Business Ethics

AS and A Level Religious Studies & Philosophy

Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. It is worth that stressing that by ‘right’ and ‘wrong’ we mean morally right and wrong. For example commercially, strategically, or financially right or wrong. Moreover, by business ethics, we do not mean only commercial business, but also government organization, pressure groups, not-for-profit businesses, charities and other organization.

Business ethics has been claim as an Oxymoron. By an oxymoron, it mean that bringing together of two apparently contradictory concepts, such as in ‘a cheerful pessimist' to say that business ethics is an oxymoron suggests that there are not or cannot be ethics in business which state that business is some way unethical such as business that is inherently bad, or that it is at best amoral which are such as outside of our normal moral considerations. Examples are such as in the latter case, Albert Carr (1968) notoriously argued in the article ‘is business bluffing ethical’ that the game of business was not subject to the same moral standards as the rest of society, but should be regarded as analogous to a game of poker where deception and lying were perfectly permissible.

Business ethics is currently a very prominent business topic, and the debates and dilemmas surrounding business ethics have tended to attract an enormous amount of attention from various quarters. For a start, consumers and pressure groups appear to be increasingly demanding firms to seek out more ethical and ecologically sounder ways of doing business. Besides, the media also constantly seems to be keeping the spotlight on corporate abuses and malpractices. And even firms themselves appear to be increasing recognizing that being ethical may actually be good for business.

There are main reasons that show why we think that a good understanding of business ethics is important:

1.) The power and influence of business in society is greater than ever before. Evidence suggests that many members of the public are uneasy with such developments. Business ethics helps us to understand why this is happening, what its implications might be, and how we might address this situation.

2.) Business have the potential to provide a major contribution to our societies, in term of producing the products and services that we want, providing employment, paying taxes, and acting as an engine for economic development, to name just a few examples that how or indeed whether, this contribution is made raises significant ethical issues that go to the heart of the social role in business in contemporary society.

3.) Business ethics can provide us with the ability to assess the benefit and problems associated with different ways of managing ethics in organizations.

4.) Business malpractices have the potential to inflict enormous harm on individuals, on communities and on the environment. Through helping us to understand more about the causes and consequences these malpractices, business ethics seeks, as the founding editor of the journal of business ethics has suggested (Michalos 1988), to improve the human condition.

5.) The demands being placed on business to be ethical by its various stakeholders are constantly becoming more complex and more challenging. Business ethics provides the means to appreciate and understand these challenges more clearly, in order that firms can meet these ethical expectations more effectively.

6.) Finally, business ethics is also extremely interesting in that provides us with knowledge that transcends the traditional framework of business studies and confronts us with some of the most important questions faced by society. The subject can therefore be richly rewarding to study because it provided us with knowledge and skills which are not simply helpful for doing business, but rather, by helping us to understand modern societies in a more systematic way, can advance our ability to address life situation far beyond the classroom or the office desk. (Business ethics, Andrew Crane and Dirk Matten, 2007, Oxford, pg 9-11)

Ones of the case study show in business ethics is McDonalds. McDonald's fast food chain was very close to winning the Business Ethics award for environmental excellence in 1999. Ironically, shortly before they received the award they became the example of animal mistreatment. This occurred when the Business Ethics group heard about a campaign being done by, People for the Ethical Treatment of Animals (PETA). PETA is known for their negative publications on businesses for animal mistreatment in the United States. The People for the Ethical Treatment of Animals campaign showed the slaughterhouse cruelty to animals. The co-founder of the Business Ethics group stated that this seemed unfair to McDonald's. Apparently animal cruelty is industry wide. However, others feel that McDonald's is the perfect company to stand up and lead the industry in changing this horrific truth. This is not directly McDonald's fault because they are not directly harming the animals. The suppliers are unintentionally being cruel to the animals. Now that McDonald's knows this they ethically have to make their suppliers provide humane living conditions for the animals. This is a prime example of agency theory; McDonald's is most of America's agent for lunch, dinner or the afternoon snack. (Mega essay in business ethics, 2001-2009, .)

As we enter into the marketing aspect of the business, it can be seen that business marketing had been developed rapidly in the 1980’s until today, the development of business marketing had brought prosperity and consumer satisfaction through understanding the consumer market, buying behavior, needs and demands. Throughout these years, organizations had successfully gain the market share and consumer loyalty by sophisticated marketing strategy that strikes the heart of consumers. To stand out from the rivals, some of the marketers offended the social responsibilities and business ethics just to obtain their marketing goals.

The marketing ethical issue is under control by a set of law, while the purpose of law is not to make marketers or stakeholders in organization to behave ethical but to compel people not to behave in a way which are legally unethical. There are numbers of issues that are not enforced by the law occurred in the market and practiced by some marketers.

Marketing research is meant to analyze and identify the needs and wants of consumers. The reliability of the figure researched by marketers is always a question to the organization and the public. “Figures lie and liars figure” comes to mind when a report of marketing research accomplished from time to time. This is not to state that every marketing research are phony or misleading the consumer and organizational decision making but in fact, a misleading questionnaire could create a false research figure and lead to wrong marketing decision. When a marketer or marketing based organization failed to behave social ...

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Market researchers collect information by talking to a relatively small number of people, which gives them an indication of the views of a larger number. But it only works if they talk to the right number of people, right type of people, ask the right questions and
analyse the data in the right way. A marketing research ethical approach is required so that the desired marketing research task is completed in the right manner and the results are a true indicator of the sample set evaluated. Results of the research are strong indicators of what is happening now or might happen in the future. This means the results are relevant to a situation. Being relevant does not mean it is hundred percent accurate. Instead, being relevant means the probability is high that the research results reflect what is actually happening or what will happen.

There are cases where marketing research organizations do not practice ethical behaviour while they generate the marketing research results and the information is misused or misrepresented by organization that rely on their research information. An unethical research would mean that the probability of prediction of result being relevant is reduced, the result may not be captured, proper target group may not be identified, or methodology bias applies on the final result.

Besides that, unethical marketing research does affect the social and organization. For example, a Malaysian medication firm was interested to establish their business plan in Africa; they obtained market information though a market research firm and the final findings of market research is just a prediction or applied biasness on their health problem. The medication firm might produce the wrong prescription for the patients in Africa and it might cause death.

In today's society, advertising has a reflective impact on how people understand life, the world and themselves, especially in regard to their values and their ways of choosing and behaving. In general terms, an advertisement is simply a public notice meant to convey information and invite sales or some other response. As that suggests, advertising is to inform and to persuade the consumers and public. Advertising and promotional practices in marketing is an aggressive practice to generate profit for the business. Instead, some of the firms in the global market practice unethical advertising and promotional practice that misinform the public about some untrue information for their profit encouraging purpose.

Advertising also has an indirect but powerful impact on society through its influence on media. Many publications and broadcasting operations depend on advertising revenue for survival. Some unethical advertising misrepresent without relevant facts, promote harmful or useless goods, and mislead consumers based on irrational buying decisions. For instance, some consider it unethical for marketing companies to aggressively promote unhealthy foods to children although such promotional practices are generally not viewed as illegal in law.

In United Kingdom, a company called The Body Shop is very successful in particular of ultra awareness of marketing ethics within the organization. The Body Shop produced skin care products and cosmetics that are animal testing free and the bathing soap that contains natural ingredients without harmful chemicals. This company is against animal testing, defends human rights and protects the planet and supports community trade. Today's consumers are aware of environmental friendly issues and are unwilling to buy a bubble bath if they believe someone or something had to suffer so that they could relax in a tub full of foams.

Advertising using media as a powerful force shaping attitudes and behaviour in today's world. Advertisers promote information selectively for their organizational purpose, it is essential for the consumers and public to aware that some information might not as true as the representation of media.

Therefore, the marketing ethics are extensively influencing the social environment and having strong impact on consumers buying decision and attitude shaping. The essentiality of marketing ethics is not only enforced by law but the organization, public and self morality of the marketers to fulfil the social responsibility as they are implementing their marketing plan.

In management or managerial ethics it deals with the situations managers face in their work lives that are imbued with ethical content. By ethical content, we are referring to issues, decisions or actions which contain matters of right versus wrong, fair versus unfair, or justice versus injustice. In business generally, the concept has come to mean various things to various people, but generally it’s “coming to know what is right or wrong in the workplace and doing what’s right” (McNamara, 2008).

There are three essential components of managing ethically: integrity, morality, and principle. Integrity as a manager involves developing and maintaining trust and mutual respect between the manager and those managed. Morality is a bit broader term and is based on a foundation of ethical goals, motives, and standards. A moral manager views laws as a minimum standard of conduct, accepting no deviation from that standard. Principles are taught to us early. They are the values that affect our personality and behavior. These three components are integral to ethical management of any organization.

(Robert Frederick, 2002, A companion to business ethics, Wiley- Blackwell)

(John Pratt, 2009, Long-term Care, Jones & Bartlett Publishers)

Code of ethics

Public auditors, work study and personnel practitioners, those involved in health services, public prosecutors and others all have a code of conduct. These codes do not usually have legal authority. They are merely guidelines formulated over a long period. They reflect the honest desire of public officials to serve their respective communities with dignity and integrity. According to Hanekom and Thorn hill (1987:163), an ethical code has at least four main objectives:

The encouragement and maintenance of responsible behavior by public servant
The promotion of public confidence in the integrity of public officials
The provision of guidelines to officials regarding their relationship with other officials, elected public representatives and members of the public
The provision of guidelines to public servants regarding the exercise of the discretionary powers which they may possess.

(J.Cheminais, G.Van Der Waldt, W.Fox & M.S.Bayat, 1998, The Fundamentals of Public Personnel Management, Juta and Company Limited)

Models of management morality

Immoral management

As this model is perhaps most easily understood and illustrated. Immoral management is a style that not only is devoid of ethical principles or precepts, but also implies a positive and active opposition to what is ethical.
Discordant with ethical principles. This view holds that management’s motives are selfish and that it cares only about its own or its organization’s gains.
According to this model, management’s goals are purely selfish (if the individual is acting on his own behalf), or focused only on profitability and organizational success (if the individual is acting as an agent of his or her employer).
Regards the law or legal standards as impediments it must overcome to accomplish what it wants.
The operating strategy of immoral management is to exploit opportunities for organizational or personal gain. An active opposition to what is moral would suggest that managers would cut corners anywhere and everywhere it appeared useful to them.

Moral management

At the opposite extreme from immoral management is moral management. Moral management conforms to high standards of ethical behavior and professional standards of conduct.
Strivers to be ethical in term of its focus on, and pre-occupation with, ethical norms and professional standards of conduct, motive, goals, orientation toward the law, and general operating strategy.
In contrast to the selfish motives of immoral management, moral management aspires to succeed but only within the confines of sound ethical precepts- that is, standards predicated on such norms as fairness, justice, and due process. Moral management would not pursue profits at the expense of the law and sound ethics.Indeed, the focus would be not only on the letter of the law but on the spirit of the law as well.
Requires ethical leadership. It is approach which strives to seek out the right thing to do. Moral management would embrace what Lynn Sharp Paine (1994) has called an “integrity strategy”. An integrity strategy is characterized by a conception of ethics as the driving force of an organization.
Ethical values shape management’ search for opportunities, the design of organizational systems, and the decision-making process. Ethical values in the integrity strategy provide a common frame of reference and serve to unify different functions, lines of business and employee groups. Organizational ethics, in this view helps to define what an organization is and what it stands for.

Amoral management

unintentional amoral managers

Neither amoral nor moral but are not sensitive to, or aware of the fact that their everyday business decisions may have deleterious effects on other stakeholders (Carroll, 1995).
Lack ethical perception or awareness. That is, they go through their organizational lives not thinking that their actions have an ethical facet or dimension. Or, they may just be careless or insensitive to the implications of their actions on stakeholders.
May be well intentioned, but they do not see that their business decisions and actions may be hurting those with whom they transact business or interact. Typically, their orientation is towards the letter of the law as their ethical guide.

Intentional amoral managers

Simply believe that ethical considerations are for our private lives, not for business. There are people who reject the idea that business and ethics should mix. Believe that business activity resides outside the sphere to which moral judgments apply.
Most amoral managers today are unintentional, there may still exist a few who simply do not see a role for ethics in business or management decision making (Carroll, 1987). Fortunately, intentional amoral managers are a vanishing breed. (Robert Frederick, 2002, A companion to business ethics, Wiley- Blackwell)

On the other hand, as the ones calling themselves professionals, accountants face the pressure of not only to show but also to demonstrate that accounting is a highly credible profession. They, the accountants are indeed role models and the accounting practice is an arena where accountants discharge their public duties and social responsibilities with the highest degree of professionalism.

The professional accounting bodies are quick and rather proactive in combating unethical behavior amongst practitioners. This is to ensure that public confidence on the profession remained high. They were concerned not only to ensure that members adhered to the rules, standards and the general legal procedures, but also to see that accountants carry out their duties diligently, truthfully, fairly and in the best possible manner so that the interests of their clients are protected and safeguarded.

Ethics in accountancy profession are invaluable to accounting professionals and to those who rely on their services. Stakeholders including clients, credit grantors, governments, taxation authorities, employees, investors, the business and financial community etc perceive them as highly competent, reliable, objective and neutral people. Professional accountants therefore, must not only be well qualified but also possess a high degree of professional integrity. Because of these high expectations, professionals have adopted codes of ethics; also known as codes of professional conduct. These ethical codes call for their members to maintain a level of self-discipline that goes beyond the requirements of laws and regulations. Each of the major professional association for accountants has a code of ethics.

Although ethical standards in accounting were always an issue in business the general public did not really pay attention to the issue in hand. Nevertheless recent events have brought the issues to the publics’ attention, because some companies have not used full disclosure in their financial reporting. Also people are becoming more aware of issues such as insider trading and some companies’ tendency to withhold information on their formal reports. When a company does not fully disclose what it is they are doing, investors may be manipulated into seeing that the company is doing better than it really is.

The codes of ethics are issue for these reasons. However, rather than becoming a rule of law where offenders can be made to face legal action, the codes are meant to be a self-restraining or self-governing mechanisms. Provisions in the codes are meant to be guidelines that have to be strictly followed by accountants and the behavioral traits all accountants should have while carrying outs their roles as accountants. The basic underlying principle is that it is not enough for them to just follow the rules. Over and above that – i.e. rule following, their tasks must be done in a professional manner and accompanied by proper conduct befitting their roles as custodians of financial records and managers of public trusts.

The need for such a mechanism is crucial for a profession to command respect and develop. Chua and Mathews (1995) (Prof. Dr. Mohammad Adam Bakar, Maisarah Mohamed Saat, Ainun Hj. Abd. Majid, 2002) noted that public confidence in the work of accountants will enhance their trusts of them and is the single most crucial element in the future development of the profession. The public expects and needs to be assured that accountants do their jobs diligently and with conscience that what they (the accountants) do is to serve them (the public). In short, what accountants need to understand is that doing their job well will not only benefits the organization they served, but also the economy as a whole.

There are four major aspects of ethical conduct that the MIA stressed (Prof. Dr. Mohammad Adam Bakar, Maisarah Mohamed Saat, Ainun Hj. Abd. Majid, 2002) – integrity, objectivity, independence and professionalism. Integrity refers to an accountant’s ability to demonstrate that he or she is truthful, sincere and transparent and does not show favoritism in actions he or she undertakes. Objectivity is a trait which requires accountants to be fair, unprejudiced and not influenced by any party (except by the code of ethics) in their assessment. As such, objectivity demands accountants to be cautious, thorough and careful in carrying out their duties and not be seen as to compromise their position as independent and responsible professionals in whatever activities they conduct. Independence, on the other hand, refers to the need for accountants to have an attitude and exhibit exemplary behavior such as not to compromise their professionalism in carrying out their duties. An accountant has to be seen as independent and a person of high integrity and objectivity. Finally, the code requires that accountants must be professional, in that, they must, not only be skillful, knowledgeable and qualified, but also respected as one who are always current in their knowledge and whom are always trying to provide the best value for money service.

Several cases of misconduct have somehow highlighted the need for self-governance and hence the codes of ethics. Anderson (1985) (Prof. Dr. Mohammad Adam Bakar, Maisarah Mohamed Saat, Ainun Hj. Abd. Majid, 2002) noted that comment made by the past President of the American Institute of Certified Public Accountant who lamented that the professionalism of accountants is on a decline. The Ohio Society of Certified Public Accountants raised a similar concern and warned that unless something is done to arrest the situation, a crisis of confidence will soon emerged (Cenker and Madison (1996).

In Japan, Chou Audit Corporation was charged in court for failing to detect “window dressing” practice of Yamaichi Securities - a stock-broking firm that went bust in 1997. The charge claimed that if the auditor had done their work professionally, they would have detected the fraudulent dividend payment illegally made to fictitious shareholders.

Similar cases were reported in Italy and Malaysia. In the former, two auditors from the ‘big five” were charged in court for failing to detect “bogus profit” which their client company reported thereby inflating their income statement, rendering the balance sheet useless.

In Malaysia, the cases involving Bumiputra Finance and Pan-Electric in the early 1970s demonstrate ethical conflicts faced by accountants. To this Mahfuzah et. al. (1996), reported that Malaysia is experiencing an increase in white-collar crime that accountants have failed to detect. Few accountants have also been sued by their clients – such as Chi Liung Holdings Sdn. Bhd., Bandar Utama City Corporation Sdn. Bhd. and Meton Properties Sdn. Bhd. Accounting firm Johari Abas and Anor and David Low See Keat and Ors were charged by shareholders for their losses because the accountants had failed, as expected, to detect wrongdoings of their client companies in the course of their normal duties. (Prof. Dr. Mohammad Adam Bakar, Maisarah Mohamed Saat, Ainun Hj. Abd. Majid, 2002)

Ethical problems facing accountants are many but mainly related to the tension due to the need to satisfy clients and to protect the interests of the investing public – investors, creditors and regulatory authorities. Brook (1989) noted that accountants are always faced with a dilemma – to satisfy the need of their clients or risk loosing them especially if they are asked to ignore some facts which may put their clients in a disadvantageous position. Higgs and Kapelianis (1999) concurred and suggested that the need to satisfy multiple interest groups do indeed create ethical conflicts amongst accountants. This may be due to the fact that it is difficult to reconcile and therefore satisfy the differing needs and interests of all parties involved.

After discussing in detail the importance of ethics in accounting profession, we are to conclude the topic with this final note that accountancy as a profession is acceptable and relied upon only when ability to exercise professional judgment based on a foundation of ethics; broad but deep technical excellence and strategic awareness are exercised by a professional accountant. Only then general public can trust the integrity of this profession.

Having been gone through each aspect there is to a business, which are the accounting, marketing and management aspects, the question as to how important is it to be ethical in business still pops up in the mind. Is it really necessary to be ethical? Would being partially ethical be the same as being ethical?

If an accountant was threatened by a gang of strangers to modify the accounts in order for them to embezzle a sum of money otherwise his family members would be harmed, worst case scenario they would be murdered, would that make the accountant unethical if he obeys their orders? Or would that make him ethical because he is saving the lives of his family members even though he is committing a criminal breach of trust.

Another scenario would be whereby a person in the marketing field decides to market his products knowing that it has defects. Would that make him unethical because all he wants to do is to make sure that the stocks purchased be sold in order to generate income? He could sell it at a lower price, in order to prevent himself from losing his job.

These are just a few examples that show how people in the business sector have to face when making decisions. Whether or not they make decisions that are ethical or not is not up to us to judge, however we can learn how important it is to be ethical in the business sector. Sometimes, the black and white areas become blurred by our own selfish desires. It is us humans that are the ones that cause ourselves to be in the grey area, having to make difficult decisions at times.

Being ethical is important when in the business sector because most clients would definitely prefer to conduct businesses with a potential partner that is honest and reliable. If the partner is not honest, how then can the client rely on it to carry out businesses without having to face problems dealing with the law? Being ethical would mean having to do things the right way, not having to give in to taking bribes and taking the highway.

If for example, the company has made some mistakes in building a wall that has trespassed the boundaries of its neighbor, the company has a choice of giving a bribe or tear the wall down, rebuild it, face unsatisfied shareholders and possibly a lawsuit. Obviously the 1st choice seems easier, pay the bribe and simply everything is settled. However, being ethical would mean taking the second choice, going through a long, loss making project. It may take a very long time to recover the losses, but at least the company did the right thing.

Having an ethical business partner would also mean that the company is able to set a good reputation with its shareholders, staffs and customers. When customers know that this particular company is ethical in its business conducts, they would prefer to support it. Customers nowadays not only judge the company by the quality of the products sold by the company but also the way the company conducts its business.

Another importance of being ethical in business is that the company would not have to worry about running against the law. When the company has any businesses, it would not have to worry about hiding anything from the law as they are not doing anything unethical, therefore there is nothing to hide and nothing to be afraid of. By being ethical, it would help the managers in having lesser things to worry about. They would not have to worry about where to hide the bribes taken or the embezzlement of the company’s capital. They can then solely focus on the main goal of the company.

When a company sets its goals and visions, there will always be a moral aspect of its vision. It would either be to not accept briberies or to conduct businesses in an ethical way. By setting up a vision as such, it would make staffs be aware of the surrounding that they are working for, in which it is an environment that is against unethical conducts. Staffs who do not adhere to the ethical conducts of the company would be given a few warning letters before being asked to resign. With this in mind, it would then cause staffs to be ethical in their conducts whether it is when they are working or not working. It will cause staffs and shareholders to want to live up to be a company with integrity.

Hence, as a conclusion, it is very important to be ethical in the business sector.

REFERENCES

1. Michalos, 1988

2. Andrew Crane and Dirk Matten, 2007, Business ethics, Oxford, pg 9-11

3. Mega essay in business ethics, 2001-2009, http://www.megaessays.com/viewpaper/62923.html (8-8-2009)

4. Bodo B.S, 1998, Marketing Ethics: an International Perspective, International Thomson Business Press, United Kingdom

5. Donald P. Robin and R. Eric Reidenbach,1987, Social Responsibility, Ethics, and Marketing Strategy: Closing the Gap between Concept and Application, .

6. O. C. Ferrell and Larry G. Gresham, 1985, A Contingency Framework for Understanding Ethical Decision Making in Marketing, .

7. http://www.knowthis.com/principles-of-marketing/what-is-marketing/ethics-in-marketing/ (8-8-2009)

Geoffrey Weed, Why are Ethics Important in Accounting, URL: (5- 8- 2009)

Ethics in Accounting: Encyclopedia of Business and Finance, URL: (5-8-2009)
Ethics of Accounting, URL: (5-8-2009)

Prof. Dr. Mohammad Adam Bakar, Maisarah Mohamed Saat, Ainun Hj. Abd. Majid, 2002, Ethics and The Accounting Profession in Malaysia, URL: (5-8-2009)

Hazala Saeed, Are Ethics Important For Professional Accountants?, URL: (5-8-2009)

13. McNamara, 2008

14. Robert Frederick, 2002, A companion to business ethics, Wiley- Blackwell

15. John Pratt, 2009, Long-term Care, Jones & Bartlett Publishers

16. Hanekom and Thorn hill, 1987, page 163

17. J.Cheminais, G.Van Der Waldt, W.Fox & M.S.Bayat, 1998, The Fundamentals of Public Personnel Management, Juta and Company Limited

18. Lynn Sharp Paine, 1994

19. Carroll, 1995

20. Carroll, 1987

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