Introduction
This assignment is a discussion on the topic of ethical climate of corporates. The discussion is centered on corporate governance, which constitutes ethical conduct of corporates among other things. In the discussion, my argument is that corporate leaders (Board Members or Senior Executives) are more responsible for the ethical climate of a corporate than other employees.
The discussion draws on the normative theories of business ethics namely utilitarianism and deontology as well as on bureaucracy and the decision making model. It also integrates corporate culture and structure with the ethical climate setting in corporations as well as corporate social responsibility; a concept which is gaining popularity in the corporate world.
The discussion uses the example of BP Company to illustrate how corporate leaders influence the ethical climate of corporates than the employees. The discussion starts with a general overview of the topic, then goes on to discuss the theoretical models and how they support the argument in the discussion using BP as an example.
At the end of the discussion is a conclusion which restates my stand on the topic by summing up the key points. In the discussion, the words corporate, company and organization have been used interchangeably but with the same meaning.
Discussion
An Overview of Corporates Ethics
Corporate governance refers to the ways in which corporates are controlled and directed. As mentioned in the introduction, corporate governance constitutes the ethical conduct of the corporates, administrative issues, policy making and public relations among other things.
Corporates differ largely in terms of their objectives, mission, vision, coverage, capital base and their scope of operation. Due to these variations, different corporates have different organizational structure and culture, which are mainly influenced by the top leadership of the organizations. Organizational culture and structure are highly integrated, with the structure influencing the culture, which encompasses some elements of ethical conduct of organizations (Garriga, and Melé, 2004. pp.51-71).
Organizational culture refers to shared beliefs, values, norms and practices which characterize an organization. Organizational structure refers to how the organization is structured, and how power and authority to make decisions are distributed along the structure of the organization, and who should take what direction or instructions from whom and when (Murray, Poole, and Jones, 2006. pp.45-69).
In organizational structures which are highly rigid, the corporate culture is likely to be poor in terms of employees’ commitment and motivation while in structures which are less rigid and more flexible; the culture is likely to be strong in terms of how employees’ commitment and motivation.
The same applies to ethical climate of the organizations. Many organizations usually have some elements of bureaucratic structure, which is characterized by rigidity in practices and strict adherence to rules and regulations. This leaves the employees with little or no room to express their opinions in regard to any practice within the organizations where they work (Matten and Moon, 2004.pp. 323-337).
The ethical climate of organizations constitutes adherence to principles of ethical behavior and conduct by organization, both within and outside the organization. It also constitutes how the organization relates to its internal and external environments.
The ethical climate therefore touches on things like working environment, safety of the employees, care and conservation of the environment and practices which promote the interests of the consumers like adhering to the rules of manufacturing of products and putting the correct ingredients of products during packaging (Harrison, 2007. pp.371-384).
Ethical conduct of corporations is also intertwined with what is referred to as corporate social responsibility. This concept is generally used to refer to the relationship between businesses and their environment. All businesses operate in social, political, economic, and natural environments.
The concept therefore takes into account how businesses interact with these environments, either positively or negatively. The topic of corporate social responsibility can be broken down into four main components namely the ethical, economic, philanthropic and legal components (Aras and Crowther, 2010).
The ethical component of corporate social responsibility comprises the requirements or expectations of any business by the society. Such requirements or expectations include things like doing what is just, fair and right, using the law as the basis of organizational behavior, avoidance of questionable practices and doing business in a manner which is above the minimal requirements (Aras and Crowther, 2010).
The nature of the ethical component of corporate social responsibility appears to be more deterministic than it is a matter of choice, that is, the ethical conduct of corporates touches on decisions which the corporates must make on how to relate with their employees, clients and the general business environment. The nature of those decisions only allows for the executives to make them (Beets, 2004.pp.193-219).
Theoretical Perspectives to Corporates Ethics
One of the theoretical perspectives to business ethics is the normative approach. This approach constitutes mainly of two sub-approaches namely utilitarianism and deontology. The two vary in terms of how they contextualize business ethics. However, they have one thing in common, that is, they are characterized by centralization of decision making on issues touching on ethics. This means that in both, the employees play very minimal or no role at all in influencing and setting the ethical climate of the organizations (Jamali and Mirshak, 2007.pp.243-262).
In business ethics, utilitarianism is about considering several courses of action, considering the costs involved and choosing the course of action which produces maximum good for the maximum number of people, irrespective of the negative effects of the maximization of the good, in this case, profits (Britannica Educational Publishing, 2011).
On the other hand, deontology requires employees to perform their duties as per the given instructions, leaving no room for them to give their opinion regarding the consequences of their actions as they perform their duties, but rather, performing their duties as instructed, because doing otherwise would be unethical (Britannica Educational Publishing, 2011).
The other perspective to corporate ethics is the decision making model, which begins with clarification of the issues on which ethical decisions are to be made. After doing the clarification, what follows is the evaluation of the clarified decisions, which paves the way for arriving at a precise decision on the most appropriate course of action. The decision is then implemented with modifications coming after the implementation (Marshall, 2007).
This model is more or less similar to the normative approach to ethics in that during the implementation stage, the guiding principle is mainly the maximization of profits and minimization of the costs. This is done mainly with a view of ensuring that the organization realizes its objectives with the use of minimum resources as possible. The decision making model, same as the normative approach exclusively involves the corporate leaders with the employees playing insignificant roles in the same.
The Case of BP
BP is a London based Oil company dealing with the exploration, refinery, production, distribution and marketing of Oil and gas products. With its operations in over 80 countries worldwide, BP is the third largest Oil and Gas Company with over 22,000 Oil service stations worldwide and a daily Oil production of over 3 billion barrels (Harvey and Solly, 2006).
In terms of organizational structure, the company is vertically structured with the CEO at the top. The company has got over 80,000 employees worldwide. The company also engages itself in Corporate Social Responsibility, especially in the area of reduction of greenhouse gases by investing huge sums of money in the establishment of alternative sources of energy which are renewable (Harvey and Solly, 2006).
However, the company is not free of problems. One major problem which it’s best known for is poor management, which has led to several accidents and disasters involving Oil and Gas, the most recent being the 2010 Mexican gulf Oil spill which led to pollution of the natural and marine environments. The company has been fined several times by environmental regulation authorities like the Environmental Protection Act (EPA) (Mauer and Tinsley, 2010).
Many of the BPs critics have attributed the occasional oil spills to the culture of profit maximization. This culture affects the operations of the organization because it seems to be inclined towards utilitarianism, a concept which connotes the maximization of profits in total disregard to any negative effects to the environment of the customers of the organization
For instance, according to Richard Mauer and Anna M. Tinsley of the McClatchy Newspapers, the organization “discouraged workers from reporting safety and environmental problems”. This information was based on a 2004 report of the Vinson and Elkins law firm, which warned that employees who reported any environmentally related problems faced some form of retaliation from the company (Mauer and Tinsley, 2010).
This is an ethical issue because the employees are discouraged from doing what is right for their good and for the good of others. If they report, for example, a leaking or a corroded pipe, actions would be taken to repair it, which would prevent any accident. If they do not report, the end result would be an accident, which would affect them and others as well (Wulfson, 2001. pp.135-145).
The utilitarian consideration in this ethical issue is that the company seems to be focused mainly on maximization of profits regardless of any consequences which may accompany the maximization. In business ethics, utilitarianism is about considering several courses of action, considering the costs involved and choosing the course of action which produces maximum good for the maximum number of people, irrespective of the negative effects of the maximization of the good, in this case, profits (Britannica Educational Publishing, 2011).
The company has been accused of paying a lot of attention on maximizing profits, by diverting resources which are supposed to maintain and repair infrastructure to capital. The employees are then supposed to keep quiet when they note a problem, because the resources which are supposed to take care of the problem are usually injected into the business as capital to generate more profits (Wilcke, 2004. pp.187-209).
The deontological aspect involved in this ethical issue has to do with doing what is right, as per a person’s duty. In business ethics, deontology requires employees to perform their duties as per the given instructions, leaving no room for them to give their opinion regarding the consequences of their actions as they perform their duties, but rather, performing their duties as instructed, because doing otherwise would be unethical (Britannica Educational Publishing, 2011).
The employees of the company are supposed to keep quiet when they notice an environmental problem. According to deontologists, doing this is ethically correct, despite the fact that reporting the problem would lead to actions which would lead to prevention of a bigger problem. On the other hand, reporting the problem is ethically wrong, because the employees have the duty of doing the right thing, which in this case, is to keep quiet when they see an environmental problem concerning their safety and the safety of others as well.
If they report therefore, they would have done the wrong thing, even if the reporting would lead to prevention of bigger problems. In this case therefore, doing the right thing is not in any way linked to the consequences of the actions, but ethics is linked to doing what is right and as per a person’s duty.
The decision making model to business ethics is applicable in this case in that the senior management of the organization are responsible for making crucial decisions which touch on ethical issues. They are the ones to decide on what to prioritize and for what reasons. The employees are supposed to abide with the final decisions of their seniors, and those who do not comply are threatened with dire consequences (Bartels, 2006.pp.403-423).
The case of BP therefore illustrates that corporate chiefs are the most influential when it comes to making decisions touching on ethical conduct for corporations. The main reason behind this is that ethical decisions are intertwined with financial costs, which many corporations wish to avoid. The senior managers of BP only think of using the funds meant for environmental safety as capital. This is not only unethical but also paints a bad image of the company to the outside world (Matten and Crane, 2005. pp.166-179).
My view to BPs approach to corporate ethics is that the approach is not one of the best because it does not encourage employee’ creativity nor does it give the employees an opportunity to give their views and suggestions regarding their safety as well as the safety of the environment. This is very detrimental because the employees do not feel as part of the organization, which leads to lowered motivation and commitment.
With this ethical approach, I think the organization may reach a point in time when their business will start to decline, especially due to their utilitarian approach to business, in disregard to their employees’ and environmental safety or concerns.
With the presence of other players in the oil and gas industry, competition is growing stiffer day by day, and unless the organization changes its approach, it may reach a point when its name will be completely damaged in the eyes of the world, thus making it hard to get licenses to operate in new countries (Grote, 2004.pp.581-590).
It may as well have some of its licenses in some countries which are strict with environmental and labor laws cancelled due to its disregard to environmental and employee safety. The employees may as well be poached by other competitors, with better packages, and this is how the organization will lose all the benefits it would have gained for all these years.
Conclusion
In conclusion, the discussion was about the topic of ethical climate of corporates and whether the senior corporate leaders are more responsible for the ethical climate of a firm than other employees. The discussion has found out that the senior leaders exclusively determine the ethical climate of many corporates, more so in corporates which have bureaucratic organizational structures, which are characterized by strict adherence to rules and procedures irrespective of their rationality.
This makes the senior managers to be the chief architects in the process of determining which ethical route is best for the organizations, which is done in a discriminative manner, with total disregard to the internal and external environment which constitutes of employees’ safety as well as the safety of the clients for the corporates.
The two theoretical approaches to the ethical conduct of many corporates which have been discussed include the normative and the decision making perspectives. In the two perspectives, it has emerged that the senior managers of corporates are exclusively responsible for the ethical climate of their corporates. It has also emerged that many corporates engage themselves in what is referred to as corporate social responsibility, which is a public relations exercise to paint a good image of the corporates in the eyes of the public
More importantly, many corporates appear to be putting economic benefits first at the expense of the welfare of their employees’ and their clientele’s safety. One good example is the BP, which has found itself in the wrong side of corporate practice and expectations due to the several disasters which have led to damages to the environment and human life through pollution.
Many critics have attributed this trend to the company’s policy, which emphasizes on profit maximization to the extent of using the funds aimed for safety measures as capital and threatening the employees with dire consequences if they report the same.
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