Reflection on Ethics

Posted by Winnie Melda on November 2nd, 2018

Introduction

Businesses function in a world structured around ethics. Ethics refers to an accepted or prescribes code of conduct. Therefore, when conducting business operations, a business has various responsibilities towards its stakeholders. In a world of globalization, the significance of business ethics is greater than ever. Businesses have to act in a way which goes beyond bottom-line based motivations. Ethical behaviors have a large potential benefits to business. Morality and personal ethics fundamentally drive the importance of business ethics. However, people and businesses have self-interests. But, if it is in businesses’ best interest to be ethical and has the potential to drive real change. This can be observed in consumer markets as demand shifts to products that customers perceive to be ethical. 

In what way has the ethics class changed your views of business?

The ethics class has had an impact on my views on businesses. I have learned that profit is not the sole objective of businesses and businesses have a larger role to play in the society. Although businesses require profits to survive, there are other objectives that should be fulfilled in order for the business to survive. This can be done through ethical practices. Ethical business practices are based on the premise that businesses any means is not the right means.

Stakeholders expect businesses to behave ethically legal or socially acceptable ways. Looking at the ethics of business means looking at the right or wrong way of conducting business. While studying ethics does not make anyone ethical, it has been useful in helping me understand what good business practice is and how to pursue it.  Throughout the class, it has helped prompt constructive discussion with others about what is good and what is bad business practice.  At best, the study of business ethics will help in decision-making on matters relating to business ethics. 

Ethical conduct requires that business to create positive impacts by demonstrating ethical behaviors. This way, businesses can increase profits. The view is that businesses can achieve profits through ethical conducts rather than deceptive practice. Most businesses are fundamentally motivated by the objective of profit. Numerous activities carried out are meant to increase profits in the short run or long run. This can be achieved through ethical business practices so as to trigger action and reaction and ultimately building long-term authentic connections based on ethical conducts. Such practices can earn business positive recognition; create trust and a sense of goodwill which are a long-term investment for profitability. 

Ethics class has also changed my view of business in relation to how stakeholders view business organizations. While stakeholders may be interested in the profitability of the business, they are also interested in how the business arrives at its position. By studying BP’s case, it is clear that unethical business practices have a significant impact on how the business is viewed. Stakeholders want to engage with a business that is reputable. Any unethical conduct damages the image of business. Therefore, the subject of ethics is important as the role of business in society increases.  Therefore, ethical conduct must be among the prime objectives of business.

Do you believe that managers have greater responsibilities towards stakeholders than shareholders?

Managers have equal responsibilities towards shareholders and stakeholders.   Businesses have responsibilities that go beyond maximizing shareholder value. By focusing on profit over responsibility, there is plenty of evidence that businesses may tend to look out primarily for themselves. This may mean that business organizations may end up ignoring the ethical and social expectations of employees, consumers, the media, government and other stakeholders at their peril.

Shareholders value perspective places emphasis on profitability over responsibility. Shareholders look at the profitability of the business as the surplus of business revenue over the cost that accrues to the risk taker.  Profit is the shareholder’s share just as salary is the share of employees.  Thus, shareholders invest in business to obtain a return. They are principally concerned with the reward for risk taking. They expect that any business activity is carried out with their interest in mind.  For example, product packaging should be carried out to improve sales revenues and should be viewed to have a positive impact on profitability.  This way, business is viewed to have shareholders’ interest at heart. Additionally, Profits ensure future growth of business and help strengthen and broaden the capital- and assets base.  As a motive, profit provides the stimulant needed for the business initiative, effort, and further investments. As a result, ethical practices and social responsibility that allow businesses act in the society’s interest may not be viewed favorably by shareholders. Every activity should aim at a maximizing value or increase future profits.

Stakeholders’ perspective places more emphasis on responsibility for profitability. A stakeholder can influence the decisions of a business or be impacted in different ways by the actions of the business. Stakeholders include employees, shareholders, customers, creditors, suppliers, trade unions, the government, investors and the communities in which a business operates. Stakeholder interests go beyond just financial returns. For instance, ethical sourcing, customer care, legalities, equitable opportunities, honesty, and diversity are all stakeholder issues.  Stakeholders see the organization as a coalition to solve all parties that are affected by business activities in one way or another.  Thus, business success is evaluated by the satisfaction of all stakeholders. Thus, any conducted is both an end and a means. In this view, business is a coalition of various stakeholders including suppliers, customers, investors and other involved parties. Thus, business activities should involve the relentless commitment stakeholders good rather than maximization of profits. With this in mind, a manager may act in the stakeholder’s interest and against shareholder interests.

Managers have a challenging task to balance the need of shareholders and stakeholders.

They have to support and satisfy various groups that the business depends upon for its long-term survival. To do this, managers must learn how to ethically balance owner, stockholder and stakeholder interests. An ethical balance is achieved when a business is able to find a moral compromise between organization, stakeholder and stockholder interests. The stakeholder model and shareholder model are the two alternative theories that managers can subscribe so as to create an ethical atmosphere.

While the key responsibility of managers is to maximize value for shareholders, the responsibility is not as easy as it may seem. Often, what makes shareholders happy may make all stakeholders happy. However, there are some potential pitfalls in maximizing shareholder value only. For example, a business may neglect customer service so as to cut costs and creates long-term value. While the business may boost its profits in the short run by reducing expenses and make short-term shareholders happy, it may annoy other stakeholders.  On the other hand, annoyed customers may go elsewhere. This may harm business profitability in the long-term. Therefore, managers must balance the interest of both shareholders and stakeholders for the survival of the business.  Stakeholders are not only shareholders. But they contribute to the success or failure of the business.  Therefore, managers have the responsibility to maximize shareholder value and also pursue projects that benefit stakeholders.

Does being ethical actually matter to the bottom line?

Being ethical affects the bottom-line. The significance of business ethics goes far beyond customers or employee loyalty. As with other business initiatives, the ethical behavior of a business is directly related to its profitability both the short run and the long run. The reputation of business from customers, society, investors and other businesses is paramount in determining whether they are likely to have dealings. If a business's reputation is not perfect as a result of negative perception arising from unethical operations, stakeholders are less inclined to engage in the business. Thus, the survival of a business significantly depends on its stakeholders. Any activity that affects the stakeholders should be perceived to be ethical. Unethical conducts such as defective products, abusive behavior, employee theft misuse of company resources and harassment affect the publicity of business. There are various ways that ethics affect the bottom-line of business.

Customers’ satisfaction and trust

Business ethics play an important role in relationships with customers. A business models ethical behavior when it walks the walk. An ethical business improves its reputation and makes business partnerships and transactions happen much more quickly.  Certainly, businesses must balance the need to profitability while maintaining their ethical principles. This can be a tough balance as the business has to stick to an ethical code of while working toward good performance. Ethical business practices cam help the business earn the support and loyalty of its customers. This is particularly true for those businesses that depend on close relationships with customers.

One of the ways to achieve customer satisfaction is through product packaging.  This can help a business maintain existing and acquire new customers. Some businesses may allow underweight packaging of their products or highly priced products in order to increase profits. However, the negative trend affects the business as customers will ultimately come to realize that they are being swindled. In an effort to boost sales, businesses may also promotional techniques that convey misleading messages or give misleading details of products.  These practices have a negative impact on profits. Businesses that desist from taking advantage of the customer by selling low standard goods, incorrect pricing or improper packaging can benefit from a good business image. In the long run, positive image positively affect sales. Ethical behaviors attract customers to the business. This helps in boosting sales and profits.

Investor Loyalty and Trust

Ethical business practices are not only important in meeting financial and legal obligation but also contribute to healthy investor loyalty and trust. Businesses that have achieved notoriety through unethical and dishonest manipulation of financial information negatively affect their reputation. Consistent ethical behavior brings more and more positive public image. This is one of the considerations to potential and existing investors. To maintain a positive image, a business should be committed to functioning on an ethical foundation as it relates to fair market practices, treatment of customers and treatment of employees.

The term business ethics does not only refer to the conduct of the business as a whole but also the conduct of individual members working within the business.  Each person's action within the business affects the entire organization.  When an employee acts responsibly and ethically, it helps the entire business in improving and maintaining its image.  To investors, the image is more than just a word but also a good foundation for success.

In the fallout of companies such as Enron, many investors now pay close attention to business ethics and profits. Investors realize that most businesses focus on bottom-line with little regard to conduct and enforcement and ethical standards in order to achieve short-term revenue gain. However, the practice also affects long-term profitability. Businesses should consider this balance between ethics and profits to be "ethical profitability."

Employee Commitment and Trust

When an employee exhibits unethical behavior, he faces losing other employees’ respect as well as customers to the business. It is challenging to conduct business with such employees. On the other hand, employees are key strategic assets. This is particularly true in the competitive business environment that we are operating in given that businesses are suffering from a shortage of key skills. Through ethical conducts, employees can determine the profitability of a business venture. 

This is because employees are a key competitive advantage for any business. While business may put emphasis on customers and product quality, employee ethical behavior has a direct effect on customer relations and product quality. Therefore, focusing employees conduct should a foundation of other organizational goals.  A highly committed and competent workforce is a necessary component of business strategic resources. The competitive advantages of a business lie not just in its products offering but also the ability to tap key talents and skills as core competencies to enhance its ability to respond to competition. This way, employees ethical behavior impacts the bottom line.

Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in customized term papers if you need a similar paper you can place your order for article critique writing services.