A Study of Ethics in Relation to Business Practices

Combining ethics and business can be difficult at times, for every business’ goal is to make profit and certain ethical issues might be overlooked in order to avoid complications that might obstacle the company’s activities and jeopardise its revenue opportunities.

The relationship between ethics and business has been discussed by many experts, such as Friedman (1970), who argued that a manager’s decisions should be driven by money, however they should not ignore the basic rules onto which every modern society is based. This may sound like a good solution to the ethical issues most companies have to deal with nowadays. A number of practical solutions to the ethical problems encountered by leaders who manage a group of individuals was given by Aristotle, a Greek philosopher who certainly didn’t run a company, yet analysed and discussed the duties of a leader, placing great importance on their morality and virtues, as every leader should be virtuous to deserve the name, as the pointed out in his Nicomachean Ethics.

In the first place, it would be useful to analyse the meaning of the adjective “ethical” before applying it too liberally. Ethics comes from ancient Greek “ethos”, which means “character”, intended as the common belief that guides and determines the actions, behaviours and thoughts of a community. Ethics are not “absolute”, as different communities can have different opinions as to what is ethical and what is not, so before conducting a critical study on the relationship between ethics and business, it should be clarified that when it comes to business, western countries are the ones which dictate and set the standards for what is ethical, as Miriam Schulman (n.d.) correctly observed.

Now, ethics and law do not always go hand in hand, as law can sometimes be unethical and a good action which may seem morally right could be deemed illegal by a country’s code, e.g. when Hitler ran Germany, the holocaust, albeit unethical, was permitted by the law, whereas helping a prisoner escape was considered illegal, even though arresting someone and forcing them to work without giving them a salary just because of their religious beliefs or nationality is absolutely unethical. Every manager should be able to distinguish between what is legal and what is ethical as to make decisions that do not simply conform to the law, but are also ethically “right”.

Ethics, in fact, has to do with what concepts such as good, bad, right, wrong, fair and unfair.

German philosopher Marx described the whole production process, explaining how the worker alienates themselves when manufacturing/creating something, whatever this is, emphasizing the importance of equality as opposed to meritocracy. That is the main reason why Marx’s theories have been questioned many times, for it is not easy to tell whether equality is ethically correct, seeing as people who possess qualities that others don’t and work harder than others deserve to be given more responsibilities and rewarded accordingly, as Michael Young (1958) observed. Human society and business alike are dynamic, which means that they tend to change alongside with people and governments’ needs, expectations and actions. It is their complexity that makes corporate ethics such an interesting, yet critical subject that every human resource manager should understand in order to make decisions that might benefit the company without damaging their employees in any way.

In the following paragraph, a few cases will be analysed and discussed as to show what kind of issues may arise when business ethics are violated and determine whether Human Resource Management is compatible with them.

Psychological implications in human resource management.

Managing an organisation’s employees is no easy task and requires specific skills, without which a manager might severely damage the company they work for. In fact, because employees are not to be seen as mere workforce, but also and mainly as individuals who have ambitions, needs, expectations, problems and feelings, a human resource manager, in fact, should know that when it comes to managing people, theoretical issues, as well as practical ones, are faced. Therefore, a deep understanding of the human psyche and behaviour is required, which is why psychology plays a very important role in human resource management, as Suraj Kumar (2011) pointed out.

Job dissatisfaction is not to be underestimated, for all humans tend to adapt to new situations and, when they find themselves in unpleasant ones, research has revealed that they do whatever they can to reduce dissatisfaction. These defensive mechanisms may negatively affect a company, leading to bad performance, absence, low productivity, withdrawal behaviours and, last but not least, lack of loyalty, in the sense that employees will leave the company as soon as given an opportunity to do so, damaging the company, which will have to invest time and money in the finding and training of new employees. (Rosse, J. G., Saturay, S. L., 2004)

O’Toole (n.d.) argued that Aristotle’s theories on leadership and ethics could be adapted to modern times and used by managers to make fair decisions that will benefit the companies they work for and the employees they supervise. To do so, they should ask themselves what they would want if they were in the employees’ shoes, how they would like to be treated, what kind of treatment and incentives would help them express their potential, whether they would like their opinions to be kept in consideration when important decisions that might affect their careers are made and so forth.

Moreover, Aristotle, as well as other thinkers, such as Socrates, maintained that a leader (and mankind in general) should not be enabled to rule other people unless they know themselves and are virtuous. According to Socrates, self-knowledge is an ability that prevents failure from happening. In light of such enlightening observations, it would be useful to analyse a few contemporary cases.

Nike Inc. is a popular and successful sportswear brand and equipment supplier whose net income, as of 2010, was over US $1, 900 billion (United States Securities and Exchange Commission, 2010). The company has been harshly criticized for manufacturing their products in countries such as China, Vietnam, Mexico, Cambodia, Pakistan and Indonesia, where, according to Locke (2002), not only adult employees underpaid, child workers are used especially in stitching centres.

Even though Nike’s code of conduct says that the company provides healthy and safe workplaces for all their workers, ensures that nobody below the age of 18 can sign a labour contract with them, does not use any form of forced labour, respects their employees, does not practise discrimination and commits to providing their employees at least the minimum wage plus benefits (Kochan, A. T., Schmalensee, R., 2003) , Australian Channel 7 News (2008) revealed numerous cases of forced labour involving the American company and a few years later Associated Press (2011) published an article reporting cases of forced labour and employee abuse at some of Nike’s plants in Indonesia.

Are forced labour, abuse and child labour ethically correct? Obviously not, seeing as freedom is not just a privilege, it is a right for the simple reason that everyone is born free, even though many factors contribute to shaping humans’ judgement and choices throughout their lives. According to English philosopher Thomas Hobbes (1651), a person is free when they can decide to do something even though they could have done otherwise. That is what free will, intended as liberty, is.

With regards to child labour, the employment of people below a certain age, which is not always 18, is seen as a form of exploitation in most western countries, for, ethically speaking, children are weaker than adults and should not be made to work hard, especially considering that several western companies, such as Nike and Gap (The Guardian, 2007) have been criticised for collaborators with contractors which employ children, force them to work under horrible circumstances and treat them nearly as slaves, in terms of minimum wage and abuse.

It goes without saying that these practices are unethically correct, as we are all born equal and a person should not exploit and abuse of another one. As reported by The Guardian (2007), after the child labour scandal, Gap confirmed its code of conduct, promising to put an end to its collaboration with those contractors found guilty of child labour and abuse and to withdraw thousands of products which had been manufactured by children.

Two other interesting cases are those of H&M and Zara, two popular clothing retailers which have been accused of using cotton which might be picked by children in Uzbekistan and Bangladesh, where they are forced to work under horrific conditions.

They both responded to these accusations stating that their codes of conduct banned child labour, however ensuring that raw materials are not picked by children is a very difficult thing to do, for most underdeveloped and developing countries fail in guaranteeing that unethical practices, such as slavery and child labour, are removed. (Independent Television News 2009) Nowadays, ethical behaviour and commitment to moral values (non-economic ones) are often used by companies to promote their services and/or products. However, Adam Smith (1952) argued that business people’s ultimate goal is to make the public believe what they want to believe as to raise prices. That is why sensitivity to ethical issues is often included by companies in their marketing strategies. Try as they might, governments can not monitor corporations’ sensitivity to ethical issues, as ethics regulates details of human actions and behaviours which governments can not control. (Berle, A. A., & Means, G. C., 1932).

Utilitarianism is a philosophical trend initiated by Jeremy Bentham (2005) and John Stuart Mill (2009), who spoke thoroughly about ethics, their relationship with business and human rights, maintaining that a right action leads to a good consequence, therefore, the ethical worth of an action can be gauged by its outcome. Unlike other philosophers, such as Hume (1975) or Locke (1997), who simply maintained that every action has a consequence without giving recommendations as to what is the most ethical thing to do, Bentham and Mill argued that, when faced with a decision, everyone should carefully consider their options and the consequences implied by each of those options and finally choose the one that will generate the greatest felicity. Only by going through this specific decision-making process can one be certain of being making an ethically correct choice. According to Richard Mervyn Hare (1981), most people tend to use intuitive, instead of deductive, moral thinking to make decisions, as in doing so, happiness is maximised. However, when it comes to more delicate matters, such as human rights, managing and supervising other people and ensuring that employees are treated fairly not only because employee dissatisfaction is known to increase the likelihood of failure, but also and mainly because it is right to treat employees fairly, a more deductive and critical thinking method is required.

Applying the utilitarian principle to business and human resource management in particular, a manager should consider their various options, asking themselves what the various courses of each action might be, what costs, risks and harms they would imply, not only for the company, but also for its stakeholders, employees and themselves and all those who might be somehow affected by their decision. The main problem managers are usually faced with is to avoid potential conflicts of moral rights. In order to do so, a manager should ask themselves what choice they have the moral right to make in relation with the current circumstances, what moral rights the other party have and whether there is a conflict of moral rights between themselves and the other party. Should there be a conflict of any kind, the manager should whether their rights or those of the other part deserve precedence.

While ethics are often overlooked especially during negotiations, when information that might jeopardise the success of a merger, just to name one, is withheld, managing employees is a completely different matter. In fact, keeping account of ethics when making decisions that involve employees, elaborating strategies that will affect them or simply assigning tasks is essential to the creation of a stimulating and productive working environment.

According to American psychologist Hertzberg (1993), job enrichment is the best method to motivate employees, ensure their loyalty and cooperation whilst letting them express their abilities and fulfil themselves. In order to create a pleasant working environment that stimulates employees and benefits the company, a manager should make sure that each employee is given the opportunity to perform different tasks of varying difficulty, faces challenges and receives constant feedbacks.

Communication is key to the encouragement of ethical behaviour and motivation, as through it, a manager can provide merit recognition. Among the other things, a manager should provide their employees with adequate resources to perform their assigned tasks well, give clear instructions, let employees know what the corporate mission is and make them feel involved in the decision-making process, provide them with enough freedom, rewards, incentives and encourage them and, last but not least, ensure job variety so that every employee can express their abilities and feel self-fulfilled.

Now, in order to create a positive working environment where the manager takes actions that display their virtues, instead of their vices (dishonesty, greed, laziness, selfishness, neglect…), ethical behaviour should be motivated. Therefore, it is important that the manager should set the example among employees and develop a programme that rewards good behaviours and penalises bad ones through penalties and sanctions.

Rules and expectations that define what is acceptable and what is not should be written down and communicated to employees, as to anticipate bad behaviours. At the same time, good behaviours should be rewarded through incentives and praised.

Participative management techniques should be used to motivate ethical behaviour and, in order to assure justice when it comes to disagreements and conflicts, these should be handled impartially and formally. The company should also create an effective method for employees to file complaints and report unethical or illegal behaviour so that they won’t have to go to the ombuds office every time a workplace issue arises.

Regardless of the efficiency of its method, which might also include an ethics hotline and website, the company should use an ombuds office to investigate complaints with confidentiality, ethics and objectivity.

Conclusion

Ethics differs from country to country, being a framework of rules which define what is right, wrong, good, bad, acceptable and unacceptable. Corporate ethics in China is different to corporate ethics in France, which does not mean that one of them is wrong, whereas the other one is right, since ethics goes hand in hand with culture. Therefore, a relativistic approach is sure to be the most appropriate one to study ethics without letting personal prejudices and opinions influence the course of the analysis.

Ethical norms evolve and, nowadays, consumers are sensitive to ethical issues, such as forced labour, diversity, discrimination and child labour, which is why western companies such as Nike (Associated Press, 2011) and Gap (The Guardian, 2007), which have been accused of violating basic ethical norms, have had to revise their codes of conduct and reassure consumers that their products, despite being manufactured in underdeveloped and/or developing countries, where governments still find it difficult to eradicate slavery, forced labour and other unethical practices. Now, when it comes to human resource management, ethical behaviour is strongly recommended for research (Hertzberg, F., 1993) has proved that it plays a very important role in creating a productive working environment. While ethical norms are often overlooked during negotiations, it is crucial that a manager should be virtuous, set the example among their employees and take actions that will produce the greatest benefit for the company, its employees and themselves.

In this regard, three principles should be applied in order for the manager to make decisions that display their virtuous traits and benefit those around them: the utilitarian principle, the right principle and the care ethics principle. In other words, before taking an action, a manager should ask themselves whether that action will do the greatest good for those who will be affected by it and evaluate all the different options, then, they should ask themselves what action they have the moral right to take and, finally, whether their choice “cares” for their needs and those of the people with whom they have working relationships (coworkers, stakeholders, supervisors, suppliers, employees and so forth…)

That is why every working environment should be regulated by ethical norms and employees should be encouraged to obey them through incentives and rewards, which will ensure their satisfaction and loyalty, which have been proved to greatly contribute to the enhancement of employee performance, hence to the corporation’s success. (Judge, T. A. et al., 2001)