All posts by James E. Burroughs, Jr.

Entry #4 The Role of Ethics in Business

            In this blog, the role of ethics in business is reviewed, and the concept of ethics as it relates to business operations will be evaluated.  The blog will discuss the stance that Drucker (1974) took on ethics, and it will discuss Carr’s (1968) perspective regarding the role of ethics in business.  The blog will conclude with this writer’s perspective on personal ethics and business ethics.

     The study of business ethics is not the study of what is legal but of the application of ethics to business decisions (Jennings, 2011).  A simple definition of business operation ethics refers to the code of conduct by a business in reference to the business’s goals and objectives. Therefore, the business operations ethics are defined by the firm’s values, and codes of principles that direct a firm to achieve its own goals.  The business ethics determines what is bad or good for a business depending on the business culture.  Therefore, ethics differentiate between what is good and bad for an organization (Fernando, 2009).

            On the other hand, there are two perspectives from which an organization can look at ethics.  That means there are two schools of thought from which the definition of ethics can be looked.  The first school of thought employs the definition of business ethics in reference to the shareholder focus approach.  In this approach, business operations ethics aims at ensuring that the business operations are made in such a way that they adhere to the interests of the shareholders.  That means the business ethics are mainly aimed at generating profits for the shareholders (Jennings, 2011).

On the other hand, the second school of thought defines business operations using a premium approach, whereby it mainly focuses on the business corporate responsibility.  In respect to this concept, the business ethics are not limited to the interests of the shareholders, but to the interests of all the stakeholders. The business ethics in this case try to strike a balance to the interests of all the stakeholders who include the workers, owners, clients, and suppliers among others.  That means the definition of business ethics depends on individual business; hence, the definition of what is wrong or right depends on the organizational culture of an individual business. According to Gruble (2011), the definition by a business of what is right or wrong depends on “the culture within the company, the presence of a formal professional code of business ethics, the internal system of rewards and recognition, recruitment and human resources practices, the values system, the way management treats its employees, and the flow of the decision-making process.”

Drucker (1974), argues that the management of every organization has two key roles to play, first, remaining focused and accountable for the operations of the businesses, and secondly, being accountable to the whole institution.  The leaders have to ensure smooth running of a business while at the same time guaranteeing that the firm is a responsible corporate entity. Thus, Drucker (1974) tried to make the businesses to view that they have a responsibility to the community. Through the spirit of performance, he required the businesses to display a high degree of integrity through their ethical and moral conduct.  That could be instituted through establishment of strengths, focusing on the results, and working efficiently to ensure that while serving the common good, the needs of the stakeholders are satisfied.

The Drucker (1974) concept of ethics required the managers to view the community to be the responsibility of a business, in so doing; he required the businesses to have a high performance that exhibits a high degree of integrity in their ethics and morality conduct.  That was through paying attention to conduct, results, evaluation of strengths, and working all around to ensure the needs of the stakeholders are satisfied.

Drucker (1974) believed that the management has a key role in ensuring that the ethical concerns of a business operation are achieved.  These are achieved by evaluation of what the managers do, which is judged by what others see.  The leaders have to ensure that their actions are linked to the values of a business.  The values of the businesses include the procedures, assumptions, practices, and policies that must be followed by all the employees of an organization.  It is the leadership that plays a key role in guiding other employees in doing what is right, therefore, resulting in the high performance of an organization.

Presently, through globalization, the world has become more connected and actions of organizations can be analyzed across the globe due to interconnectivity.  Therefore, the ability of an organization to effectively appreciate the concept of social responsibility through ethically appropriate programs is a great tool that can be appreciated across the globe.  It is the role of the leaders to ensure that as firms make profits, a balance of fair trade should be established to guarantee sustainability through ethical principles.

That attitude of leaders to ignore the externalities adversely affects the leadership excellence, and the relationship of an organization with stakeholders; nonetheless, efforts to address the externalities caused by an organization during its operation transforms the challenges into business opportunities.  Thus, Drucker (1974) proposes the importance of focusing on the common good through services to the society that gives the society some privileges.  Presently, leaders are faced with many challenges that require the Wisdom of Solomon for the most applicable solution to be established.  However, despite the diversity of the problems, leaders/ business managers have the responsibility of ensuring that their businesses take care of the community through giving back to the society.  That eventually results to a healthier community that has great benefits to the business operations. Among the benefits to the business operations include healthy, energetic, and productive workforces that enhances the productivity of a business.  Thus, Drucker (1974) proposes an ethical organization is one that is socially responsible and thus guarantees sustainability.

According to Carr (1968), many managers are forced by circumstances while acting in the interest of the shareholders or themselves to deceive in the process of negotiating with government officials, customer, and labor unions or even between departments of the same company.  That is done through misstatement, hiding some facts, by bluffing, or exaggerating, and hence ends up convincing others to follow their proposals.  Denying the business leaders the chance to bluff ends up denying them great business opportunities, and this can result in business losses.  In cases where a leader is constrained, maybe by religious reasons, not to bluff, the organization must come up with strategies to ensure that special ethics are employed to ensure that the leader does not have a guilty conscious.  That eventually justifies the bluff through a game of game strategy. The game of justifying the bluff is played at all levels of the corporate ladder.

The justification for bluffing is that one plays the game only when making the decision that will be most favorable to the business at that particular time.  Therefore, one adheres to Carr’s (1968) business ethics concepts.  The concept of Carr’s (1968) ethical approach can be claimed to be similar to the one employed in the poker analogy where special ethics differ from ethics employed in ideal civilized human relationship because “the game” calls for distrust of the other fellow.  It ignores the claim friendship (Carr, 1968).

There exist many dramatic incidences in the business world, while others refer to them as being unethical, the business world refers to them as the game.  This is most evident in the insurance business where business game players are very common.  Hence, violation of business ethics does not entail violation of business principles.  Another game entails casting illusions aside and playing to win.

The business ethics determines what is bad or good for a business depending on the business culture.  However, there is one school of thought where business operations ethics aims at ensuring that the business operations are made in such a way that they adhere to the interests of the shareholders and whereby business operations ethics mainly focuses on the business corporate responsibility.  Drucker (1974) argues that the leaders have to ensure smooth running of a business while at the same time guaranteeing that the firm is a responsible corporate entity.  Thus, he tried to make the businesses view that they have a responsibility to the community, and that the attitude of leaders to ignore the externalities adversely affects the leadership excellence.  The relationship of an organization with stakeholders drives efforts to address the externalities caused by an organization during its operations and transforms challenges into business opportunities.

While, again, Carr (1968) argues that many managers are forced by circumstances while acting in the interest of the shareholders or themselves to deceive in the process of negotiating with government officials, customers, labor unions, or even between departments of the same company.  Regardless of the argument brought about by either scholar, business operations should be guided by the urgency of being socially responsible in efforts to enhance sustainability.  Goodpaster (2007) refers to corporate “conscience” as a “mindset” that serves as an antidote to the tendency to fixate on narrowly defined operational goals.  Individuals and organizations that exercise principled moral judgment will exhibit traits that can encourage the development of conscience (Smith & Dubbink, 2011).

This blog has provided a look at different perspectives regarding ethics within business operations, but one thing not discussed was personal ethics within business operations.  Is there really a difference between personal ethics and business ethics?  No.  Ethics is not something that one can toggle around based on circumstance.  Either an action or stance is ethical or not.  If one has a personal belief that an action being taken in a business operation is unethical, then that individual cannot place their personal ethical beliefs aside and step into a different room of ethics for business purposes.  One either believes an action or position is ethical or not.  As Jennings (2011) alludes to, ethics in business is not based just on what is legal but also on whether a decision or act is ethical overall.  There is no separation between personal beliefs on ethics and ethical business actions.  An action or inaction is either ethical or not ethical.

References

Carr, A. Z. (1968). Is business bluffing ethical? Harvard Business Review, 46(1), 143-153.

Drucker, P. F. (1974). Management: tasks, responsibilities, practices. New York, NY: Harper & Row.

Fernando, A. C. (2009). Business ethics: An Indian perspective. Panchsheel Park, New Delhi: Pearson Education.

Goodpaster, K. E. 2002. Teaching and learning ethics by the case method. In Bowie, N. (Ed.), The Blackwell guide to business ethics. London: Blackwell.

Gruble, C. (2011). Defining business ethics. Business Ethics Review. Retrieved from http://businessethicsreview.wordpress.com/2011/06/21/defining-business-ethics/

Jennings, M. M. (2011). Business ethics: Case studies and selected readings. (Seventh Edition). Mason, OH: South-Western Cengage Learning.

Smith, J., & Dubbink, W. (2011). Understanding the role of moral principles in business ethics: A Kantian perspective. Business Ethics Quarterly, 21(2), 205-231.

James E. Burroughs, Jr., MBA, Northcentral University, (480) 748-9534.

Entry #3: Is Fannie Mae an Honest Company?

When reviewing the Jennings and Entine (1998) model of eight questions, Fannie Mae cannot be labeled as an honest company.  Fannie Mae refers to the Federal National Mortgage Association (FNMA) which is enterprise sponsored by the United States federal government to grow the stream of mortgage money by forming a secondary mortgage market. Though formed in 1938 during the latter part of the Great Depression, from 1968 to the present, it has been a publicly traded company operating under a congressional charter. Congress directs Fannie Mae to channel its efforts into increasing the availability and affordability of home-ownership for low-, moderate- and middle-income Americans (Investopedia, n.d.).

The firm has not consistently complied with the law, as evidenced by its breach of the securities exchange commission (SEC) rules in their accounting practices, whereby they were dishonest in their practices in an attempt to increase returns. The firm lacked sufficient capital and had incompetent internal controls, and thus ended paying fines worth $125 million (Jennings, 2011). The firm lacks a sense of propriety because the employees used unethical means to earn bonuses and other incentives.

The product claims did not meet the reality, due to the existence of incompetent internal controls. Although the incentives criteria were based on earnings per share capital, in efforts to earn this incentive payout, Fannie Mae had to double the earnings per share capital. In efforts to conceal the unscrupulous deals, the information was not forthcoming as the leaders informed did not share the information with others, even though some employees asked about the credibility of the accounts. The firm’s employees were treated unethically by the top management disregarding facts of impropriety presented to them by other employees.

Based on the fact that the firm was very unethical, it did not care about the third parties either. They were never shown any true respect because they were being used by the top management for its own gain. The firm cannot be claimed to be sufficiently charitable because it used offerings to charities to some members of the congress in order to win favors, and the top management was offered various incentives in return.  Upon negative disclosures being made public, the CEO denied their acknowledgment rather than taking responsibility. And again, whistle blowers about the accounting malpractices were ignored.  For all these reasons and more, Fannie Mae definitely lacks the requirements of what can be considered an honest company.  Therefore, the answer to whether Fannie Mae is an honest company is a resounding – No.

References

Fannie Mae. (n.d.).  In Investopedia.  Retrieved from       http://www.investopedia.com/terms/f/fanniemae.asp

Jennings, M. M. (2011). Business ethics: Case studies and selected readings. (Seventh Edition). Mason, OH: South-Western Cengage Learning.

Jennings, M., & Entine, J. (1998). Business with a soul: A Reexamination of what counts in business ethics. Hamline Journal Of Public Law & Policy20(1), 1-88

James E. Burroughs, Jr., MBA, Northcentral University, (480) 748-9534.

Entry #2: Jennings and Entine 8 Questions vs. Traditional Measures of Social Responsibility

Jennings and Entine, (1998) note that there are eight questions that should be answered about a company to determine the character of its soul.  A comparison between these eight questions and the traditional measures of social responsibility shows a notable difference.  The eight questions are designed for a business to run a broad assessment of whether they operate in an honest and ethical manner; whereas, the traditional measures of social responsibility are focused on the individual and their honesty and integrity as an individual. The standard of measurement for the Jennings and Entine, (1998) eight questions on whether a company is socially responsible is based on service to its shareholders which does not consider the traditional measures of social responsibility.  The traditional measures require a morality component that the eight questions do not include.  Social responsibility is really an act of individuals and their choices to “do good things”.  As Friedman (1970) wrote, a company has a social responsibility to increase profits.  A company has primary responsibility to its shareholders, with a secondary focus to its customers and its employees.

Review the eight questions yourself and compare them to what might be considered traditional measures of social responsibility.  Here are the eight questions:

1.      Does the company comply with the law?

Ethical firms are required to conform by the law; therefore, each decision made should be aligned to the legal framework guiding the industry.  Therefore, complying with the law is an indication of a firm being ethical.  However, some firms do not comply with the law. Acting against the law is unethical and certainly not socially responsible; malpractices and acceptance of bribes are thus unethical (Gruble, 2011).

2.      Does the company have a sense of propriety? 

Ethics require firms to have a sense of propriety. Ethical firms need to be concerned about the welfare of the society and should not use their power for greedy purposes. Propriety differs from law compliance. Propriety revolves around giving back to the community.  Most firms do not have a genuine sense of propriety but rather a desire to garner goodwill within the community.

3.      How honestly do product claims match with reality? 

Ethically, firms are required to be honest about products; however, due to greediness and selfishness of the shareholders, many product claims do not meet the reality. Firms give false information about the composition of raw materials used and sometimes they may offer faulty products to consumers in efforts to earn revenue unethically.

4.      How forthcoming is the company with information? 

Most firms do not disclose much information to the public. The information provided is vague and incomplete, and thus, it cannot be used as a reliable source of information. They offer information which suites their interests and are not honest to the public on sensitive information.

5.      How does the company treat its employees?

Most employees are treated fairly but many are not. Some are offered meager wages, overworked, and work in unhealthy working conditions. For instance, if a firm hires foreign nationals and there is huge wage difference between the wages of the locals and the wages of the foreign nationals, even when employees are performing similar tasks, then that is a form of discrimination which is common in developing economies where corruption is widespread (Fernando, 2009).

6.      How does the company handle third-party ethics issues?

Third parties are often treated unethically due to some firms being focused on the firm’s own interests. For instance, their wages do not conform to the international standards or the quality of most products is compromised while the suppliers are paid meager pay for their supplies or sometimes, they also alter their financial statements in order to avoid paying taxes.

7.      How charitable is the company?

Although there are many firms that are unethical, many firms are genuinely charitable. Those that are not genuinely charitable pretend to be charitable in efforts to conceal their dishonest practices. Their malpractices revolve around non-payment of state taxes, overworking employees, and offering products at unusual high prices, among others.

8.      How does the company react when faced with negative disclosures?

Upon being faced with the negative disclosures, many companies end up refuting the claims rather than accepting responsibility. However, there are ethical firms that respond appropriately, as was revealed by Toyota when they realized they had manufactured faulty vehicles.

References

Fernando, A. C. (2009). Business ethics: An Indian perspective. Panchsheel Park, New Delhi: Pearson Education.

Friedman, M. (1970, September). The Social responsibility of business is to increase its profits. The New York Times Magazine. pp. 32-33, 122-124.

Gruble, C. (2011). Defining business ethics. Business Ethics Review. Retrieved from http://businessethicsreview.wordpress.com/2011/06/21/defining-business-ethics/

Jennings, M., & Entine, J. (1998). Business with a soul: A Reexamination of what counts in business ethics. Hamline Journal Of Public Law & Policy20(1), 1-88.

James E. Burroughs, Jr., MBA, Northcentral University, (480) 748-9534.

Entry #1: Contrasting the Views of Jennings and Entine with those of Friedman and Freeman

The main agenda that keeps business running for an indefinite period of time is the ability to focus on social responsibility and business ethics; however, most businesses fail to recognize this critical point. Jennings and Entine (1998) agree that most business owners perceive the corporate responsibility to be focused on the product brand names. That means it is the product that has the role of being socially responsible rather than the firm. Among the brands that are listed by Jennings and Entine (1998) as being socially responsible include Ben & Jerry’s Homemade Ice Cream, The Body Shop International Cosmetics, and Nike, among others. These companies, all of which have engaged in marketing campaigns to promote their social consciousness, represent a coterie of’60 entrepreneurial companies with charismatic founders who have grown niche businesses into multi-national corporations. Their companies and products are associated with the labels “green” and “socially responsible” (Jennings, 2011).

Friedman defines the social responsibility of a company as being socially responsible for its actions to the community on an individual basis. Thus, Friedman tries to elaborate that responsibilities are only assigned to human beings. Therefore, if a business is to have social responsibilities, it should be assumed to be an artificial person. Otherwise, efforts to define a business to have social responsibilities should be by an in depth identification of the doctrine of social responsibility. Thus, “the first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies and for whom” (Jennings, 2011).

Freeman’s argument is similar to that of Friedman in respect to social responsibility. However, Freeman believes that the stakeholders have a role to play in ensuring that firms perform their social responsibilities. Each stakeholder has a role to play in fulfillment of social responsibilities, but leaving the social responsibility to the function of the shareholders results to the social responsibility being a function of profits (Friedman, 1970). This is evidenced where oil companies could opt to pay fines for releasing wastes into water bodies provided they consider that economically reasonable and thus such firms claim to be socially responsible. Jennings and Entine (1998) view that the stakeholders have such great power that they can do whatever they perceive to be the definition of social responsibilities, according to their own ethics.

References

Friedman, M. (1970, September). The Social responsibility of business is to increase its profits. The New York Times Magazine. pp. 32-33, 122-124.

Jennings, M. M. (2011). Business ethics: Case studies and selected readings. (Seventh Edition). Mason, OH: South-Western Cengage Learning.

Jennings, M., & Entine, J. (1998). Business with a soul: A Reexamination of what counts in business ethics. Hamline Journal Of Public Law & Policy20(1), 1-88.

James E. Burroughs, Jr., MBA, Northcentral University, (480) 478-9534.