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Ethical Issues in Business

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Ethical Issues in Business

  1. 1. Business Ethics and Issues
  2. 2. Ethics Ethics is a branch of philosophy which seeks to find answers about the moral conceptslike bad, good, evil, right, wrong, etc. According to OEC (2011) ethic is defined as “a moralphilosophy which is concerned with what is right or wrong, good or bad, fair or unfair,responsible or irresponsible, obligatory or permissible, praiseworthy or blameworthy”. Manyscholars have associated it with the various feelings and emotions like guilt, indignation,empathy etc. The ethics deals in the way of doing things and with the generalized matters relatedto the public policies and the personalized issues. It is based on the social practices and laws,religious matters and conscience. These social practices give strength to this branch ofphilosophy. It seems to be very general matter but due to its connection to various social issues,it is often termed to be very complex and difficult to employ. With the passage of time, many companies have started giving importance to thecorporate ethics and their responsibility towards the society and communities. Today, manybusinesses have gained lot of reputation and recognition by being in business and following themorals when conducting their business activities while many others have lost their reputationonly because of bad business practices. To many, business is an economic activity to maximizetheir profits and the main focus for them behind this activity is money. There is nothing wrongwith the money itself but the some businesses acquire money and gain profits matters most andtheir manner raises several questions related to the ethical behavior.Business Ethics Business ethics strives to understand whether or not a specific business practice ismorally and ethically acceptable. The American Heritage Dictionary has defined business ethics
  3. 3. as “the philosophy of human conduct with the emphasis on determining right and wrong. Itspecifies the rules or standards governing the conduct of the members of a profession” (Ferrell etal, 2009). It is necessary for the entrepreneurs to follow good business ethics for every part of theirbusiness. There are several global entities, that offer brands to the public for general andspecialized use, are engaged in the bad business practices and many of them have been fined bythe related authorities which accounts for millions. The companies are fined due to their failureto adhere to the business ethics and ethical laws. The main problem with these companies is theamount of money they generate is much higher than the fines imposed on them. This outweighsthe opportunity costs associated in their business and they happily pays off all the fines. It is therefore necessary for the authorities to force business ethics over all the businessentities and their business units. Business ethics can remove the minor issues like the lower wagerates, work force exploitation as well as the big issues like the children in sweat shops makingsneakers or footballs for the large companies. The above discussed implications explain some ofthe important facts related to the business ethics. The importance of ethical business practices isforced by many local, regional and state level governments to the companies.Importance of Business Ethics Being a good person or a person of values, in one’s own opinion, being a person of goodethical and moral values is not enough in the today’s business scenarios and it is not helpful tohandle the issues related to the ethics that may arise in the organizations. It is very important forthe companies to understand and recognize the relationship between the decision related to ethicsand the legal aspects of business organizations.
  4. 4. The importance of business ethics was first recognized, during the 1960’s, when thesocial issues in business rise to large extent in the American societies. There were increasedissues related to the public safety, and ecological problems related to the pollution, wastemanagement system, disposing the toxic wastes etc. in these societies. The then president ofAmerica, John F. Kennedy, gave a special message to the general public and the companies tosafeguard the consumer rights of safety, the right to be informed and right to choose, which iswidely known as consumer bill of rights. In the late nineties, business ethics became an emergingfield in the societies. Lot of emphasis on this field was placed by the theologians andphilosophers who suggested that some of the principles of ethics are applicable to businessactivities. This gave rise to the academic and research writings about Corporate SocialResponsibility of a company (Ferrell et al, 2009). The importance of ethical practices can be recognized by considering the fact there is aninternational Federation Sentencing Guidelines for Organizations (FSGO) which was establishedin late 90’s to set the standards and code of conduct for the companies working in the businessenvironments. There are ten basis guidelines for the organizations specified by FSGO whichmust be followed by the companies in order to remain ethical in the business (Ethics ResourceCenter, 2005).Ethical Issues in Business Due to increased emphasis on the business ethics over last three decades, this field issuffering and is troubled by the lack of proper directions and is struck, just like Alice in thewonderland, in the issues like logic, reasons etc. Much of the research emphasis is given on thetwo basis approaches to understand the relationship between ethics and the business practices.
  5. 5. These approaches used by the researchers are termed as normative approach and empiricalapproach (Donaldson and Dunfee, 1994). The past conception of the companies about the ethical issues in business was related tothe administration of rules, regulations in the organizations and making sure that the people arecomplying with these rules or adhere to the standards set by the organizations to stay ethical.This conception is now nowhere implemented, today, people from the top management level andthe business owners have understood that this concept of ethical issues in business is far superiorthan handling the rules and regulations and their effective implementation. There are wide ranges of issues related to the business ethics currently observed by themarket analysts. According to the online report published by UK Energy Saving Website (2011),today, there is wide range of areas listed under the head of ethical issues in business. Theseissues can be of varying nature ranging from professional ethics which may include the moralduties of engineers, doctors, and architects, lawyers as well as the employee right issues. Theissues related to employee rights may further be divided into various categories like issuesrelated to wages, safe working environment, non-discriminatory policies etc. The functionalareas of business like marketing, management, accounts etc. also reported to have ethicalbusiness issues. Due to the varying natures of these issues, it is difficult to conclude whether or not anycompany or a supply chain partner is adhering to the ethical principles. In the current businessenvironment, the issues like fairness, justice and honesty are the main issues that are posingcomplex dilemma to the businesses. Any wrong or biased decision can have a profound impacton the goodwill of the company as well as its market position. To deal with such issues, many
  6. 6. companies follow the ethical guidelines so that they “do not lose sight on the essential value offairness. However, if they choose to use legality and profitability as their measurement indetermining what is right from wrong then business ethics will surely become irrelevant” (CFA,2009).Business Function Ethics: Marketing Ethics Marketing is among the most crucial functions of a business in an organization. Thefunction of this business unit is to provide understanding about the four basic aspects of abusiness- Product, Price, Place and Promotion. It provides interface to the management relatednot only to the customers but the other related parties like media, investors, distribution system,supply chain partners, legal framework, as well as others. The importance of marketing ethics isvital to the organization due to the diverse nature of stakeholders associated with this businessfunction (Ferrell, 2007). While Ethic deals in the determination and study of what is right, wrong, good, evil etc.,for marketing managers, workplace ethics deals with the rules, regulations, principles forgoverning the code of conduct of the members of an organization (Ferrell, 2005). Therefore,ethical marketing can be defined as “practices that emphasize transparent, trustworthy, andresponsible personal and organizational marketing policies and actions that exhibit integrity aswell as fairness to consumers and other stakeholders” based on normative perspective (Murphyet al, 2005). The concept of marketing ethic emphasizes on the practices and standards that aredeemed acceptable in the marketing conduct. These operative standards are usually determinedby the stakeholders and the organization as a whole which is responsible for the marketing
  7. 7. related activities. The marketing team is required to adhere to these standards and make sure thatthese prescribed standards are in fit with the societal needs and expectations. According toFerrell (2005) the ethical marketing practices are most significant in establishing and retaininglong term relationship, and development of customer trust. The nature of marketing is verydiverse which in turn started large numbers of ethical issues incurred by the businesses today.Key Issues in Marketing Ethics As the 21st century started, the companies and business started to give more importanceto the business ethics due to the various scandals emerge early this century related to Enron,Tyco, and Sunbeam etc. most of the business scandals were related to the accounting frauds orsupply chain management. During this phase, the journal of marketing consisted of wide range ofarticles that were associated not only to ethics but especially to the issues related to businessethics (Klein, Smith and John, 2004). The marketing ethical issues are defined by the stakeholders and the company andtherefore these issues must be resolved in the timely manner to improve the level of trust andbuild long term relationships with these people. Murphy et al (2005) suggested that due to thenature of marketing issues, the marketers are sometimes need to deal with the choices that aresubjective and moral in nature requiring them make decision regarding the moral standards. Due to these ethical standards, the companies and their stakeholders must conform to themoral principles. Many companies have started fair trade system to operate ethically with theirsupply chain partners. For example, the star bucks has started the fair trade system to engagewith their farmers by offering right prices and maintaining business relations as well as directpurchasing options (Starbucks, 2011). When applying ethics to the marketing practices some
  8. 8. factors are important to be considered. First, the marketers should understand the objectives ofthe company. Second, they must balance the marketing practices with the objectives of thecompany. The balancing may involve compromise at any point of business or tradeoffs (Ferrell,2007). Most of the marketing ethics are related to the fairness, justice and honesty as well asconflict of interest, fraud, discrimination and privacy etc. Talking about the global businesspractices, many countries trade departments have established regulatory groups like betterbusiness bureau etc that mainly deals with the issues related to the ethical marketing. Thegovernments have also developed trade commissions that forces laws related to the consumerprotection. These government regulated bodies includes Federal Trade Commission, Food andDrug Administration etc. these organizations strives to help the consumer in identifying fraud,deception and public safety. These and many other related agencies focus on identifying themajor issues that are of ethical concern for the marketers. Examples of these issues includes thecommunication practices adopted for marketing, wrong advertising, hidden pricing, wronginformation presentation in the internal and external communication system, misleading ads, etc.to deceive the customers (Ferrell, 2007; Leclair, Ferrell and Fraedrich, 1998). A lot of progress is been made in the field of ethical marketing based on research andtheory. In order to obtain promising results various codes of conducts have been developed bythe organizations like American Marketing Association, Marketing Research Association etc.which has elevated the marketing practices. Moreover, many organizations have developed codeof ethics which helps them address various marketing practices related ethical risk areas.
  9. 9. ReferencesCFA (2009) Ethical Issues in Business and the Importance of Ethics, retrieved on July 29, 2011from http://cfagbata.com/ethical-issues-in-business-and-the-importance-of-ethics/Donaldson, T. and Dunfee, T. W. (1994) Toward a unified conception of business ethics:integrative social contracts theory, The Academy of Management Review, Vol. 19, No. 2, pp.252-284Ethics Resource Center (2005) Federal Sentencing Guidelines for the organization, ethics org, retrieved on July 29, 2011 from http://www.ethics.org/resource/federal-sentencing-guidelinesFerrell, O.C. (2005). A Framework for Understanding Organizational Ethics. In Business Ethics: New Challenges for Business Schools and Corporate Leaders. R.A. Peterson and O.C. Ferrell, (eds.) Armonk, New York: M.E. Sharpe, 3-17.Ferrell, O. C. (2007) nature and scope of marketing ethics. In G. Gundlach, L. Block & W.Wilkie (Eds), Explorations of marketing in society, Mason, OH: Texere/ Thomson SouthWesternFerrell, O. C., Fraedrich, J. and Ferrell, L. (2009) Business Ethics: Ethical Decision Making andCases, 7th edition, USA: South Western Cengage LearningKlein, J.G., N.C. and John A. Smith. (2004). Why We Boycott: Consumer Motivations for Boycott Participation. Journal of Marketing, 68 (3): 92-110.LeClair, D.T., O.C. Ferrell, and J.P. Fraedrich. (1998). Integrity Management: A Guide to Managing Legal and Ethical Issues in the Workplace. Tampa, Florida: University of Tampa Press.Murphy, P.E., G.R. Laczniak, N.E. Bowie, and T.A. Klein. (2005). Ethical Marketing, UpperSaddle River, New Jersey: Pearson Prentice-Hall.OEC (2011) Defining Ethics and Morality, OEC org, retrieved on July 29, 2011 fromhttp://www.onlineethics.org/Education/precollege/scienceclass/sectone/chapt2.aspxUK Energy Saving (2011) Ethical Issues in Business, retrieved on July 29, 2011 fromhttp://www.uk-energy-saving.com/ethical-issues-in-business.htmlStarbucks (2011) Fair Trade, retrieved on July 29, 2011 fromhttp://www.starbucks.com/aboutus/StarbucksAndFairTrade.pdf
  10. 10. Further Reading 1. Business Ethics Cases: http://www.scu.edu/ethics/practicing/focusareas/cases.cfm?fam=BUSI 2. Performance Appraisal case: http://www.scu.edu/ethics/dialogue/candc/cases/performance.html 3. Applied Ethics Resources: http://www.ethicsweb.ca/resources/business/topics.html 4. Business Ethics: http://en.wikipedia.org/wiki/Business_ethics 5. Cutting-edge issues in business ethics: continental challenges to tradition: http://books.google.com/books?id=RsBfMI6di8gC&pg=PA87#v=onepage&q&f=false 6. A companion to business ethics: http://books.google.com/books?id=PDXVnfyKHBIC&pg=PA178#v=onepage&q&f=false 7. Harvard Business Reviews: Business Ethics: http://www.businessweek.com/managing/company/business_ethics/ 8. Business Ethics and Stakeholder Analysis: http://www53.homepage.villanova.edu/james.borden/vsb1001/Goodpaster.pdf 9. Ethical Decision Making http://www.scu.edu/ethics/practicing/decision/ 10. Importance of Ethics in Business
  11. 11. http://www.accountantnextdoor.com/importance-of-business-ethics-importance-of-ethics-in-business-investment/11. The Critical Importance of Business Ethics For Effective Leadershiphttp://www.businessexpertwebinars.com/content/view/471/29/12. Business Ethics Manualhttp://www.trade.gov/goodgovernance/adobe/bem_manual.pdf

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