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Management ethics

Management Ethics

Ethics in Business

Introduction

The overall success of a company in today?s market is dependent on a variety of factors. The company?s product line, the quality of its employees, the proficiency with which it accomplishes its business goals, and a host of other technical factors determine whether or not a company survives in our modern economy. Of growing importance, however, is the moral and ethical character of the workforce that a company employs. Furthermore, it is becoming increasingly evident that an organization that fails to establish a strict standard for ethical conduct leaves itself vulnerable to internal corruption that could compromise its future. In order to explore this growing aspect of the business world, an overview of the nature of ethics is presented, followed by techniques used to foster ethics in the workplace and the resulting benefits. Finally, the recent scandals at Enron and Tyco will be discussed to illustrate unethical business practices and the resultant effects on the economy.

Overview of Ethics

In order to properly discuss the increasing importance of ethics in a company, it is necessary to look at the nature of ethics and how it applies to behaviour in the workplace. Ethics are described as ?the principles of conduct governing an individual or a group? (Dessler 71). In a workplace context, ethics can also refer to the standards used to decide conduct, which also involve the question of morality. An ethical decision will always have the person making the decision asking whether he is going against society?s accepted norms of behaviour. The law is another important factor when making an ethical/unethical decision and at times an action may be legal but unethical, while in other instances a law must be broken in order to ?do the right thing?. Also, the ethics that a person follows will be largely determined by that individual?s own standards, which are formed throughout his/her life. It is up to the company or organization, however, to shape the ethical culture of its employees, and that responsibility rests with those who wield the most power, namely management. Managers plan, control, lead and organize within a company and therefore they are the most directly responsible for its welfare. They also set an example to the rest of the workforce as to what exactly constitutes ethical behaviour. If there is an absence of moral integrity in the higher levels of management, subordinates may feel more inclined to perform unethically as well. Despite this, ethical practices are important in all levels of an organization, and the various factors mentioned that affect ethical decision-making must be taken into account.

Fostering Ethics and the Resulting Benefits

The realization of the benefits brought by solid work ethics have prompted the creation of organizations that encourage and monitor ethical corporate behaviour, along with several techniques to help foster ethics within a corporation. As business ethics becomes a growing concern for individuals both within and outside of the organization (i.e. stakeholders), a wide spread effort has been made in the development of organizations to monitor business ethics across the globe. The Centre For Business Ethics at the University of St. Thomas is an example of such an organization. Its goal is to ? heighten awareness of the effects of corporate and individual actions upon all stakeholders, including the more marginal members of our local and international community who have less access to power and less voice than many other citizens? (Fullerton). The organization exists to help business leaders and employees in general to make the right ethical decisions within the workplace. Aside from external organizations, however, the most effective methods to foster ethics in an organization come from within the organization itself. The most influential individuals capable of fostering ethics are most likely to be top-level management, since they set out the ethical standards for the entire corporation. Top management must make clear what constitutes ethical behaviour and what the punishment for not adhering to such practices entails. Management should establish required operating values and behaviours, develop awareness and sensitivity to ethical issues, and integrate ethical guidelines into decision-making (Dean 286). One way a company can do this is to formalize its ethical standards by providing a code of conduct, i.e. ?a formal written statement of the values and ethical standards that guide the firm?s actions? (Griffen 103). By providing employees with a structured guideline detailing what the moral and ethical standards are, the employees will know exactly what practices are outside the bounds of the organization?s ethical code. Another method of fostering ethics involves providing employees with support in making ethical decisions. The idea behind this practice is to provide employees with the tools and training needed to make the right decisions when faced with ethical dilemmas. Companies that have adopted this practice have even gone as far as offering employees courses to help them learn to make ethical business decisions. Organizations may also decide to assign committees dedicated strictly to monitoring the ethical practices of the organization and its employees, and then these committees report back to top management. Depending on the size of the organization, establishing an ethics officer, whose responsibility is to institutionalize moral values in the workplace, can also prove to be beneficial (Toffler 16). One important note, however, is that the ethics program that this officer implements may prove to be ineffective unless all staff members are trained about what it is, how it works, and their roles in it, therefore good communication is imperative. All these practices represent techniques that corporations may adopt to foster ethics in the workplace, however they by no means provide a guarantee that employees will behave ethically. An individual?s personal beliefs and the strength of their moral character are qualities for which no course or corporate initiative could prove to be an adequate substitute. An individual?s personal beliefs and moral character are what define how likely he will adhere to ethical conduct within the organization. Nevertheless, it is beneficial for an organization to apply the techniques outlined above, in order to create an environment that encourages ethical decision-making. The benefits reaped as a result of more ethical business practices include stronger foundations to compete in worldwide markets, moral guidance during turbulent times, and the cultivation of strong teamwork and increased productivity. Furthermore, adopted ethics programs can help avoid criminal acts of omission, help manage values associated with quality management, and also promote a strong public image, thereby attracting more investors.

Unethical Business Practices and Their Effects

Unfortunately, not all corporations employ the techniques mentioned earlier to foster ethical behaviour, and the consequences of this can be disastrous. The two most significant cases of unethical corporate behaviour have recently been the scandals at Enron and Tyco. Enron is an excellent example of ethics conflicts corporations face within the free market. Greed and selfishness, rather than true morals and principles seem to have been what motivated Enron executives. Some argue that this is the predominant moral outlook for many of today?s corporations, i.e. to pursue maximum wealth and happiness with minimal morality and principles. Enron executives fall directly into this category as they lied to shareholders and fixed their books to produce fake profits, ignoring the company?s long-term financial problems. In fact, the whole proposed plan flopped, and instead they declared bankruptcy and destroyed all their credentials. It is important to understand that Enron executives do not represent the real ethics behind moneymaking; over the long term, profits cannot be faked, they must be earned (Brenner 392). More specifically, it has been discovered that the accounting numbers were manipulated in such a way so as to make Enron look much better than it really was. The bookkeeping was so complex that it made it difficult to see what shape the corporation was really in. Those responsible for this unethical misleading of investors seem to be Enron founder and chairman Ken Lay and former CEO Jeff Skilling, who together allowed a culture of rule breaking to flourish (McLean 94). Skilling repeatedly told the media of how well Enron was doing, all the while aggressively ?encouraging? employees to buy stocks. If anyone, including Wall Street, raised any questions about the manner in which the books were kept, Skilling dismissed them as being ignorant for not being able to understand the complex accounting. What makes things even worse is the fact that the auditing firm Arthur Andersen was supposed to flag any unethical and/or illegal operations, but instead it became partners in this false-profit-declaring scheme. The ?notion of an independent auditor was lost? as both parties agreed to act unethically (Serwer 80). The end result of all this has been that investors were deceived and many of them lost significant amounts of money, while employees also lost their jobs. With Tyco, the accusations beginning to surface stem primarily from the way it apparently plays with numbers during acquisitions of other companies. Tyco executives allegedly ask employees of a soon-to-be-acquired company to purposefully make that company look bad financially just before the acquisition. This technique, referred to as ?spring-loading?, results in the acquiring company (Tyco) looking financially sound after the acquisition. In one report, former employees of the acquired company Raychem stated how uncomfortable they felt by Tyco?s unethical demands, and more people who have been put in similar situations are beginning to step forward (Greenberg 84). Although spring-loading does not seem to be illegal, the resulting misleading of investors raises several important ethical questions that are now being asked of many companies with possible shady accounting practices. The most blatant ones are ?How can an investor be sure that a company?s reports truly reflect its financial situation?? and ?How many corporations out there are engaged in unethical business dealings??. Since the events at Enron and Tyco have caused a serious drop in investor confidence and consequently a slowdown in the economy, the search for the answers to such questions is beginning to speed up. Therefore it is evident that not only did Enron itself suffer severely in this scandal, but there was also severe collateral damage inflicted on companies that relied on Enron for business and upon the entire economy as a whole. According to spokeswoman Karen Denne Enron had estimated its liability to be $40 billion, however the new acting CEO of Enron Stephen Cooper claims that the figure could rise to up to $50 billion.[Mario?s ref] On top of that, the Department of Justice and Securities Exchange Commission are investigating Enron for possible securities fraud after the company, completely unable to recover from its debt, filed for the largest bankruptcy in U.S. history this past December.[Mario?s ref] And since the company allegedly used thousands of questionable partnerships to hide its $1 billion in debt and inflate profits, it only seems reasonable that litigation and bankruptcy are soon to follow for any of the company?s that collaborated with Enron in this incident.

The above cases have illustrated environments where not only were ethics not fostered, but unethical practices were encouraged in order to make more money, resulting in bleak futures for such companies and less trusting investors that want more answers and transparency.

Conclusion

The methods presented earlier that a company might use to implement a standardized ethics program may help avoid future predicaments for that company. It also shows to the public that the organization fosters importance to morality and values that may result in the attraction of more investors. Other benefits of encouraging business ethics are that it strengthens the coherence and balance of the organization?s culture, improves trust in relationships between individuals and groups, supports greater consistency in standards and qualities of products, and cultivates greater sensitivity to the impact of the enterprise?s values and messages. In light of the Enron and Tyco cases presented, it is understandable that business ethics is becoming a significant area of interest for companies and investors alike. It is in an organization?s best interest to foster ethics within its workforce, and it is especially the responsibility of upper management to set the example to be followed.

Furthermore, it is just as important for investors to encourage ethics programs within a company and for the external monitoring of corporate ethical behaviour. The recent scandals have suddenly awakened people to these facts, and it is likely that public scrutiny and demand for highly ethical environments within corporations will increase in the future.

Bibliography:

1. Dessler, Gary, et al. Management: Leading People and Organizations in the 21st Century. Toronto: Prentice Hall, 2001.

2. Fullerton, School of Communications, California State University, Ethics on the World Wide Web, http://commfaculty.fullerton.edu/lester/ethics/business.html, 2002.

3. Dean, P.J. Making Code of Ethics ?Real?. Journal of Business Ethics, 11, 1992.

4. Griffen, Ricky W. Management Canadian Edition. Vancouver: Prentice Hall, 1999.

5. Toffler, B. Doping Ethics: An Approach to Business Ethics Consulting. Moral Education Forum, 16, 1991.

6. Brenner, S,N. Ethics Programs and Their Dimensions. Journal of Business Ethics, 11, 1992.

7. McLean, Bethany. ?Monster Mess.? Fortune Magazine 4 Feb. 2002: 93-96.

8. Serwer, Andy. ?Dirty Rotten Numbers.? Fortune Magazine 18 Feb. 2002: 74-84.

9. Greenberg, Herb. ?Does Tyco Play Accounting Games?? Fortune Magazine 1 Apr. 2002: 83-86.

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