One of the challenges we face is deciding what

MGMT20134 Business Ethics and Sustainability Unit 2 Key Issues in Business Ethics Table of Contents Introduction 2 Learning objectives 3 Overview: What is an ethical issue? 4 Four levels of business ethics 5 Ethical Issues: industries sectors and professions 6 Ethical issues in HR 6 Ethical Issues in Marketing 7 Ethical Issues in Accounting and Finance 8 Guided Readings 10 Journal Readings 11 Introduction One of the challenges we face is deciding what is or is not an ethical issue in business. As mentioned in the previous unit, courses such as Business Ethics, CSR, and Sustainability are often not mainstreamed in business courses and MBA programs. So many managers and leaders simply don’t recognise a decision or action as having an ethical dimension because they not only don’t know what to look for, it may not even occur to them to look! Business ethics consists of business principles and standards that guide behaviour in the world of business (Ferrell, Fraedrich and Ferrell, 2015). MacDonald (2015, p 10) describes it as the rules, standards, codes or principles that provide guidance for morally right behaviour in specific business situations.” Ethics is the thought process that comes into play when we are deciding between right and wrong, or more typically, about weighing two rights. It’s establishing the process of using appropriate principles of decision-making when differing values come into conflict with each other (Driscoll and Hoffman 1999). Ferrell Fraedrich and Ferrell (2015) suggest that the study of business ethics does not just mean moralising about what should or should not be done in a particular situation. Rather, it systematically links the concepts of morality, responsibility, and decision-making in organisations. We can see a direct relationship between ethics and the business world. Allison (1998) has argued that ethics is fundamental to business conduct. He contends that a moral relationship lies at the basis of agreements and contracts between two people or two organisations, and that unless there is a basis of trust, business cannot proceed. Solomon (2004) suggests that the values of business life and the values of the rest of life and society are rarely far apart; after all, people in business are people with private lives and a sense of community. We can also identify more direct relationships because organisations are concerned with defining standards of behaviour through rules and regulations and organisational culture- i.e. the action that they ought to pursue and perform. Organisations clearly exist in society and must abide by the minimum moral code of that society Law is defined as the minimum moral standard of society (Buchholz, 1989). Ethics has everything to do with management. Managers who fail to provide proper leadership and to institute systems that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds (Paine 2000). Learning objectives This unit has the following learning objectives: 1. To identifying three key values that enable decision makers to evaluate activities that might have significant ethical dimensions: • Integrity • Honesty • fairness 2. To understand and identify the range of issues that typically challenges managers, leaders and employees. 3. To understand and recognise the four levels of ethical issues. 4. To identify the type of ethical challenges that we face by profession and industry sector. 5. To explore and understand the concept of Conflict of Interest 6. To consider some of the ethical issues in HR, Marketing and Accounting and Finance.   Overview: What is an Ethical Issue? Unfortunately it is not as simple to say that an ethical or unethical issue is one where there is a clear breach of the law or a moral principle. In some cases people organisations might act within the law, yet be seen as unethical. As many have suggested – on occasion lying to somewhat to minimise harm or to spare them from pain or grief might be seen as preferable to following the principle that lying is always wrong thus unethical. An ethical issue can be seen as a problem, situation, or opportunity, which has several possible options, and where each must be evaluated as right or wrong, ethical or unethical. Aguilar states, “Managers who are sensitive to the ethical content of business decisions and operational activities, who agree to behave ethically, and who hold compatible views on how to analyse ethical situations still must confront the inherently perplexing nature of many ethical problems” (1994: p33). Ferrell, Fraedrich and Ferrell (2015) note that the difficulties decision makers face highlights the lack of ethical awareness to the ability to analyse a decision context for ethics. As we will see in Unit 4, a person’s cognitive abilities, specifically their moral cognitive maturity will directly affect their ability to not only recognise a moral issue but the complexity surrounding the issue. Ferrell, Fraedrich and Ferrell (2015) provide a simple approach of identifying three key values that enable decision makers to evaluate activities that might have significant ethical dimensions: 1. Integrity- they describe integrity as an uncompromising adherence to a set or group of values. Integrity of often associated with virtue ethics and in some ways is difficult to defined exactly, yet most people seem to agree that integrity is a key concept or value that builds trust. Some suggest that acting with integrity means acting with consistency. However as we will see in the coming units, it’salso about doing things the right way and seeking to achieve the right or good outcomes in a way that people will respect. 2. Honesty- refers to truthfulness, integrity and trustworthiness whilst fairness is the quality of being just, equitable and impartial. This could include keeping promises and honouring contracts. Ethical dilemmas may occur when being less honest or engaging in unfair practice may in fact advantage individuals and organisations. Do we do the “right” thing or the more profitable thing even when we know we are not being truthful or when our actions will cause harm to others? 3. Fairness- is described as the quality of being just, equitable and impartial. They suggest that there are three fundamental elements that motivate people to be fair • Equality- relates to the way we value the distribution of benefits and resources • Reciprocity- relates to the exchange of favours or benefits and the expectation of such exchanges • Optimization- relates to the trade-off between equity and efficiency. Four Levels of Business Ethics MacDonald (2015) provides a different approach to understanding ethical issue. Rather than using concepts of principles and values as suggested by Farrell, Fraedrich and Farrell above, she used a contextual approach: • Personal Level- each person must engage in ethical decision making as we wrestle with various options and possible outcomes that are associated with business decisions- ultimately we still must make the decision. • Organisational level- as agents of a firm, we make decisions on behalf of or in the interests of the organisation rather than self-interest. This raises the important debate that we canvas in the next unit- if a manager makes the decision for organisation- who is held responsible- the organisation as a legal person or the manager or both? • National Level- at this level ethics relates to the expectations a society collectively holds about the behaviour of its citizens, organisation and the practices deemed acceptable. MacDonaldsuggests that bribery and corruption can be considered as national level issues. • International Level- in many ways this level seeks to address how the national level issues interact on a global stage- concepts such as globalisation, ecological and sustainability and economic aspects such as fair trade, tax inconsistencies, free trade agreements can be seen as ethical because they all have the
potential to generate benefits and harms for few, some or all. Ethical Issues: Industries, Sectors and Professions. There are many different ways of categorising and describing ethical issues. MacDonald (2015 notes some issues can be specific to industries such as the banking and finance, retail or hospitality industries. Some may be specific to the private sector more so than the public and not for profits. Another way is to look at issues as they pertain to the “professions”such as Doctors and Nurses, Lawyers, Accountants and Marketers etc. Farrell Fraedrich and Farrell (2015) simply describe a range of ethical issues that could apply to sectors, industries and professionals: • Misuse of company time and resources • Abusive or intimidating behaviour • Lying • Conflicts of interest • Bribery (and Corruption) • Corporate intelligence • Discrimination sexual harassment • Fraud • Insider trading • Intellectual property rights • Privacy Issues The recommeded reading from the Farrell et al. (2015) text covers each of ehse issues in detail however the issue of conflict of interest warants further attention. Conflict of Interest One of the most misunderstood concepts in business, and business ethcis is what is an actual conflict of interest, when does it occur and what should you do about it. The notion of conflict of interest involves two different but related concepts: Agency- refers to the concept that once you become an employee of an organisation, you become its agent. Your actions should be aligned to advance the interests of the organisation and not your own self interest. The assumption is that employees are rewarded fairly through salary and other benefits and therefore do not need to engage in corrupt behaviour that advances their own interests over that of the organistion. Reciprocity-refers to the process by which individuals work together and establish trust- the concept of doing something for another person with the expectation that the favour will be returned. Different cultures have slightly different ways of facilitating reciprocity- for example in western societies it is typically established through formal agreements where as in Confucian cultures it is through the echange of gifts and favours. Clearly establisinh relationships is at te heart of business activity and reciprocity is required for this to happen. However it also provides the opportunity for individuals to misue the relationships fr personal rather than organisational advancement. A conflict of interest is a situation where an individual advances their own personal interest at the expense of the organization. It can also be were a person’s existing relationships with stakeholders results in decision making being potentially compromised. Real v Perceived Conflict of Interest Another problem is the distinction between real and perceived conflicts of interest.A real conflict of interest is when a manager or leader’s ability to act in the interests of the organisation is compromised and they make a decision which clearly is for their own benefit at the expense of the organization. A perceived conflict of interest occurs when stakeholders and othersparties believe that a manager or leader’s ability to act in the interests of the organisation is compromised. It does not necessarily mean that it is, but people believe it to be the case. When this occurs it suggests a breakdown of trust both in the manager and in the decsion making process. The best strategies for dealing with conflicts of interest is to have clear and transparent processes in place for declaration of private interests, perhaps the requirement forsuch interest to be managed at arms lenth or neutrally. Secondly if the potential exists for a conflictto exist or be perceived to exist then removing oneself from the decision making process may allay fears and concerns of a biased decision making process. Ethical Issues in HR, Marketing and Finance McDonald (2015) provids extensive discussion in her book addressing a range of professions and the ethcial challenges that confronts them. During your MBA you will undertake courses in Leadership, Marketing, Accounting and Finance, Economics etc, all of which have ethical challenges that must be met. Essentially marketing involves communicating the benefits and attributes of a product or service as a means of encouraging people to commit to a purchase. The ethical challenges in marketing will revolve around the product promotion, distribution, the collection of information about the market and people and how that is used. The techniques used will involve aspects of management ranging from communication, psychology, personality, motivation and economics and finance. The finding the “right” balance between accurately presenting information and using unethical influence can often be difficult to achieve. The effective management of Human Resources presents many ethical challenges that occur at all stages of the employee- employer relationship, at selection, in the workplace and on organisational exist. Selecting employees on the basis of merit linked to qualifications, capability and experience maybe the objective of effective HR but indirect and direct discrimination can easily occur during the selection process. Furthermore some applicants falsify their documents, CVs and qualifications and embellish or fictionalise their work experience and capability. Managers and leaders sitting on selection panels often lack the skills and capabilities to adequately interview and selection the right person for the job. Once employed managers and employees have duties and obligations that relate to the work environment, occupational health and safety, the delegation of work, due process around performance management and just and fair rewards. Organisational exist is also a challenge with many organisations poorly handling retrenchment or voluntary departures. As we will see in later units, ethical issue in human resource management will largely be like to ethical principles such as justice, fairness, acting with integrity and establishing policies that insure due process when challenging issues such as discrimination, bullying and harassment arise. The range of ethical challenges arises in Accounting, Finance and Economics that relate to both internal organisational functions and engagement with stakeholders and broader society. Internally ethical challenges such as misappropriation of resources, fraud and corruption are significant challenges for organisations. The KPMG Biannual fraud survey found the average fraud perpetrated against Australian and New Zealand businesses averages $3million, moreover only 30% of frauds were actually reported. This is essentially due to a failure of internal controls and systems, not mention a failure of HR for employment dishonest people. Tax minimisation, tax avoidance schemes and money laundering operations all create harm by organisations not meeting their minimal moral duties to society. In some cases these are not only unethical by illegal activities that support criminal activities. How we resolve these dilemmas will be determined by numerous factors. Perhaps the most important issue is whether we actually recognise them as moral in nature. Unless we possess the ability to understand the moral complexity associated with a decision we could undertake a course of action that may result in significant harm or risk to ourselves and to our organisations under the mistaken belief that there are no “ethical” issues or that “business is business”. Required Reading This chapter provides a full discussion of the concepts and topics briefly outlined above. Students should also note the Shareholder issues perspective briefly discussed on page 65. Additional Reading Gael McDonald’s text is a very thorough book that analyses business ethics from multiple perspectives. She has developed individual chapters to ethical issues in different professions. Chapter 1 provides an overview of her perspective on business et
hics, what is an ethical issue and the importance of ethical awareness. Once you have read this chapter you could find the “professional issues” chapter that aligns with your previous work roles of experience commencing with Ethical Issue in IT (Ch3) to Ethical Issues in Small Business (Ch. 8). This article presents five questions as analytical framework for analysing ethical dilemmas confronted by managers and professionals. It seeks to assist individuals to understand the nature of a problem and the ethical dimensions so as to avoid making ethical mistakes. It builds upon the concept of ethical awareness discussed earlier in these course notes and also briefly introduces some of the theories and concepts that will be explored in much greater detail later in the course. This article examines relatively recent unethical practices and examines the issues that drove behaviours and the key ethical principles involved. It also highlights a range of case studies that demonstrate practical applications of values drive approaches that assist organisation sin achieving competitive advantage. It concludes with a discussion of the advantage and disadvantages of ethical values and how they can be incorporated into organisational strategy

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