Ethical issues in business is a problem for most developing countries as most businesses have no proper organisational policies and procedures. It can be seen in some private and public organisations where an individual will have to wait in a que for the one to attend to him/her to finish a call or finish sending that whatsapp message (s)he was on before customers started coming for their services. The worse of it all is when the client has no choice but to use the services of that particular institution. This, on most occasions, leads to low productivity and also pushes your customer to the next available competitor.
The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople. Ethical decisions are those that are in accordance with those accepted principles of right and wrong, whereas an unethical decision is one that violates the accepted principles. This is not as straightforward as it sounds. Managers may face ethical dilemmas, which are situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seems ethically acceptable.
In our society many accepted principles of right and wrong are not only universally recognized but also codified into law. In the business arena, there are laws governing product liability (tort laws), contracts and breaches of contract (contract law), the protection of intellectual property (intellectual property law), competitive behaviour (antitrust law), and the selling of securities (securities law). Not only is it unethical to break these laws, it is also illegal. However, many actions, although legal, do not seem to be ethical.
The ethical issues managers confront cover a wide range of topics; but most arise due to potential conflict between the goals of the organization, or those of individual managers, and the fundamental rights of important stakeholders. Stakeholders have basic rights that should be respected, and it is unethical to violate those rights. Shareholders have the right to timely and accurate information about their investments (in accounting statements). Customers have the right to be fully informed about the products and services they purchase, including how those products might harm them or others, and it is unethical to restrict their access to such information. Employees have the right to safe working conditions, to fair compensation for the work they perform, and to be treated in a just manner by managers. Suppliers and distributors have the right to expect contracts to be respected, and a firm should not take advantage of a power disparity to opportunistically rewrite contracts. Competitors have the right to expect that a firm will abide by the rules of competition and not violate the basic principles of antitrust laws. Communities and the general public, including their political representatives in government, have the right to expect that a firm will not violate the basic expectations society places on enterprises. For example, by dumping toxic pollutants into the environment or overcharging for work performed on government contracts.
Those who take the stakeholder view of business ethics often assert that it is in the enlightened self-interest of managers to behave in an ethical manner that recognizes and respects the fundamental rights of stakeholders, because doing so will ensure the support of stakeholders, which ultimately benefits the firm and its managers. Others go beyond this instrumental approach to ethics to argue that in many cases acting ethically is simply the right thing to do. They argue that businesses need to recognize their moral responsibility to give something back to the society that made their success possible.
Unethical behaviour tends to arise when managers decide to put the attainment of their own personal goals, or the goals of the organization, above the fundamental rights of one or more stakeholder groups. The most common examples of such behaviours involve self-dealing, information manipulation, anticompetitive behaviour, opportunistic exploitation of suppliers and distributors, the maintenance of substandard working conditions, environmental degradation, and corruption.
Self-Dealing occurs when managers find a way to feather their own nests with corporate funds. Classic examples of this behavior include (1) senior managers treating corporate funds as their own personal treasury, raiding them to support a lavish lifestyle; (2) senior managers using their control over the compensation committee of board of directors to award themselves multi-million-cedi pay increases or stock option grants that are out of proportion with their contribution to the corporation; and (3) instances where individual managers award business contracts not to the most efficient supplier but to the one that provides the largest kickback. In these cases, managers are not acting in the best interests of their shareholders and are instead consuming funds that should legitimately go to shareholders. Some of these behaviours are illegal; some are technically legal but unethical because they violate the basic right of shareholders to a fair return on their investment.
Information Manipulation occurs when managers use their control over corporate data to distort or hide information to enhance their own financial situations or the competitive position of the firm. Many of the accounting scandals that swept through American companies in the early 2000s involved cases of information manipulation. For example, the now-bankrupt energy trading firm Enron hid significant debt from shareholders in off-balance sheet partnerships. This practice misled investors about the level of risk Enron had assumed and supported a much higher stock price than was justified. Not surprisingly, this higher stock price enabled managers to exercise stock option grants for considerable personal gain (a case of information manipulation to support self-dealing). When the scale of hidden debts was finally revealed, Enron quickly collapsed into bankruptcy, resulting in losses of over $100 billion for shareholders. Information manipulation is unethical because it violates the right of investors to accurate and timely information. The recent collapse of banks has also been of one that has taught the entire nation a lesson on accuracy of data and auditing.
Information manipulation can also take place with non-financial data. This occurred when for example, managers at tobacco companies suppressed internal research that linked smoking to health problems, violating the right of consumers to accurate information about the dangers of smoking. When evidence of this came to light, lawyers brought class action suits against the tobacco companies, claiming they had intentionally caused harm to smokers. In 1999 in the United State of America, the tobacco companies settled a lawsuit brought by several states, which sought to recover health care costs associated with tobacco-related illnesses; the total payout to the states was $260 billion!
Anticompetitive Behaviour includes a range of actions aimed at harming actual or potential competitors, often, by using monopoly power to enhance the prospects of the firm. For example, in the 1990s the Justice Department in USA claimed that Microsoft used its monopolistic powers in operating systems to force PC makers to bundle Microsoft’s Web browser, Internet Explorer, with Windows and to display Internet Explorer prominently on the computer desktop. Microsoft reportedly told PC makers that it would not supply them with Windows unless they did this. Because the PC makers had to have Windows to sell their machines, this was a powerful threat. The alleged aim of the action, which is an example of tie-in sales, was to drive a competing browser maker, Netscape, out of business. The courts ruled that Microsoft was indeed abusing its monopoly power in this case, and in a 2001 consent decree the company agreed to stop the practice.
Putting the legal issues aside, action such as that allegedly undertaken by managers at Microsoft is unethical in at least three ways. First, it violates the rights of end consumers by unfairly limiting their choice; second, it violates the rights of downstream participants in the industry value chain, in this case PC makers, by forcing them to incorporate a particular product in their design; and third, it violates the rights of competitors to free and fair competition.
Substandard Working Conditions arise when managers tolerate unsafe working conditions or pay employees below market rates to reduce costs of production. The most extreme examples of such behavior occur when a firm establishes operations in countries that lack the workplace regulations found in developed nations such as the United Kingdom.
Environmental Degradation occurs when managers take actions that directly or indirectly result in pollution or other forms of environmental harm. Environmental degradation can violate the rights of local communities and the general public to clean air and water; land that is free from pollution by toxic chemicals or excessive deforestation that causes land erosion and floods; and so on.
The issue of pollution takes on added importance because some parts of the environment are a public good that no one owns but anyone can despoil. No one owns the atmosphere or the oceans, but polluting them, no matter where the pollution originates, harms all. The atmosphere and oceans can be viewed as a global common from which everyone benefits but for which no one is specifically responsible. In such cases a phenomenon known as the tragedy of the commons becomes applicable. The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation. The phenomenon was first named by Garrett Hardin in describing a particular problem in 16th-century England. Large open areas called commons were free for all to use as pasture. The poor put out livestock on these commons to supplement their meager incomes. It was advantageous for each family to put out more and more livestock, but the consequence was far more livestock than the commons could handle. The result was overgrazing and degradation of the commons to the point where they could no longer support livestock.
In the modern world corporations contribute to the global tragedy of the commons by moving production to locations in developing nations where environmental regulations are lacking or less strict than they are at home. There the firms are freer to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. Although such action may be legal, is it ethical? Again, it seems to violate basic societal notions of ethics and clearly harms important stakeholder groups, including the general public and local communities.
Corruption can arise in a business context when managers pay bribes to gain access to lucrative business contracts. A recent example of corruption concerns the allegation that the Texas-based energy company Halliburton participated in a consortium that made $ 180 million in illegal payments to government officials (that is, bribes) to secure a $4.9 billion contract to build a liquefied natural gas plant in Nigeria. Corruption is clearly unethical: It violates several rights, including the right of competitors to a level playing field when bidding for contracts and, when government officials are involved, the right of citizens to expect that government officials will act in the best interest of the local community or nation, and not in response to corrupt payments that feather their own nests.
Corruption is widespread. According to Transparency International, an independent nonprofit organization dedicated to exposing and fighting corruption, businesses and individuals worldwide, spend some $400 billion a year on bribes related to government procurement contracts alone! Transparency International has also measured the level of corruption among public officials in different countries.
We will consider the root of unethical behaviour in business in our next edition. Thanks for reading this edition and expect more in our subsequent edition.
Dr. Asare Bediako Adams, FCILG
The author is the Director of Africa Operations for Chartered Institute of Leadership and Governance. He is also the Executive Director of PMRIG Group of Companies and Bedoak Global Ltd and its affiliates. He also serves as a board member of several companies.