Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can choose to follow to gain public approval.
Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. These kinds of practices ensure the public receives fair treatment. The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on "social issues" was a hallmark of the decade. Since that time period, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.
Business ethics are meant to ensure a certain level of trust between consumers and corporations, guaranteeing the public fair and equal treatment. Here are a few examples of business ethics at work as corporations attempt to balance marketing and social responsibility. For example, Company XYZ sells cereals with all-natural ingredients. The marketing department wants to use the all-natural ingredients as a selling point, but it must temper enthusiasm for the product versus the laws that govern labeling practices. Some competitors' advertisements tout high-fiber cereals that have the potential to reduce the risk of some types of cancer. The cereal company in question wants to gain more market share, but the marketing department cannot make dubious health claims on cereal boxes without the risk of litigation and fines. Even though competitors with larger market shares of the cereal industry use shady labeling practices, that doesn't mean every manufacturer should engage in unethical behavior. For another example, consider the matter of quality control for a company that manufactures electronic components for computer servers. These components must ship on time, or the manufacturer of the parts risks losing a lucrative contract. The quality-control department discovers a possible defect, and every component in one shipment faces checks. Unfortunately, the checks may take too long, and the window for on-time shipping could pass, which could delay the customer's product release. The quality-control department can ship the parts, hoping that not all of them are defective, or delay the shipment and test everything. If the parts are defective, the company that buys the components might face a firestorm of consumer backlash, which may lead the customer to seek a more reliable supplier. When it comes to preventing unethical behavior and repairing its negative side effects, companies often look to managers and employees to report any incidences they observe or experience. However, barriers within the company culture itself (such as fear of retaliation for reporting misconduct) can prevent this from happening. Published by the Ethics & Compliance Initiative (ECI), the Global Business Ethics Survey of 2021 surveyed over 14,000 employees in 10 countries about different types of misconduct they observed in the workplace. 49% of the employees surveyed said they had observed misconduct, with 22% saying they had observed behavior they would categorize as abusive. 86% of employees said they reported the misconduct they observed. When questioned if they had experienced retaliation for reporting, a whopping 79% said they had been retaliated against. Indeed, fear of retaliation is one of the major reasons employees cite for not reporting unethical behavior in the workplace. ECI says companies should work toward improving their corporate culture by reinforcing the idea that reporting suspected misconduct is beneficial to the company and acknowledging and rewarding the employee's courage for making the report.
Business ethics concerns ethical dilemmas or controversial issues faced by a company. Often, business ethics involve a system of practices and procedures that help build trust with the consumer. On one level, some business ethics are embedded in the law, such as minimum wage, insider trading restrictions, and environmental regulations. On the other hand, business ethics can be influenced by management behavior, with wide-ranging effects across the company.
Consider an employee who is told in a meeting that the company will face an earnings shortfall for the quarter. This employee also owns shares in the firm. It would be unethical for the employee to sell their shares since they would be subject to insider information. Alternatively, if two large competitors came together to gain an unfair advantage, such as controlling prices in a given market, this would raise serious ethical concerns.
Business ethics are important because they have lasting implications on several levels. With increased investor awareness on environmental, social, and governance issues, a company's reputation is at stake. For instance, if a company partakes in unethical practices, such as poor customer privacy procedures and protections, it could result in a data breach. This, in turn, may lead to a significant loss of customers, erosion of trust, less competitive hires, and share price declines.
Ethical issues in the financial services industry affect everyone, because even if you don’t work in the field, you’re a consumer of the services. That was the message of Ronald F. Duska and James A. Mitchell in their presentation at the Oct. 24, 2006, meeting of the Business and Organizational Ethics Partnership. The public seems to have the perception that the financial services sector is more unethical than other areas of business, Mitchell began. For the past five years, he has been Executive Fellow-Leadership at the Center for Ethical Business Cultures, which is affiliated with the University of St. Thomas College of Business. He assists business leaders in developing ethical and profitable cultures. This misperception persists for several reasons, Mitchell said. First of all, the industry itself is quite large. It encompasses banks, securities firms, insurance companies, mutual fund organizations, investment banks, pensions funds, mortgage lenders—any company doing business in the financial arena. Because of its vast size, the industry tends to garner lots of headlines, many of which tout its ethical lapses. “This business that we’re talking about is really big. It is, to be precise, $50 trillion in assets. It’s growing 8 percent a year, which is more than twice as fast as the gross domestic product,” Mitchell said. “It’s also highly profitable. The financial services sector of the S&P 500 represents 20 percent of this index’s market capitalization. These companies are making a lot of money serving you.” So, he theorized, with “trillions of dollars of assets, billions of transactions every year—every day probably—when a small percentage of them is inappropriate, the absolute numbers are still pretty big.” The industry is also highly regulated, so it’s likely that a higher percentage of these bad transactions are identified and reported, perhaps more so than in other less regulated industries. But ethical lapses do occur, and Duska discussed five reasons why these misdeeds may happen. He holds the Charles Lamont Post Chair of Ethics and the Professions at The American College. The Post Chair supports research and studies of the social responsibilities and ethical challenges facing the financial services industry. 1) Self-interest sometimes morphs into greed and selfishness, which is unchecked self-interest at the expense of someone else. This greed becomes a kind of accumulation fever. “If you accumulate for the sake of accumulation, accumulation becomes the end, and if accumulation is the end, there’s no place to stop,” he said. The focus shifts from the long-term to the short-term, with a big emphasis on profit maximization. For example, swaps (where two communication companies agree to exchange the right to use excess bandwidth on their networks) fall into this category. Each company recognizes the income generated in the quarter earned and defers the expenses through capitalizing them as an asset and logging the cost as a recognized expense over time, resulting in an inflated bottom line. This is what happened at Qwest during the first three quarters of 2001, when the company was selling $870 million of capacity, while at the same time buying $868 million of capacity. These swaps appeared to be round-trip transactions, which served no purpose other than to inflate Qwest’s revenues, Duska said. “Companies were making money out of their finance department—not from selling products, not from doing what the company did, not from fulfilling the company’s mission, but from playing around with its asset mix,” he said. 2) Some people suffer from stunted moral development: “I think this happens in three areas: the failure to be taught, the failure to look beyond one’s own perspective, and the lack of proper mentoring,” Duska said. Business schools, he said, too often reduce everything to an economic entity. “They do this by saying the fundamental purpose of a business is to make money, maximize profit, or the really jazzy words ‘maximize shareholder value,’ or something like that. And it never gets questioned,” he said. “Now if the fundamental purpose never gets questioned, the ethics never get questioned, because the fundamental purpose of something gives you the reason for its existence. It tells you whether you're doing it well or not. It's the ultimate ethical question: What's your purpose?” 3) Some people equate moral behavior with legal behavior, disregarding the fact that even though an action may not be illegal, it still may not be moral. “You ought to remember that the reason for all laws is that the moral agreement begins to break down, and the way to get other people in line is to legislate so that we can stipulate punishments,” Duska said. Yet some people contend that the only requirement is to obey the law. They tend to ignore the spirit of the law in only following the letter of the law. For example, IRS regulations repeatedly single out actions with “no legitimate business purpose” (like swaps.) “If you are doing things with no legitimate business purpose in order to avoid taxation, what are you doing? You’re violating the spirit, are you not? You’re staying within the letter, but there’s no purpose there except to get you around the law,” he said. 4) Professional duty can conflict with company demands. For example, a faulty reward system can induce unethical behavior. “A purely self-interested agent would choose that course of action which contains the highest returns to himself or herself,” he said. For example, consider the misguided practice of selling indexed annuities to the elderly. If a company is paying a high commission for that product, say 15 percent, versus a lower commission for a more appropriate product, say 3 percent, a salesperson may disregard the needs of the client and/or assume that the company supports this product and its applicability by its willingness to pay five fold the compensation. “Sooner or later, people are going to give in to that temptation. The purely self-interested agent is just responding to the reward system that is in place,” Duska said. “You need to take a look at what you are rewarding.” In general, organizations get exactly what they reward. They just don’t realize that their rewards structures are encouraging dysfunctional or counter-productive behavior or turn a blind eye to the outcome 5) Individual responsibility can wither under the demands of the client. Sometimes the push to act unethically comes from the client. How many people expect their accountants to pad their expenses where possible? How many clients expect their insurance agents to falsify their applications or claims? “That’s the temptation—you like your client, you’ve gotten to know your client, you really want to help your client out—that’s just another conflicting loyalty,” Duska said. Mitchell concluded the presentation with several suggestions for improvements in the industry to encourage more ethical behavior. “My experience [in the financial services industry] is that people who do business are, for the most part, highly ethical people trying to do the right thing most of the time. Most of them are trying to help their clients achieve their financial objectives,” he said. “But how could this be better, because clearly, even if I’m right, there are still a lot of issues and problems in the business?” First of all, consumers need to be better informed. “It is your responsibility to take control of your own financial security,” he said, which doesn’t mean you need to know everything about the product you are buying in advance, but “you should read enough to know what some of the right questions are to ask.” Ask those insightful questions of an advisor whom you know, trust, and who has the proper credentials, if applicable. Other suggestions included: incentive compensation better aligned with customers’ interests, rather than agents’ more industry trade associations supporting ethics initiatives the Center for Ethics in Financial Services growing in influence and impact “One of the things you don’t see is more regulation. It’s not on my list,” Mitchell concluded. Anne Federwisch is a freelance journalist. |
The demands of executive life often lead to unethical behavior. which of the following is true?
Postagens relacionadas
direito autoral © 2024 mesadeestudo Inc.
