frequently used as an integral element of business marketing strategy.

Critics of ethical codes believe them purely to be public relations exercises rather than genuine attempts to change behaviour. It is argued that most businesses produce an ethical code to project a good public image whilst their underlying business culture remains unchanged.

Business leaders increasingly recognise the direct relationship between fulfilling a company’s ethical responsibilities and corporate survival. An effective business practices program ensures:

A Marketplace Advantage: Customers and investors cite corporate practices and values as primary considerations in their decision-making.
Superior Employee Performance: Companies with sound business practices and established values report improved employee morale, reduced employee turnover and increased productivity.
Reputation Management: Once damaged by scandal or unethical behavior, a company’s reputation may never recover - resulting in lost revenue, low employee morale and increased governmental and public scrutiny. Emphasising responsible business conduct is ...

This is a preview of the whole essay

Business leaders increasingly recognise the direct relationship between fulfilling a company’s ethical responsibilities and corporate survival. An effective business practices program ensures:

A Marketplace Advantage: Customers and investors cite corporate practices and values as primary considerations in their decision-making.
Superior Employee Performance: Companies with sound business practices and established values report improved employee morale, reduced employee turnover and increased productivity.
Reputation Management: Once damaged by scandal or unethical behavior, a company’s reputation may never recover - resulting in lost revenue, low employee morale and increased governmental and public scrutiny. Emphasising responsible business conduct is the surest means of preserving a company’s intangible assets.
Powerful Legal and Financial Incentives: International regulatory developments provide strong legal and financial incentives to corporations that establish standards of conduct and provide ethics education and training to employees.

If decisions are undertaken on a truly moral stance then these benefits don’t factor and neither should any negatives that may arise from the policy. After all, the moral path is the ‘right’ path regardless of outcome. The drawbacks of moral policies to a business may include increased costs across the board and a decline in profits. The result may lead to negative publicity and a decline in investment and financial backing. This can be seen with The Body Shop whose re-noun reputation for ethical policy still led to a profits slump of 61% to £4.8 million in 1998.

The true litmus test for whether a firm is acting on a genuine ethical stance or merely a cosmetic one to increase profits is whether the policy costs them money or makes them money.

Taking a cynical viewpoint I don’t believe that a business will ever incur excess costs based on a free-will decision regardless of whether ethics and morals are involved.

I feel that for many firms the decision on their ethical policy will depend upon an assessment of its potential costs and benefits. If the costs of ethical behaviour exceed the benefits, a superficial adoption of moral principles is the most likely outcome. If a commercial advantage can be gained without incurring too many additional costs, then a complete change of corporate philosophy might result. However, this is still based on potential rewards outweighing potential costs. An ethical decision based on nothing but morals is free of monetary constraint and therefore even in this ethics conscious age the bottom line of cost and profit still rules within business, making truly ethical policy an impossibility.

Even in the absence of truly righteous behavior businesses nowadays certainly like to be perceived as being morally ethical and there is no doubt this does pay. The performance of a sample from FTSE 350 companies with an available code of ethics was recently compared to a similar sample of those without. Four financial measures were used and the data covered the period 1997-2001.

Regarding financial performance, from three of the four measures of corporate value used in this study (EVA, MVA and P/E ratio) it was found that those companies in the sample with a code of ethics had, over the period 1997-2001, out performed a similar sized group who said they did not have a code.

Companies with a code of ethics generated significantly more economic added value (EVA) and market added value (MVA) in the years 1997 - 2000, than those without codes.

Companies with a code of ethics experienced far less P/E volatility over a four-year period, than those without them. This suggests that they may be a more secure investment in the longer term. Other research has suggested that a stable P/E ratio tends to attract capital at below average cost; having a code may be said to be a significant indicator of consistent management.

The indicator that showed a different result pattern to the others was Return on Capital Employed. No discernable difference was found in ROCE between those with or without a code for 1997-98. However, from 1999 to 2001 there was a clear (approximately 50%) increase in the average return of those with codes while those without a code fell during this period.

The data also indicates that in the years 1997-2001, those with an explicit commitment to doing business ethically have produced profit/turnover ratios at 18% higher than those without a similar commitment The general conclusion from this study is that there is strong evidence to indicate that larger UK companies with codes of ethics, e.g. those who are explicit about business ethics, out perform in financial and other indicators those companies who say they do not have a code. Having a code of business ethics might, therefore, be said to be one hallmark of a well-managed company.

However, these ethical codes are an image and insurance of business survival. Whether thy fall under the banner of a genuine stance such as the Co-op bank or the Body shop or are blatant consumer calmer such as those imposed my multi-nationals like Nike and Gap they still provide a business image which leads to a competitive advantage. Optimists may argue that The Body Shop and others really do act on morals but ultimately they profit from their policies. More to the point without such policies I truly doubt they could survive let alone compete with corporate giants in their sectors. I’m not saying that some businesses don’t believe in what they are doing, I’m sure some are adamant that they’re acting with good and honest intentions. However, such moral actions benefit them and if they were to have an adverse effect I don’t believe such standards would be adopted. Show me a business that sacrifices potential success and wealth by following a moral policy and I’ll accept truly moral decision-making exists within a business world. The word business simple dictates that such a compromise on success and profits can never materialise.

I believe in modern society ethical behaviour is often just a matter of opinion rather than a straight cut right or wrong. Ethics are merely a matter of degree and what individuals are comfortable with. Standards of business ethics are changing rapidly in response to random events that capture public imagination. In business ethics, what was good is becoming bad and what was considered bad is now good. Standards for business ethics that have worked for decades are looking old fashioned or immoral while other practices that raised questions are becoming totally acceptable. If ethics and morals truly are black and white and true ethical decisions can be made, how can they change with consumer perception? Consumer sovereignty sets the standards and businesses change their ‘image’ to comply in the way that results in survival and maximum profitability.

The danger now for businesses adopting token ethical stances is that the attentions of the media and pressure groups might reveal the superficial nature of their principles. This would be a public relations nightmare, causing substantial damage to the business reputation and profits.

So what is going to happen next in business ethics? How can corporations use business ethics to restore confidence and protect themselves against tomorrow’s headlines? What will be the new “Gold Standard” for business ethics and corporate governance? How much further than legal minimum requirements for business ethics should corporations go to ensure sustainable success? Whatever happens it will all just be the next image that is in-keeping with public requirements and profit will always remain the driving force behind business. Economies and society simply wouldn’t survive any other way.