Discuss the relevance of management ethics in a modern business context.

Discuss the relevance of management ethics in a modern business context

George Demain

The subject of management ethics is one that has become increasingly important over the last decade or so. All managers want their company to succeed and grow, and if they do not manage in a way that creates a good ethical image for their company, then this won’t happen. It is the managers who create the image of a business being ethical by the decisions they make. Business ethics, and the implementation of good ethical practises by managers, is more important now that at any time in corporate history.

Collins (1990) says that companies should be strongly urged to behave in an ethical manner. He says that this is not only because it will help a company succeed, but that it will prevent the company from becoming worse off i.e. the negative side effects of unethical behaviour are massive, bigger even than the positives associated with ethical behaviour. He says that business simply cannot afford to behave in an unethical manner in today’s marketplace.

Although this is true, we should not lose sight of what most managers look most strongly at – the so called ‘bottom line’. Bell (1997) notes that ethical objectives can be tough goals for certain business’ to meet, and that the pursuit of said goals can cause managers to make decisions that will place the business on a collision path between ethics and success. Bell says that managers, indeed all business people, are rightly attached to the notion of ‘the bottom line’, as the primary reason for being in business is to make profit. However, management ethics implies a new value system for managers, and the business as a whole, that guides all business conduct.

So what is the actual ‘cost’ to a business if its managers change their conduct to behave in a more ethical way? Cartwright (1990) provides a simple explanation of the ethical problem facing managers when they take decisions based on ethical issues.

This is a preview of the whole essay

He says that in a standard business model, a business will charge price A to obtain profit P. A new cost, ethics, (E) is introduced to the equation (For example, increasing the pay of a worker in a third world country). Now the company must charge A+E to obtain P. The business would lose its competitive edge, as customers would go elsewhere to purchase the product at a cheaper price. Cartwright suggests however, that a business will be affected by the market it exists in. Because E improves people lives, or is simply a ‘fairer’ option, it is likely that the media would pick up on this. This would increase public awareness of the company. As time goes by, implementing E becomes the norm, and a company without E is perceived by consumers as being unethical. The business without E loses sales as customer choice switches to companies with E. So, for a business to maintain P, E must be added. This, suggests Cartwright, puts the company in a difficult position. To add E will hurt profits, but, the same effect will be suffered if E is not added.

However, this is not a case for managers to simply ‘sit on the fence’ on the case of ethical issues. In the case of Nike, (Schwartz and Gibb, 1999), behaviour by its managers was perceived to be unethical, and had a strong negative effect on the company.

“Nike boss Phil Knight’s 1994 salary was $1,500,000. On current wages, a young woman in China churning out his shoes would have to work nine hours a day, six days a week for 15 centuries to match that.”

The result of this information, says Schwartz and Gibb, greatly damaged Nike’s reputation, as people, customers of Nike, perceived the company, and its managers, to be acting unethically. Riots took place outside Nike headquarters, and the company’s image took a large blow. Phil Knight was forced to go on TV to defend his company, and announced a whole range of initiatives which he believed would make the company more ethical. However, the damage was done, and Nike is now a popular target of demonstrators who campaigns against companies that they believe behave unethically.

A damaged image is not the only effect of managers behaving unethically. Sternberg, (1994), said that any business that ignores ethical issues is unlikely to succeed. He argued that a business that has a bad reputation of unethical behaviour, which would be cultivated by the decisions taken by managers, would be regarded as untrustworthy and problematic. A business that treats any of its stakeholders badly is unlikely to do well. According to Sternberg, high fault levels, low productivity and high labour turnover are all signs of unethical behaviour by a business.

In addition, there are strong positives associated with managers behaving ethically. Drummond (1990) says that a company with a good ethical image cannot help but provide high quality goods and services to its customers. He says good ethical behaviour by managers would lead to enhanced recruitment, raised employee satisfaction and higher productivity. Sternberg (1994) supports this, saying that a culture of trust in the company will make it more efficient.

Management ethics today is extremely important. Carmichael (1995) actually said that managers behaving ethically, hence creating the image of good business ethics for their company is an integral factor to the success of the company. Carmichael said that a business needs what was called ‘the ethics edge’ to survive.

To conclude, the evidence presented shows that managers must behave ethically for a company to succeed. The perception of a business being ethical by its customers is very important, as it will affect the success of the company. This fact alone makes ethics strongly relevant to today’s managers. There is a cost to ethics, but that cost is one that managers must accept if they wish their company to be successful. The negatives associated with unethical behaviour are immense, and the positives provide an edge that will enable managers to make their company succeed. This proves that management ethics are highly relevant in today’s business environment.

References

Bell M P (1997) Business Ethics (MSc Dissertation UMIST)

Carmichael S (1995) Business Ethics: The New Bottom Line Demos London

Cartwright D (1990) What price ethics? Leadership and Organizational Development Journal

Vol 11 No 3

Collins J (1990) Why bad things happen to good companies Business Horizons November

Drummond J (1990) Business Ethics Training and Development November

Sternberg E (1994) Just Business: Business Ethics in Action Little, Brown and Company