People have always adhered to compliance with rules, regulations and standards that govern everyday living. Most people are aware that there are universal codes of ethics and morals that guide in decision making, as well as in the assuming the expected conduct of behavior. Ethics, most especially, is crucial in business. As asserted by Pitts & Kamery (2003), “ethics are important to firms for a variety of reasons: including the legal responsibilities of the executives, costs of violations, and reputation” (p, 79). Likewise, organizations that design ethical codes of conduct were proven to be more successful and last longer (Wadhwa, 2009; Worcester, 2007). In addition, those organizations that adhere to ethical standards were noted to have recognized that it is “crucial to sustainable excellence” (Smith, 2013, par. 3). It is in this regard that one aims to explore the contention that ethical companies are more stable and successful.
Description of Approach for the Research
The current study would initially provide an appropriate definition of business ethics and present rationales for its importance in the contemporary business settings. Likewise, statistics and relevant trends would be explored in greater depth to determine the number of organizations that design and incorporate the ethical codes and standards in their respective policies and procedures. In addition, a closer evaluation and determination would be conducted to ascertain if any link exists between designing ethical standards or code of conduct exists and that of organizational success
. The measures of success could use any of the following variables: (1) financial condition and performance; (2) projected image or reputation; (3) market share; and (4) ranks or ratings, awards, or accolades received.
Likewise, the current research would also explore any link between organizations that do not contain any designed ethical standards with propensities for violations of federal laws . As such, it was allegedly noted that measuring the costs of ethics in terms its repercussive effects to the organization could be difficult and challenging. Therefore, some studies have tried to quantify the computations for costs by using any of the following estimates: internal or external failure costs; preventive costs; appraisal costs; as well as penalties and sanctions for violating ethical standards .
Overall, to reiterate, the thesis of the study is to explore the contention that ethical companies are more stable and successful. The main points of the study would present a more comprehensive definition of business ethics; the importance of business ethics to various organizations; and some current statistics on organizations practicing business ethics. In addition, it would also identify the effects of conformity and adherence to well designed ethical codes of conduct to the organization and its stakeholders; the effects of violations of ethical standards to contemporary organizations; and a closer evaluation of any significant links between the practice of business ethics and organizational success. The findings would assist in arriving at a conclusive outcome which validly supports the indicated thesis statement.
Definition of Business Ethics
The Stanford Encyclopedia of Philosophy defined the concept of business ethics
as “the applied ethics discipline that addresses the moral features of commercial activity” . Concurrently, a similarly transcribed meaning was provided as “the moral principles and standards that guide behavior in the world of business” (Ferrell & Fraedrich, 1997, p. 6). Dimitriades (2007) cited the latter definition of business ethics through presenting separate definitions of the terms ‘business’ and ‘ethics’. As expounded, business could mean any entity or organization that was allegedly formed with the aim of manufacturing a product, providing a service, or promoting other specific endeavors. As such, since businesses operate amidst forces in the external environment and impact different stakeholders, these organizations are expected to abide by some moral standards that govern the concept of doing right and good.
The Importance of Business Ethics to Various Organizations
Different studies have been conducted to determine the reasons why incorporating business ethics through an organization’s code of conduct or behavior or through the design of company policies that focus on ethical standards and discipline would apparently prove to be significantly beneficial. It was asserted by Wadhwa (2009) “that companies without good ethics are far more likely to fail due to their inability to sustain or hear an inner voice to guide them through the dark times to the light” (par. 17). It could, therefore, be deduced that a knowledge on business ethics would provide organizations with the inner voice that guides stakeholders in making decisions that abide by universal moral laws. As such, it provides a clear set of guidelines and directions that would assist various personnel in making the most appropriate course of action in the light of challenging situations where conflict of interests could preclude making straightforward decisions.
Concurrently, Pitts & Kamery (2003) had asserted that organizations that have put policies and procedures which clearly state efforts to adhere to ethical standards could be sanctioned lesser, if any violations of the federal laws had emerged. Finally, those organizations that have supported the need to design ethical standards in their organizational policies and procedures have been reported to be more preponderant to greater opportunities, increased customer patronage, greater financial income, and positive corporate image (Wadhwa, 2009; Worcester, 2007). Their sustained ability to project a good reputation through observance of ethical standands attract a wide range of clientele who contribute to organizational success.
Current Statistics on Organizations Practicing Business Ethics
Almost 30% or 43 organizations are reportedly headquartered in the United States. Likewise, there have been organizations that consistently made it to the list for six years now since recognition has initiated. These organizations that made it to the WME list for the past six years are noted herewith: “Aflac, American Express, Fluor, General Electric, Milliken & Company, Patagonia, Rabobank and Starbucks” (Ethisphere, 2013, par. 3).
An important information was revealed by Worcester (2007) in terms of how designing code of ethics in organizations has evolved. As disclosed, “in 1986, an Institute of Business Ethics (IBE) survey showed that only 18 per cent of larger companies had codes of ethics; by 2006, more than 90 per cent of FTSE 100 companies had one” (Worcester, 2007, par. 9). The failure of organizations and its stakeholders who allegedly violated code of ethics had provided the impetus for the recognition of its importance.
Effects of Conformity and Adherence to Ethical Codes of Conduct
Conformity to ethical codes of conduct and ensuring that the organization has designed policies and procedures that govern ethical behavior was noted to be sanctioned less in case of federal law violations . One of the most famous examples is Johnson & Johnson’s handling of the Tylenol case. The immediate action of its executive officers, particularly James Burke, the company’s chairman, prevented further damages and ensured that the situation was effectively contained. The organization’s Credo, which incorporated ethical standards in terms of responsibility and accountablity to the clients first had assisted in minimizing costs and in completely damaging the reputation of the organization and its various stakeholders.
Likewise, organizations could be protected from spending excessive amounts to address possible litigation that could ensue from violating ethical standards. In addition, the reputation of these organizations would not be put at stake. Thus, organizations that consistently exhibit positive corporate image and advocates social responsibility evidently attract more consumers and naturally contribute to sustained financial success. Overall, the ultimate beneficiaries of conformity to business ethics would be the consumers whose interests and needs are aptly satisfied.
Effects of Violations of Ethical Standards to Contemporary Organizations
Violations of ethical standards have created devastating impacts to
organizations. One of the most celebrated cases that exhibited gross violations of federal laws in the Enron case . As emphasized, Enron, despite having a good set of ethical codes, allegedly failed due to the wanton disregard of these codes by the organization’s executives, to wit: “they were checked neither by their own code of ethics nor the law of the land, and they escaped scrutiny from their auditors, their board and their non-executive directors” (Worcester, 2007, par. 11). Likewise, Petrick & Scherer (2003) asserted “that the neglect of managerial integrity capacity is at the moral root of Enrons legal and financial problems” (par. 4).
The effects of violations of ethical standards, therefore include: (1) the
destruction of the reputation of the organization; (2) endangering the organization’s social standing; (3) exposing the erring stakeholders to criminal or civil prosecution; (4) potential imprisonment for those found guilty of commission of crime or neglect; (5) bankruptcy; (6) harm inflicted to employees for being deceived; (7) excessive costs to be paid in sanctions and penalties; (8) harming secondary or tertiary stakeholders which are affiliated to keep and sustain the organizational interests intact; (9) harming the industry where the organization belongs in terms of posing similar concerns from affected stakeholders; and (10) posing considerable harm to state and government agencies that govern the operations of these erring organizations . It could be deduced, therefore, that the negative impact of violating ethical standards prove to be costly to the stakeholders; as well as to the long term survival of the organization.
An example of a violation that was excessively costly was disclosed in terms of General Motors’ (GM) inability to recall cars when these were reportedly identified to have defective gas tanks . According to legal facts, the organization opted to deal with legal costs as compared to the excessive damage that would have been sustained should the cars with defective gas tanks be recalled. As such, GM was reportedly sanctioned in the amount of $4.9 billion for their intentional failure to recall the cars which endangered the lives of those who purchased these cars .
Significant Links between the Practice of Business Ethics and Organizational Success
There is a strong link between the practice of business ethics and organizational success (Wadhwa, 2009; Worcester, 2007; Goessl, 2007). It was emphasized that “businesses that exhibit and promote strong corporate codes of ethics are more prosperous in the long run because they show a commitment to an expectation of sound moral behavior” (Goessl, 2007, par. 2) than organizations without ethical codes of conduct. For example, Starbucks, noted to consistently belong to the World’s Most Ethical Companies have consistently exhibited increasing financial profits as revealed in the following figures:
Source: Forbes, 2013
In addition, Starbucks was noted to have gained the following recognition, awards, and accolades, to wit: “#76 World's Most Valuable Brands; #19 Innovative Companies (#21 in 2012); #605 Global 2000; #703 in Sales; #426 in Profit; #1902 in Assets; and #192 in Market value” . These commendations have affirmed that Starbucks’ reputation as an ethical organization has significantly contributed to a greater number of customers who patronize their products; and in turn, enables the organization to exhibit increasing financial success. Thus, Starbucks’ measure of performance which included positive financial results, ratings and awards, as well as positive reputation or exemplary corporate image contribute to their stability and success.
Another organization that is consistently in the World’s Most Ethical Companies is General Electric (GE). The awards and recognition that the organization has gained included: “#7 World's Most Valuable Brands; #4 Global 2000; #21 in Sales; #24 in Profit; #44 in Assets; #6 in Market value; and #90 Innovative Companies” . Similarly, these commendations have enabled GE to sustain leadership in their field of endeavor as well as gain a positive and reputable image through their years of existence. GE has remained one of the most trusted and known brands globally.
The current discourse has successfully proven that organizations that have
incorporated values and ethics into their decision-making and operations are most stable and successful in the long run. The findings were assisted through support of theoretical frameworks that initially provided the definition of business ethics and presenting its importance to organizations. The significant costs and sanctions associated with violating federal laws; as well as the devastating impacts to the organization and its stakeholders have affirmed the need to abide by ethical standards. Likewise, through the case of Enron, the value of conformity depends largely on the ability of the organization to be effective in communicating these standards through their respective policies and procedures. The inability of the organization’s executives to abide and conform to these ethical standards caused them devastating failure. The effects of violating these standards have been disclosed to be enormous spanning loss of reputation, payment of penalties, and endangering the interests of various stakeholders.
Finally, there were clear links that validate the relationship between conformity to business ethics and organizational success. Through the experiences and remarkable sustained growth of Starbucks and GE, two of the organizations that consistently made it to the World’s Most Ethical Companies for the past six years, it was confirmed that ethical organizations are more stable and successful in the long run. The value of ethical behavior could, therefore, be affirmed through the actions and decisions made by stakeholders in contemporary organizations. Although designing ethical codes do not ensure that all stakeholders would abide perfectly by these codes or that no violations would occur, still, the value of incorporating ethics in business decisions far outweigh the costs of failure to integrate these in organizations today. The value of integrating business ethics in contemporary organizations could never be overemphasized.
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