Issues with Ethical Decision Making
Businesses are primarily profit driven and, as such, seek to maximise profits and reduce costs in any way that they can. It is within this context that the concept of ingrained corporate ethics, especially when it comes to managerial activities, is brought into question since, at the end of the day, managers and corporate executives have the responsibility of ensuring the continued survival of the company.
Studies such as those by De Cremer, Dick, Tenbrunsel, Pillutla & Murnighan (2011) help to emphasise this point by stating that since businesses are primarily profit driven entities which is seen in the case of Carroll’s pyramid wherein economic responsibilities form the base of the pyramid are the primary focus of all businesses today.
Thus, when it comes to the importance businesses place on the concept of corporate ethics, it can be seen that in the business decision matrix they consider it to be less than the need to be profitable.
This is not to say that corporate ethics do not exist, far from it, ethical decisions are made by corporations all the time as seen in the case of Market Basket’s former CEO Arthur T. Demoulas who focused more on providing better salaries, benefits and profit sharing opportunities to employees rather than focus entirely on shareholder payouts.
However, it should be noted that such actions are not a constant aspect of business decision making as seen in the case of GE’s former CEO Jeffrey Immelt wherein despite being given significant tax breaks for the company by the Obama administration in order to generate more jobs within the U.S. actually transferred a significant portion of the company’s manufacturing division outside of the U.S. instead.
From a business operations standpoint, the actions of Immelt are within reason since manufacturing products in a far cheaper location simply makes good business sense, however, when taking into consideration the fact that the tax break given was to help generate local jobs the mere fact that he did the complete opposite questions the ethics behind the decision undertaken.
The linkage between effective leadership, decision making and ethical management is supported by stewardship theory which states that managers need to “do the right thing” despite how such actions could potentially compromise the profitability of the company.
Under such a concept, the use of ethical training and existing ethics codes become the best way in order to ensure ethical actions among the employees of a company wherein the focus is on operating and managing a company in a way that benefits the local community which is in line with CSR (Corporate Social Responsibility) oriented business practices (Shelley, 2005).
Under the perspective of stewardship theory, ensuring organisational decisions are made ethically is done through a business environment based approach wherein the internal culture of a company influences the manner in which business decisions are made ethically (Shelley, 2005).
This internal culture is often brought about through the actions of the CEO and the upper management of a company wherein their actions and supportive behaviours reflect on the employees as a whole.
For instance, when comparing the benefits, salaries and profit sharing of employees from Market Basket to those received by employees of Wal-Mart, it can be seen that there is a world of difference between the two wherein Market Basket employees are actually given a “living wage” and benefits that actually help them survive as compared to the tactics utilised by Wal-Mart.
The reason this is being brought up is due to the fact that the case of Market Basket shows that if there is sufficient will in the executive branch of the company, then it is possible to create organisational decisions that are done ethically instead of being for pure profit (i.e. low pay for Wal-Mart employees).
This is where the theory of the firm/strategic leadership is applied which states that: CEOs have the capacity to influence how likely a company is to engage in the act of ethical decision making. Under this particular theoretical assumption, a well structured ethical code of conduct and ethical training will result in ethical actions by the company as a whole.
The reason ethical actions are important within the context of operational management is due to the work of Groves, Vance & Paik (2008) who stated that employees are not so dumb as to not realise when they are being subject to unethical decisions for the benefit of others (i.e. lower employee wages for higher shareholder returns for investors) and, as such, respond accordingly to the situation (i.e. unethical decision making.
Thus, when examining both cases of Wal-Mart and Market Basket, it must be asked: “what organisation is mostly likely to produce employees that ascribe to ethical decision making?” The answer is immediately obvious given the statement indicated by Groves et al. (2008) regarding employees and their response to being subject to unethical decisions.
One way of looking at concept of ensuring that organisational decisions are made ethically is from the perspective of Bowen & Heath (2005) and their view regarding self-interest and consensual constraint for corporations. From the perspective of Bowen & Heath (2005) it is actually impossible for a corporation to act or make a decision against its own interest.
This manifests itself in the decision to pursue an act of self interest in order to maximise the utility that can be derived from operating in a particular manner (Ferrell, Rogers, Ferrell & Sawayda, 2013).
For instance, since the early 2000s there has been a trend in outsourcing wherein companies within the U.S. have been outsourcing their production processes to countries such as China, India and Taiwan in order to lower the cost of labour associated with the production of their goods (Ferrell et al., 2013).
Apple and Microsoft are notorious for such a practice by outsourcing the production of their iPhone and Xbox One devices to Foxxconn which is the largest third party manufacturer in the world.
While there is nothing with the practice of outsourcing, the problem in the case of many third party manufacturers are the conditions that their employees are subject to. For instance, in the case of Foxxconn they actually had to place suicide prevention netting on several of their buildings in order to prevent workers from jumping to their deaths.
Such actions are in part due to the horrendous working conditions in such companies and the relatively low pay workers get in compensation.
From an organisational ethics standpoint, the continued practice of outsourcing the means of a company’s production to such locations is extremely unethical given the conditions the workers there are subject to, however, from a competitive standpoint, companies that outsource their methods of production cannot simply stop and revert to their original method of production due to the price point advantage their receive through outsourcing (Verbeke, Ouwerkerk & Peelen, 1996).
Evidence of this can be seen in the various news stories where Microsoft and Apple have actually stated to the media that they would evaluate their position regarding their outsourcing of production to Foxxconn due to recent news stories regarding the deplorable conditions workers are subject to.
However, when examining the current third party manufacturer of these companies, it can be seen that it is still Foxxconn. Simply put, when it comes to the perspective of Bowen & Heath (2005), they are absolutely right since when it comes right down to it, self-interest in the face of intense competition is the only means by which a company can continue to survive.
Due to the competitive nature of companies, it becomes harder to implement ethical decision making as corporations struggle to make profits in an economy where morally ambiguous corporate actions result in differing price ratios which are not in favour of a company that is not willing to pursue alternative actions of possible moral ambiguity.
Ensuring Ethical Decision Making
When it comes to ensuring ethical decision making within an organisation, this comes in the form of adhering to a certain moral code involving the way in which a business provide goods and services to their consumers or deal with their competitors.
It is based on this that in order for leaders to ensure ethical decision making within an organisation, it is important that the eight ethical principles found in the Global Business Standards Code are implemented within the company. By ensuring their adherence in company operations, it makes it more likely that the organisation as a whole will become more ethically oriented.
Since Bowen & Heath (2005) state that it is actually impossible for a corporation to act or make a decision against its own interest, then in order to bring about ethical decisions within an organisation, ethical actions must be in the direct interest of the company. The following are the principles of the Global Business Standards Code and how they are applied to ensure ethical decision making within a company:
Fiduciary principle – can be described as a form of duty or obligation of an employee to the firm wherein they work in order to promote the interests of the company, ensure that other employees are benefitted from ones actions and lastly does not pursue any action that promotes one’s own self interest. In essence, the fiduciary principle can be described as one’s own loyalty to the company.
Property principle – is oriented towards an employee respecting the property of the company as well as other individuals. This comes in the form of ensuring that should the opportunity arise between a choice of stealing from the company or another individual or choosing an ethical course of action, it is hoped that a person will choose the most ethically sound choice.
Reliability principle – is directly connected to honouring ones commitments. This comes in the form of following the guidelines set in employee contracts or following on through with a promise made to a customer.
Transparency principle – specifically states that an employee must work in an open and truthful manner so as to better reflect company rather personal agendas. The principle of transparency is an important matter to take into account since if an individual is transparent in the way they work then it is likely that they will not get into any trouble regarding issues relation to honesty.
Dignity principle – is connected to the belief that an employee has the obligation to respect the dignity of all individuals. This comes in form of ensuring company operations in production or services adhere to proper ethical guidelines that ensure that a safe working environment is assured to employees and that adequate compensation is given for their work.
Fairness principle – connected to the belief that stakeholders who have a vested interest in the company should be treated fairly.
When it comes to corporate actions this take the form of fair competition wherein companies will not utilise underhanded techniques in order to get ahead in a competitive business environment, rather, they will utilise fair business strategies that ensure the company is looked upon respectfully by others.
Citizenship principle – is based on the belief that an employee should act as a responsible citizen within a community. Within companies this takes the form of the employee committing to adequate moral codes of conduct that do not harm either the company or the various employees that work in it.
One example of a company that follows these types of principles would have to be one that immediately puts a stop to unethical business procedures when it is discovered that the means of production degrades human dignity.
For example, with so many companies outsourcing to China it is easy to turn a blind eye to the environmental conditions in a Chinese factory since not only is the facility far away but it assures the company of a steady profit.
A company that follows the Global Business Standards Codex would insist on better working standards for employees at an outsourced factory despite increased production costs in order to better uphold the principle of human dignity and fair business.
On the other, hand a company that does not follow these principles would have to be one that is well aware of the unethical working environment in Chinese factories yet does nothing about it in order to preserve profits.
Implementing a Program
Based on the various facts that have been presented so far, it can be seen that in order for leaders to ensure that organisational decisions are made ethically there is a need to implement a program in the company where the aforementioned principles in Global Business Standards Codex are implemented on a company wide basis.
One way in which this can be accomplished is through a program entitled “Employee Ethics and Integrity” which will be a Code of Ethics that shall be strictly enforced by a company that all employees are expected to conform to.
The value of implementing these particular standards is that it ensures that the company has a proper ethical basis by which it conducts its business. This will reflect in aspects related to corporate social responsibility, adherence to proper ethical methods of accounting and environmental protection as well as generally ensuring that employees within the stick to practices which are to the benefit of the company itself.
Conclusion
It can be assumed that if such a program is properly implemented within the near future, problems related to corporate mismanagement, falsification of data, skirting laws and government regulations can be avoided with employees taking into consideration the consequences of their actions based on prescribed disciplinary action should violations of the ethical code of conduct be violated as outlined by the Global Business Standards Codex.
Not only would this adherence benefit a company but it would most likely benefit consumers as well.
Reference List
Bowen, S. A., & Heath, R. L. (2005). Issues management, systems, and rhetoric: exploring the distinction between ethical and legal guidelines at Enron. Journal Of Public Affairs (14723891), 5(2), 84-98.
De Cremer, D., Dick, R., Tenbrunsel, A., Pillutla, M., & Murnighan, J. (2011). Understanding Ethical Behaviour and Decision Making in Management: A Behavioural Business Ethics Approach. British Journal Of Management, 22S1-S4.
Ferrell, O. C., Rogers, M., Ferrell, L., & Sawayda, J. (2013). A Framework for Understanding Ethical Supply Chain Decision Making. Journal Of Marketing Channels, 20(3/4), 260-287.
Groves, K., Vance, C., & Paik, Y. (2008). Linking Linear/Nonlinear Thinking Style Balance and Managerial Ethical Decision-Making. Journal Of Business Ethics, 80(2), 305-325
Shelley, S. (2005). Ethical interpretations of management decision making in higher education. International Journal Of Management & Decision Making, 6(3/4), 1.
Verbeke, W., Ouwerkerk, C., & Peelen, E. (1996). Exploring the Contextual and Individual Factors on Ethical Decision Making of Salespeople. Journal Of Business Ethics, 15(11), 1175-1187.