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Ethics Audit Programs

Published July 29, 2013 by Mayrbear's Lair

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Most organizations incorporate some form of ethics system regardless of whether it is formally established or informally understood. Campbell and Houghton (2005) contend that ethical behavior does not simply translate to complying with legal and professional regulations; it is a state of mind in which individuals follow unwritten tenets and exist in a culture of making choices that does not bring harm to others or the environment (Campbell & Houghton, 2005). For example, leaders of ethics audit programs should require that individuals that manage them should  have adequate training to run ethical compliance programs. In other words, they should make sure the individual appointed to this position is sufficiently qualified. For example, one company that appointed an employee to manage the ethics committee for their organization was appointed merely because he was conveniently located near the office, not because of his experience in ethical or legal matters. In addition, he was reluctant to take the position unless he was substantially compensated for his time. This means his motives were driven by a reward system not by his moral values or principles. This component changes the dynamic of his role as an authoritative figure.

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Rules and policies in an organization are made to include the culture and values of a company. Boatright (2009) posits that these guidelines are outlined in a company’s formal documentation which includes their mission statement, a code of ethics policy, personnel manuals, training material and management directives. Orientation training, compensation, promotion, auditing and monitoring systems serve as various devices that help support a company’s rules and regulations (Boatright, 2009). In another  case study, the organization conducted its own ethics auditing report and concluded it was doing a good job of monitoring ethical issues and even complied with the report’s recommendations to establish a confidential hotline for employees to report legal concerns. However, one of the organizations top executives discovered another reality actually existed. One where: (a) employees are violating operational procedures, making unauthorized short cuts to meet deadlines that have resulted in harm to employees and the environment, (b) an inequality and glass ceiling situation that exists with respect to the compensation between male and female employees, and (c) discrimination issues in targeting a specific ethnic group and taking advantage of their unfamiliarity with labor laws. In addition without organizations like the EPA and OSHA monitoring their activities it is easier for them to engage in practices that violate regulations. Now that the leader is cognizant of these issues if he does nothing to change the situation or report it, when it is eventually discovered, he will find himself in dire need of an ethical crisis management and recovery plan to save his hide.

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Organizations that do have an ethical program or implement an ethics auditing system will face challenges that can result in legal and ethical misconduct. Ferrell et al. (2013) suggest that to help prevent a crisis from erupting, the development and implementation of a crisis management plan can serve to help leaders respond and recover faster from unethical and scandalous events that may occur (Ferrell, Fraedrich, & Ferrell, 2013). Although executives are not responsible for the events of the past, they are charge of guiding the organization’s future. If they are not able to manage ethical issues they face, he and the organization could face substantial legal and financial ramifications which will in turn disrupt company operations, prevent employees from performing their duties, slow production, damage the institution’s reputation, and lose the confidence of their stakeholders. If leaders avoid these issues they will only escalate until they reach the tipping point and at that juncture, it may be too late to recover. In the meantime, the executive’s job and reputation will be on the line because investigators will look to them for answers. It is recommended therefore, that leaders work on developing a crisis management plan because executives that cultivate an unethical environment steer organizations straight into the maelstrom of a managerial catastrophe.

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References:

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Campbell, T., & Houghton, K. (2005). Ethics and Auditing. Canberra, Australia: ANU E Press.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Leadership and Corporate Culture

Published July 26, 2013 by Mayrbear's Lair

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Executives have the power to shape corporate culture and motivate ethical conduct. Most leaders consider themselves ethical. Some, however, question whether ethics is a relevant component of leadership. Boatright (2009) contends that it is just as important to embrace ethical behavior in public life as well as in private life. Most corporate moguls are under the impression that behaving ethically alone is enough to sustain them as an effective leader. In fact, studies suggest that leaders do not believe specialized skills or knowledge in ethics are necessary to produce effective results in the work place (Boatright, 2009). This is a false perception. Situations arise more often than not in a business environment where leaders cannot easily resolve issues without identifying the ethical implications. This research focuses on the role a leader plays in the development of an ethical corporate culture. It takes a closer look at the importance of ethical leaders and the various roles they serve in an organization.  In addition, this study will illustrate the relationship between ethical leaders and their stakeholders. The analysis will also examine various leadership styles, the impact they have on corporate culture, how they affect ethical-decision making, and draw from examples to support this investigation. The findings of this research will conclude that leaders, who engage in business practices without ethical rules and regulations, will eventually discover that ethical misconduct behavior can easily become an inevitable component in their future.

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Importance of Ethical Leadership

The most successful leaders use their power to shape corporate culture and motivate ethical conduct. Because they are in the business of making a profit, they design strategies to achieve desired outcomes. Deepak Chopra (2012) reminds us that life is riddled with challenges, obstacles, and situations that leave many individuals asking the question, “Why is this happening?” No matter what advantages an individual may possess – money, intelligence, charismatic personality, a positive disposition, or influential social connections – none of these elements offer a magic key to effective leadership (Chopra, 2012). Managing directors are continually faced with difficult challenges. How they manage these trying situations can make the difference between the prospect of success and the threat of failure (Chopra, 2012). For example, when leaders cultivate an environment of fraud and deceit, they are fertilizing the ground for failure and destruction. In order for an executive to be considered an effective leader, they must have the ability to: (a) guide a corporation to profits for the sake of the stakeholders, (b) achieve organizational goals in an ethical manner, and (c) motivate their employees to adhere to behavior that is in alignment with the organization’s code of conduct.

Consistency also plays an important role for successful executives. The most effective leaders incorporate policies that inspire high performance levels and motivate organizational behavior that goes beyond just observing regulations. When leaders establish trust with subordinates, they earn the loyalty of their staff. In return, employees trust their leaders to protect them from harm in return for their services, dedication, and loyalty. By making choices to work in partnership with their employees, leaders can help them achieve greater levels of success than perhaps even they realized were capable of achieving. Employees who respect their supervisors, feel supported and appreciated by them, are more likely to become motivated and go beyond just achieving organizational goals.

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Leaders and Stakeholders

Stakeholders provide leaders another reason to cultivate an ethical culture. As a leader, it is their responsibility to make sure the company is guided towards the path of success and profit for the benefit of the stakeholders that support them. Executives, therefore, must incorporate effective strategies and hire the appropriate talent to reach desired outcomes as part of their responsibility to the employees, consumers, suppliers, and society as a whole. Ferrell et al. (2013) posit that because stakeholders have the ability to affect corporate policies it is imperative that leaders find methods to use their power to influence positive outcomes. There are five power strategies leaders utilize to achieve their goals: (a) reward power, (b) coercive power, (c) legitimate power, (d) expert power, and (e) referent power. Studies suggest these five power bases can be implemented to achieve both ethical and unethical outcomes (Ferrell, Fraedrich, & Ferrell, 2013). For example, a leader that incorporates legitimate power believes they have the right to exert their influence and that others are obligated to accept it. This kind of power is typical in hierarchical environments where leaders are assigned titles and specific positions of authority. In this type of culture, stakeholders readily acquiesce to leaders who command legitimate power. In some instances, however, leaders use this power to engage in behavior that is opposite of their belief systems. These individuals use strict protocol and the chain of command to their advantage. This is typically one way leaders can influence individuals to engage in misconduct. In this setting, it is easier to establish a climate of deceit because subordinates are hesitant to disobey orders for fear of the punishment or termination. The leaders at the well-oiled Enron machine, for example, employed all five power strategies to maintain their grand illusion.

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Leadership Styles

An individual’s leadership style also plays a significant role in shaping the corporate culture and motivating ethical conduct. Glanz (2002) reports there have been many studies conducted to help determine the best leadership styles. Most conclude that effective leaders exhibit varying degrees of the following virtues: (a) courage, (b) empathy, (c) judgment, (d) impartiality, (e) enthusiasm, (f) humility, and (g) imagination (Glanz, 2002). The best leaders, however, continue to expand their knowledge, re-examine outdated business strategies, maintain smooth operations and high production levels, and motivate staff confidence. In his book, Leadership Aikido, John O’Neil (1999) introduced six concepts to achieve victorious leadership skills without harming others. These concepts were inspired by the martial arts tradition of Aikido. He ascribes the following six practices that enable leaders to assess and develop their fullest potential: (a) cultivating self-knowledge, (b) practicing the enigmatic art of planning, (c) speak the language of mastery, (d) allowing values to drive the decision-making process, (e) changing the outcome of failure to one of success, and (f) abiding by the law of unintended consequences. This method of leadership embraces the elements of aikido to help executives identify and overstep five major obstacles that impede progress: (a) failure to grow emotionally, (b) failure to make creative decisions, (c) failure to empathize, (d) failure to manage ego, and (e) failure to overcome boredom and alienation (O’Neil, 1999). Leaders that continue to develop effective leadership skills will most likely achieve higher levels of organizational success.

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The Decision-Making Process

The decision-making process also plays an integral role in how leaders influence corporate culture and motivate ethical conduct. Hanh (2012) posits that because leaders can get into difficult situations, they must have the ability to handle strong emotions in the workplace in order to maintain effective relationships. To achieve this they must keep communication open and become cognizant to avoid the creation of a negative or repressive work culture. The most successful leaders incorporate practices that help manage strong emotions and become educated on how to utilize these strategies in good times before strong emotions arise. This strategy offers leaders the ability to respond in a more skillful fashion and incorporate effective methods during a crisis (Hanh, 2012). For example, Hanh’s Plum Village organization has developed a culture that incorporates three positive influences of power to guide their code of conduct. They are love, understanding, and letting go. The leaders at Plum Village posit that these three influences of power help in the decision-making process because they are used as effective tools that focus on the release of suffering. Their strategies of operation are designed in a way that does not incorporate punishment or destruction. In addition, they conduct their business practices in a manner that protects the environment and all living things.

Leaders that incorporate ethical choices and learn corporate social responsibility operate a business free of worry and fear concerning their future because their business practices support the stakeholders and the environment rather than exploiting or depleting them. Leaders that possess the ability to listen to their own pain and to that of others are capable of finding solutions for transformation. The most successful leaders learn that ethical leadership can help them realize their goals with the support of their stakeholders. In short, leaders that continue to learn to take care of themselves first, have better knowledge of how to take care of others. This is one effective strategy that ethical leaders use to establish a culture that embraces harmony and respect; one that encourages employees to feel pride and joy.

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Conclusion

Organizations like Plum Village that focus on creating a culture of happiness have produced a community that stakeholders are motivated to invest in. Hanh (2012) posits they have created a model that does not focus solely on profit. They also cultivate a climate to create joy and happiness (Hanh, 2012). Businesses should not have to sacrifice happiness to achieve high levels of profit. Organizations that are destructive, engage in fraud, and operate without regard for stakeholders do not enjoy longevity. Leaders in this arena cultivate an atmosphere of discontent and anxiety. Executives on the other hand, who focus on cultivating a climate that motivates ethical conduct without compromising their ability to profit, are more likely to succeed and maintain the confidence and support of their stakeholders. For a workplace to function successfully and harmoniously there must be a code of behavior that everyone is willing to accept. The most effective method of making sure this is accomplished is for leaders to make it a part of their organization’s culture. The most successful do so by setting an example and participating in a leadership style that reflects ethical behavior. They must also include strategies to incorporate supportive speech and engage in actions that bring content and cheerfulness to themselves, their organization, and the community at large. The findings of this research conclude that leaders who engage in ethical misconduct and cultivate a culture of deceit will achieve disastrous results like Enron unless they embrace effective leadership skills that have the power to shape a corporate culture that supports and motivates ethical conduct.

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References

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Chopra, D. (2012). Spiritual Solutions. New York, NY: Random House, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Glanz, J. (2002). Finding your leadership style. Alexandria, VA: Association for Supervision and Curriculum Development (ASCD).

Hanh, T. (2012). Work: How to find joy and meaning in each hour of the day. Berkeley, CA: Parallax Press.

O’Neil, J. (1999). Leadership Aikido. New York, NY: Three Rivers Press.

Corporate Social Responsibility

Published July 22, 2013 by Mayrbear's Lair

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Companies are in the business of making a profit for the benefit of their stakeholders.  This in turn means they have a responsibility to the employees, customers, suppliers, communities and society at large. Boatright (2009) posits that most organizations are cognizant of their responsibilities. They seek strategies to reach desired outcomes and initiate directives that adhere to corporate social responsibility (CSR). In fact, evidence suggests it is becoming more difficult for companies to gain sufficient competitive advantage in today’s cut throat marketplace without CSR. Together with regulations that are in place, more corporations are engaged in practices that monitor such things as fair prices, fair labor conditions, direct trade, democratic and transparent organizational behavior, community development and environmental sustainability (Boatright, 2009).  Top managers, however, are not always in the best position to make ethical choices because of various components. In one case study for example, a manager was thrust into a situation that required decisions and judgments based upon the organizational culture. In addition, as an expectant parent, the leader’s financial status changed temporarily because his wife was on unpaid maternity leave. This now left him as the sole breadwinner. In short, the supervisor’s new situation made it difficult for him  to make the best choices that were in alignment with his personal moral views because of the external pressures from his job and the internal pressures of a husband and an expectant father. He was feeling stressed from being in a position where he had to contemplate choices that could ultimately result in his termination.

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The legal issue he contemplated were having to conform to new policies that lead to behavior in violation of federal trade commission laws and mandates. Upper management was pressuring him to engage in practices that encouraged using information from trusted clients to give them an advantage in the market. This in turn created unfair competition. In addition, he did not have the support of many of his departmental staff members. In fact, many voiced  loudly their objection to the new direction the firm was taking. Ferrell et al. (2012) suggest that a company’s history consists of the unwritten rules that become part of its culture. Leaders at the helm are considered responsible for their behavior as well as that of their subordinates.  Corporations that follow the guidelines set forth in the Sarbanes-Oxley Act define parameters that institutions are expected to comply with, which includes systems that monitor and assess the internal and external auditing of financial statements (Ferrell, Fraedrich, & Ferrell, 2013). By adopting these new practices proposed from upper management, their company was in a unique situation to utilize information from trusted client relationships in order to profit over other organizations. This is a serious offense that raises the alarm for stakeholders.

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There are advantages and disadvantages to the manager’s situation. The advantages are huge capital gains, status, recognition, and other enticing benefits. The disadvantage is conducting business unethically and illegally which can result in termination and incarceration. To incorporate these new practices, it encourages employees to chase monetary rewards based on commissions and fees on mutual funds that are risky, can go sour, and damage the credibility of the firm and its representatives. In short, chasing high profits unethically, will inevitably lead to the organization’s demise and the downfall of many respected careers. Because of the added pressures to provide for his expectant partner, the pressures from his superiors to engage in questionable practices, and the threat from one of his biggest clients, this leader had to face some very serious choices which could have long term negative outcomes. McGraw (2012) contends that surrounding yourself with the right people helps you learn the right actions to make the right decisions (McGraw, 2012). The financial industry tends to attract individuals that are drawn by power, which can turn to greed and corruption contingent upon personality traits. Many top executives find themselves in situations where they are called to participate in ethical misconduct from pressures like this leader faced. Their choices are: (a) comply and go with the directive of their superiors taking the risks that are involved with misconduct, (b) choose not to participate, which could ultimately cost them their job, or (c) find a solution that does not involve the exploitation of trusted client information to achieve similar positive outcomes. The last choice requires presenting a strong argument to upper management however, that supports changing the view of the superiors with reasons that urge them to engage in more ethical practices to achieve their goals. Ultimately it is up to each individual to come up with a strategy they can support and embrace with a healthy conscience.

References:

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

McGraw, P. (2012). Life code. Los Angeles, CA, USA: Bird Street Books.

Ethical Training Programs

Published July 17, 2013 by Mayrbear's Lair

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Ethical training programs equip employees with strong reasoning abilities and intellectual skills that can help them comprehend and find more effective solutions to complex ethical challenges. Ferrell et al. (2013) identify six stages of moral development based on Kohlberg’s model of philosophy. They are: (a) punishment and obedience, (b) purpose and exchange, (c) interpersonal expectations, relationships and conformity, (d) social system and conscience maintenance, (e) prior rights, social contract or utility, and (f) universal ethical principles. Kohlberg’s studies also suggest that individuals continue to evolve and reshape their morals and ethical behavior based on training, education and experiences (Ferrell, Fraedrich, & Ferrell, 2013). For example, an ethical dilemma in one case, was created by an employee that works in customer service. In this situation, the employee received a gift from a customer as a small token of their appreciation. However, accepting gifts from clients goes against the company’s code of conduct policies. According to Ferrell et al., experts may identify this dilemma as stage one in Kohlberg’s cognitive moral development model. Identifying this stage, can help a supervisor address the nature of his moral dilemma to help find the best solution. In this stage of development individuals respond to obedience and punishment, where rules dictate the terms of right and wrong, and good and bad conduct, that help determine outcomes. Because the organization has clearly defined policies forbidding salespeople from accepting gifts from consumers and identifies what is acceptable business behavior, a supervisor may send the following email in response to the situation:

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By composing this letter, the supervisor is immediately taking responsibility of the seriousness of the matter and addresses the situation with recommendations to the employee for a swift resolution. The leader analyzes the issue, acknowledges the situation intensity, and identifies the matter as unethical behavior. By addressing these components, it is easier to decide on the appropriate action required to reach a mutually beneficial and ethical solution. These actions portray a skilled leader whose direct approach is sharp and swift while remaining sensitive to a valued employee’s unmitigated circumstances. There is nothing wrong with employees or clients showing appreciation for outstanding performances. However, this situation dictates that employees and clients follow the parameters of company policies to avoid situations where a staff member may lose their job by inadvertently participating in ethical misconduct by innocently receiving a reward. Boatright (2009) reminds us that justice requires that everyone has the right of equal opportunity to succeed in life (Boatright, 2009). However, receiving favors and rewards from certain clients is not fair to other employees who work just as hard and are not acknowledged for their excellent performances. Policies can change over time, however in order to do so, it must be done on a corporate wide level and implemented into the company’s culture and code of ethics throughout the organization so that employees have clearly defined parameters of what is right and wrong behavior. In conclusion, arming employees with strong reasoning abilities and intellectual skills can help them better comprehend ethical challenges and find more effective solutions to complex issues that are in alignment with corporate procedures and policies.

References:

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Ethical Decision Making

Published July 15, 2013 by Mayrbear's Lair

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Making difficult decisions in a corporate arena is a complicated process for leaders, especially if they lack sufficient skills to make effective ones. Ferrell et al. (2013) suggest there are a variety of components leaders take into consideration when making decisions. They include identifying: (a) the ethical issue intensity, (b) the individual factors, and (c) the organizational factors and opportunities. These are integral elements that influence the decision making process (Ferrell, Fraedrich, & Ferrell, 2013). When making decisions, leaders must comprehend that there are both advantages and disadvantages in each decision they make. For example, standing by their moral values, a loan officer may decline approval for a $10 million dollar loan to a subsidiary of a tobacco company because of their personal views on promoting deadly products. The advantage of this decision is that it supports that individual’s moral principles. This decision portrays an individual that has adopted an idealistic kind of approach in the way they conduct business, in that they have embraced special idealist values and applies them to help make decisions that reflect a socially responsible form of business practice. Because their views are not part of corporate policy, the disadvantage of this decision is that the client went to competitors instead and secured a loan. In short, the choices were ethical to the individual, but resulted in a huge profit loss for the corporation.

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When leaders engage in important decisions, they must also consider both the ethical and legal aspects of the situation to make the most effective decisions. Ferrell et al. (2013) suggest that an individual’s locus of control influences their behavior. Their studies deduced that people who believe their destiny is controlled by others are usually not as ethical as those who believe they control their own destiny (Ferrell, Fraedrich, & Ferrell, 2013). For example, CEO’s and other top level executives are in a position of power and control for both the short and long term destiny of the company. Each want to make the best decision that is in alignment with the ethical culture of the corporation as well as their own. Ethical decisions include such things as deciding who to conduct business with and whether profits are more significant than outcomes and social responsibilities. By choosing to do business with people that are distributing and manufacturing products or services that bring harm and death to others, leaders must not only face the ethical issues involved but the legal ramifications as well. For example, by selling tobacco products outside the US where restrictions are less binding, a manager is essentially supporting profits over the welfare of innocent people. Corporations are entities and therefore do not experience feelings for people, however, the leaders and managers with families of their own, tend to feel a sense of moral obligation to protect humanity regardless of color or race. Even though a corporation is an entity that does not have feelings, it can still feel the ramifications should legal action be taken against the corporation in the future by victims for intentionally selling merchandise that causes harm from the addictive and toxic additives that are included in their products.

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Most people rely on their own principles to resolve moral issues on a day to day basis. Every leader has significant ethical and legal issues to consider that rely on the organizational culture and the moral philosophies they adapt to help in the decision making process. For example, leaders whose decisions are based on a philosophy known as virtue ethics can make decisions that turn down large profits because their choices are dictated in accordance with that individual’s ideals and the sense of morality that individual develops from their own character which tend to consist of good morals and mature perspectives. Other executives reject deals to sell products that harm consumers because of a deontological moral philosophy which is based on preserving individual rights and the intent to remain steadfast to those beliefs. A corporation on the other hand, is an entity and only interested in end results: profits. Therefore, corporations tend to fall under the teleological view of moral philosophy with focus on achieving end results that benefits all. Regardless of moral philosophy, all decision makers must carefully consider the legal parameters involved as well to avoid violations and harsh penalties.

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In conclusion, leaders want to perform at optimum levels and corporations want to enjoy success. However, as the global market continues to expand, executives, together with their corporations, are taking more measures to incorporate commitment to product integrity and social responsibility. Boatright (2009) contend that a distinguishing aspect of business is its economic character because relationships are based on economics and profit (Boatright, 2009). The bottom line is that leaders have discovered making decisions that are socially responsible is just a good way of doing business in the modern era. Corporations that behave as a tool for change, hire leaders that are motivated to make decisions in alignment with ethical policies. They are conscious of making decisions that do not create harmful outcomes to their stakeholders or the environment. Leaders and corporations whose basic tenets display socially responsible practices like recycling, adopting environmentally conscious policies, incorporate transparency in their operations, and are mindful of how their business generates profits, build trust and confidence from primary and secondary stakeholders which ultimately contributes to the overall success of that organization.

References:

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

The Evolution of Business Ethics

Published July 5, 2013 by Mayrbear's Lair

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Most people develop their sense of values and principles from life experiences, spiritual institutions, the educational process, and their family environment. These are some of the components that shape an individual’s moral and ethical perceptions. However, in the business arena, Freeman and Wicks (2010) suggested that most organizational managers suffer from what is called moral muteness, or an inability to use the language of ethics as part of their managerial position. Leaders that suffer from moral muteness tend to shy away from engaging in conversations about ethical issues and look for ways to categorize and address them as bottom line challenges rather than genuine moral concerns (Freeman & Wicks, 2010). In short, ethics is an uncomfortable topic for many employers because, in most cases, it is considered a highly technical discipline requiring advanced levels of knowledge and degrees to decipher. As a result, when experts are absent, managers refrain from participating in ethical conversations because they do not have the tools to qualify as an authority on the subject. In addition, topics regarding ethics consist of blame and fault issues and leaders are hesitant to discuss these matters for various reasons including fear of making colleagues and peers their enemies, taking blame for a situation, or having their integrity questioned. This research takes a closer look at the evolution of business ethics. It includes an analysis of the development of business ethics over the past and examines how the rise of social issues played an important role.  It will illustrate how these changes impact current business philosophies and reporting practices, as well as how these components have helped shaped the author’s values and principles that evolved over time. The findings of this research conclude that while stagnation can set the stage for conflict, business ethics emerged as a result of the plethora of events that took place over time.  These events ultimately gave rise to changes in business philosophies, reporting practices, and the social issues that brought forth questions to prompt a closer examination of the morality issues in business practices.

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The Emergence of Business Ethics

The Development

Business ethics evolved from a myriad of changes that occurred over time. Ethics is a common way to determine what it means to be an upstanding citizen, a decent individual, an active participant as a parent, and is an effective tool for someone with excellent leadership skills. Ferrell et al. (2013) defined the term “ethics” as the analysis of the nature and basis of morality where moral judgments, standards, and rules of conduct are identified and addressed. Business ethics, therefore, consists of the values, ideals, and standards that guide behavior in a business climate. In this arena, organizations define specific principles that outline pervasive behavioral boundaries which are all-encompassing and absolute (Ferrell, Fraedrich, & Ferrell, 2013). In short, principles are used to develop norms that are socially accepted and enforced based on values like honor, accountability, and trust.

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The Early Stages

There were many events that occurred to impact change in business philosophies and reporting practices. Ferrell et al. (2013) postulated that initially, ethical issues as they related to business situations were discussed within the domain of philosophers and theologians in churches, synagogues, mosques, and other spiritual institutions. It is here where subjects like fair wages, labor, and the morality of capitalism were contemplated (Ferrell, Fraedrich, & Ferrell, 2013). The issues workers faced in the 1920s, for instance, brought attention to harsh working conditions and child labor laws. During this period, the concept of capitalism played an integral part in the evolution of business ethics. For example, a progressive movement provided citizens with what was defined as The Living Wage. The purpose of this movement was to encourage businesses to adopt policies that allocated sufficient income for workers to provide for their education, recreation, health, and retirement. By the 1930s, it evolved into what was known as The New Deal, in which businesses were asked to work closely with legislators to raise the family income. By the 1950s, President Truman transformed the plan into what became known as A Fair Deal. This plan addressed important concerns like civil rights and ethical issues regarding environmental responsibility.

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The 1960s

The social and political movements of the 1960s also brought forth major changes in the evolution of business ethics. Ferrell et al. (2013) point out that focus during that period evolved around environmental issues, civil right issues, increased employee/employer tensions, and the rising epidemic of alcohol and drug consumption (Ferrell, Fraedrich, & Ferrell, 2013). In 1962, for example, President Kennedy’s message to US citizens was focused on the protection of consumer interests.  He proposed a plan that introduced four basic consumer rights to help protect the public: (a) the right to safety, (b) the right to be informed, (c) the right to choose, and (d) the right to be heard. These eventually became known as the Consumer Bill of Rights and had a huge impact on the evolution of business ethics.

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The 1970s

The issue of business ethics continued to evolve and, as a result, began to emerge as a new field of study. Institutions popped up that offered more research, education, and training. Ferrell et al. (2013) contend that theology and philosophy also laid the groundwork for ethical behavior in the 1970s and identified a set of moral values that were acceptable with respect to business activities. Based on those foundations, professionals began the education process to teach and write about corporate social responsibilities offering practical strategies (Ferrell, Fraedrich, & Ferrell, 2013). Most leaders believed it was an organization’s obligation to maximize their positive impact on shareholders and consumers while minimizing their negative effects. During this period, employees were militant about ethical issues, human rights, cover-ups (following the Watergate Scandal), disadvantaged consumers, and transparency issues. These were a few of the relevant components that helped shaped business ethics at the time.

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The 1980s

Incidents like bribery, illegal contract practices, influential peddling, deceptive advertising, and financial fraud shaped the development of business ethics in the 1980s. Ferrell et al. (2013) studies revealed the military developed called the Defense Industry Initiative (DII) to addresses some of these issues in their own industry.  It was designed to guide corporate support for ethical conduct in the armed forces. Six principles of this initiative included: (a) the support of a code of conduct, (b) ethical training for employees, (c) an open atmosphere for employees to report violation without fear of retribution, (d) inclusion of internal audits with effective reporting, (e) the preservation of integrity in the defense industry, and (f) adopting a philosophy of public accountability (Ferrell, Fraedrich, & Ferrell, 2013). These initiatives have been adapted in many of today’s most successful organizations.

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The 1990s

Business ethics serves to question the morality of business practices. Unsafe working conditions and sweatshops were brought to the forefront of ethical business practices in the 1990s because of outsourcing practices to underdeveloped third world countries that a growing number of corporations were engaged in. For example, Ross (2007) disclosed that some privately owned factories in China worked their staffers twenty-seven out of thirty days, eleven hours a day, to satisfy the growing demands of the expanding global market (Ross, 2007). In addition to the atrocities committed in sweatshops, the rise of corporate liability for personal damages also played an integral role in the evolution of business ethics. This was due to the exposure of illicit practices by the tobacco industry and the ethical misconduct from the fraud and financial mismanagement scandals that were exposed. To tackle this, Bill Clinton’s administration set the climate that ushered the development of ethical compliance programs based on the principles outlined by the DII. These programs codified legal incentives to reward companies for being accountable and taking measures to prevent misconduct by implementing strategies to monitor internal legal and ethical practices.

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The New Millennium

Since the turn of the 21st century, new issues arose that continued to help business ethics evolve, like cybercrime, product safety, financial misconduct on a global level, theft of intellectual property, and ethical issues regarding the sustainability of organizations and products.  Ferrell et al. (2013) point to the increased abuses in corporate America that led an outraged public and government to demand an increase in the level of standard ethical practices in business operations.  For example, fraud and mismanagement in financial institutions led to the development of the Sarbane Oxley Act (Ferrell, Fraedrich, & Ferrell, 2013).  This new law made securities fraud a criminal offense with stiffer penalties for corporations engaged in those practices.  It also resulted in the creation of oversight boards that require companies to establish and identify a code of ethics with respect to financial reporting and the transparency of financial records to shareholders and other interested incumbents.

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Impact and Major Changes

The ethical issues leaders face today in a business culture focus on: (a) protecting the environment, (b) avoiding meltdowns like Enron, (c) the corruption of financial institutions, (d) making products that do not put the public’s health at risk, (e) keeping sexual harassment out of the work place, (f) avoiding discrimination, and (g) protecting intellectual property. Boatright (2009) suggested that law and ethics control two different domains. The law is established to protect public life, whereas ethics govern private matters (Boatright, 2009). In other words, the laws clearly define a set of enforceable rules that is applicable to everyone. Ethics on the other hand, are a matter of personal views that reflect how an individual chooses to navigate their own life. Like many leaders, this researcher discovered that in the business arena, more than the law must be taken into consideration when making important decisions and behavioral choices. In short, reliance on the law alone is not enough to make the most effective decisions to achieve the highest outcomes.

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Conclusion

Business ethics evolved from a variety of components that continue to bring about positive changeLeaders are required to operate within the framework of the law because they provide goods, services, and jobs, and are organized so that their success is reliant on the efficiency and effectiveness of their operations and the operators who guide them. In a professional arena, leaders must adhere to the parameters and legal frameworks established by society and their organization, as well as follow a standard code of ethics established by their company. The most effective employers understand that a strong foundation outlines the parameters of ethical practices and is a major contributing factor to employee commitment, investor loyalty, and consumer satisfaction that effect an organization’s profits and longevity. Freeman and Wicks (2010) purported that business ethics should not be an option for leaders. Instead, it should be embraced as an inescapable part of what it means to be a human being and apply those principles to run a successful organization (Freeman & Wicks, 2010). The findings of this research conclude that ethics is a way of communicating, behaving, and thinking to help people create and live better lives. Employers that apply ethical organizational behavior, improve their chances of making better decisions with the strength and honor of being able to defend their choices. Businesses with leaders who do not engage in ethical practices do not achieve the same successful long term outcomes. That in itself is reason enough to comply.

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References

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Freeman, E., & Wicks, A. (2010). Business ethics. Upper Saddle River, NJ: Pearson Education, Inc.

Ross, R. (2007). Slaves to fashion: Poverty and abuse in the new sweatshops. Ann Arbor, MI: University of Michigan Press.