Why Businesses Should Behave Ethically

Why should businesses behave ethically?

            In today’s scandal ridden world there are important reasons why businesses should behave ethically. According to the American Management Association, one of those reasons is that businesses need to protect their reputation, along with their brand.  In addition, there is a need to do what is right. These conclusions emphasize the fact that business ethics are not just about the bottom-line; there are also moral implications for business professionals.  Even though doing what is right might be challenging when unrealistic demands are placed on corporations, it is expected that ethical behavior will be highly more scrutinized than ever by the year 2015. Corporate Social Responsibility is playing a key role in the shift of expectations. Management is also key in the process of promoting and supporting a culture of ethics: “leaders support and model ethical behavior.”

References

Business Ethics Today and Tomorrow. (2014, May 21). Retrieved December 11, 2014, from http://www.amanet.org/training/articles/Business-Ethics-Today-and-Tomorrow.aspx

Corporate Social Responsibility

            One of the questions that needed answering in the earlier stages of this blog was: What is an organization’s responsibility to their clients and the community?  The correct terminology is Corporate Social Responsibility (CSR).  Daft and Marcic (2015) define CSR as “management’s obligation to make choices and take actions that will contribute to the welfare and interests of society, not just the organization.” While organizations think about their services and the bottom dollar, they must also have an awareness of how their practices will impact the communities that they serve, whether intentionally or unintentionally. Even though this sounds simple enough, it is actually quite difficult to achieve because individuals have different ideas and beliefs as to what constitutes social welfare. Furthermore, social responsibility encompasses many different issues, many of which are unclear as to what constitutes right or wrong.  This leaves us with many questions about the rightness or wrongness of certain corporate actions.  According to Newman and Fuqua (2006) Moral responsibleness requires not only that the goals and objectives of the organization are moral ones, but also that broad questions of impact, both intended and unintended, be raised and considered.

For example, as observed by Daft and Marcic (2015), in recent years General Motors, Kmart, and Lehman Brothers all filed for bankruptcy in order to avoid paying the mounting debt and financial responsibilities to their suppliers, labor unions, and competitors. These corporations all continue their businesses and are making profits.  Are these actions considered to be right or wrong?  Some would suggest that this is unethical and that they should be held accountable. Others would argue that if they continue to be in business, they keep people employed and the economy going. These situations are more complex than can be easily understood or defined. Additionally, evaluating socially responsible behavior can be difficult to do. The model used for evaluating corporate social responsibility focuses on four primary areas:

• Economic Responsibility-produces the goods and services that society wants and maximizes profits for its owners and shareholders.
• Legal-what society deems as important with respect to appropriate corporate behavior.
• Ethical-behaviors that are not necessarily codified into law, and that individuals should strive for. These might not necessarily serve corporate economic interests.
• Discretionary-strictly voluntary and guided by a company’s desire to make social contributions not mandated be economics, law or ethics.

Organizations rely on communities to accomplish their objectives. They are comprised of people who should strive to develop and achieve the greater social good. Newman and Fuqua (2006) made two interesting observations about the morality of an organization:

1. Moral organizations include individuals who are striving to lead moral lives personally and at work.
2. Community standards are extremely important in the workplace.

As explained by Daft and Marcic (2015), most managers are realizing the importance of paying attention to ethics and CSR. In this era of technology, hiding bad behavior is becoming increasingly more difficult to achieve. Additionally, it has become advantageous for corporations to focus on being socially responsible. One of the major concerns of CSR is its cost effectiveness. Sustaining social responsibility can be more costly for corporations. Even though it is still unclear, studies have suggested that there is a positive correlation between ethical behaviors, social responsibility and firm financial performance.  Integrity and trust are essential elements for an organization to attain. This is not easily accomplished and ultimately, corporations are realizing that obtaining the trust of its consumers outweigh the costs.

For a better understanding of Corporate Social Responsibility check out this video:

References:

Daft, R., & Marcic, D. (2015). Understanding management (9e.ed.). Cengage Learning.

Newman, J. L., & Fuqua, D. R. (2006). What does it profit an organization if it gains the whole world and loses its own soul? Consulting Psychology Journal: Practice And Research, 58(1), 13-22. doi:10.1037/1065-9293.58.1.13