Ethical Decision Making for Managers


Introduction

Managers are expected to make decisions and this is considered to be their typical task. It is an essential process to achieve long term and short term success. (Fleishman et al., 1991; Mumford et al., 2007). It becomes a norm for organisations to make ethical decisions and sometimes these decisions are related to ones with ethical components (M.E. Brown, L.K. Treviño). It has been indispensable for businesses to consider ethics in their decision makings. It has been a result of frauds and scandals, whereas unethical decisions by leaders have led consequences for the businesses and their stakeholders. (Selart M 2011). These scandals have been broadcasted in media and they came to a public shock about fraud and dishonesty. These scandals made public as direct shareholders or indirect stakeholder to request for improvement in business ethics and better corporate responsibility.

Exploitation of company capital, irresponsible behaviour, fraud, conflict of interest, illegal disturbance, corruption and employee theft are some examples of unethical conduct in any firm. (Fraedrich J, Ferrel L, Ferrel O C, 2013)

Business and organizations do not operate in a vacuum. Their relationship to the society and environment in which they operate is a critical factor in their ability to continue to operate effectively. It is also increasingly being used as a measure of their overall performance.

Corporate social responsibility which derives from ethical decision-making approach has been a significant subject to all stakeholders of the companies. Milton Friedman who won economy noble prize (1970) explain in brief his point of view on The Social Responsibility of Business is to Increase Its Profits. The number of studies on the impact of CSR on business performance is significant. Ethical decision making which leads to a profound CSR seems necessary for all businesses these days. The European Commission (2010) defines corporate social responsibility as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

History

Plenty of events in the history of businesses where their accountability and responsibility were questionable have evolved the idea of ethical decision making and subsequently, the emerge of corporate social responsibility.

There are many cases of irresponsible businesses, but very famous cases of unethical behaviour include (Selart M, 2011):

1. The Monsanto attempts to deal with critical issues about the marketing of genetically modified crops

2. Enron and Arthur Anderson, accounting and auditing scandal

3. Savar Building Collapse in 2013

4. American International Group (AIG) about the subprime mortgage collapse

5. The Coca-Cola Company struggles with ethical crises (Ferrell et al., 2008; Toffler and Reingold, 2004).

Above examples and many different cases from other parts of the world, made the companies consider how their relationship with their suppliers, customers, and society can affect the impact on all stakeholders. Studies proposed that businesses need to incorporate social responsibility in their quality control management systems. They emphasised technology usage in enhancing clarity over the supply chain (Wieland and Handfield 2013).

Ethical Decision Making Key issues

An ethical decision is explained as “a decision that is both legal and morally acceptable to the larger community” whereas an unethical decision can be described as “either illegal or morally unacceptable to the larger community” (Jones, 1991, p. 367).

It means that unethical decisions are not necessarily illegal or following the regulation will not lead to an ethical decision. Ethical decisions are the ones which benefit not only the investors but all the stakeholders (Sprinkle G B 2010).

Government bodies and public sector are not excluded from ethical decision making. As considerable number of officials and politicians were involved in unethical behaviour which caused them negative publicity and some of them had to leave their role because of those incidents. (Fraedrich J, Ferrel L, Ferrel O C, 2013).

Sports are not excepted from this kind of behaviour as well. Using illegal performance drugs by athletes is the main example of the irresponsible and unethical behaviour is sports.

Any action by people, government and firms are being judged by society no matter if they think they are doing right or wrong. In this process of judgment, if the community decides the action is unethical, regardless of right or wrong, that will affect the business or firm’s total accomplishment and slow down their ability to reach their objectives. (Fraedrich J, Ferrel L, Ferrel O C, 2013).

This question may be raised that why studying business ethics is important. Business ethics are not simply the same as individual ethics. (Fraedrich J, Ferrel L, Ferrel O C, 2013). People may think by employing right staff, their organisation becomes ethical naturally. Although it can be a major reason to achieve an ethical company, but it is not enough. Ethical firms are far more complicated than just a person or employee. One reason for this matter is the difference between personal and business moral issues by nature. Something can be a dilemma in personal life, but never occurs to be any important to a business. On the other hand, morals and ethics at work are only for the work environment and if the person’s behaviour does not affect their performance at work, outside ethics cannot be included in the company’s policies and guidelines. Meanwhile, personal ethics do not give the person the ability to make a decision about complex business issues like pollution, unfair labour or corruption.

Being knowledgeable about business ethics can help managers and leaders to identify ethical issues and make an appropriate decision for resolving them. It is also beneficial for them to understand the ways to handle struggle between personal values and the organisational ones.

By rising of social media use by everyone, nowadays, the performance and functions of the corporates are more and more obvious to the public eyes, (Zyglidopoulos Stelios C, 2012); in other words, social media can utilize a high level of impact on corporate attitude in general, and Corporate Social Responsibility in particular (Baron, 2005; Berman et al., 1999; Siegel and Vitaliano, 2007).

Media and especially social media are one of the main sources of receiving information of the corporation stakeholders and they rely on it as a reliable source of information in times where no other way of communication with the organisation exist (Ader 1995). Studies show the companies with more transparent actions and more visible take more responsible actions rather less visible ones operate much less CSR (Fiss & Zajac, 2006).

In addition to the term “corporate social responsibility”, there are other terms and terminologies used by different firms such as corporate sustainability. Corporate sustainability focuses on long-term shareholder value by including in 9 key areas: ethics, transparency, financial return, governance, business relationships, community involvement, employment practices, environmental protection, and product value ( Epstein, 2008). Therefore, this concept is very similar to CSR although it covers a broader area.

An important kind of CSR is related to charity activities and community organisations. It is a way of paying back to the society by the large corporates. For instance, Whirlpool Corporation (2010) donates a fridge to any new house built for a humanity cause. Many others consider ethical decision making in considering the sustainability for the future generations such as Water Future (2016) which assist collaboration among water scientists in the world to find solutions to the world water problems.

Ethical decision making can be done by using or operation in a green way (Sprinkle G B 2010). These activities can include reduce emissions, saving energy, implementing effective recycling system, reducing packaging material and sourcing from the suppliers from a closer distance. Organisations often involve their customers and suppliers to be more environmentally friendly; such as Wal-Mart (2006) introduced a program to limit usage of packaging by their suppliers, in order to dispose 5% of total packaging between 2008 and 2013.

This question may rise why firms involve in ethical decision makings and CSR. There are many reasons for a company to try to make ethical decisions. First, it could be their desire to be good citizens, although it can be in contrast with the profitability of the organisations. For example, Merck (2010), Since 1987 has donated more than two Billion treatments of Mectizan to help eliminate River Blindness and Lymphatic Filariasis.

Other reason for organisation participating in CSR can be the effort to lessen the pressure by some stakeholder groups, such as Non-Government Organisations (NGOs). (Sprinkle G B 2010). These companies see ethical decision making and CSR as another cost to the business and keep it as a way of being positive on publicity and media. It may avoid NGOs or similar groups acting against them and have a negative impact on their reputation. Although some companies executed genuine CSR activities for this reason, but in some other cases it was not a strategic or operational but only cosmetic (Porter & Kramer, 2006, p. 80).

The other reason for the implementation of CSR is foreseeing a potential for a contract or opportunity. This contract can be with employees, other organisations or government. Different experts consider this as the most beneficial active CSR program. (Sprinkle G B, 2010). In a program that has been running by Timberland, the employees have given the chance to take numerous amounts of paid time off to volunteer for social causes of their choice. They believe this schedule assists “attract and retain valuable talent” (Pereira, 2003).

Raising staff motivation can be the main cause as well. Studies showed “people are seeking meaning at work” and, it has become clear which employee motivation was a strong core benefit of corporate responsibility” (Murray, 2007, p. 11). So far, employers at Target received the feedback from candidates that “commitment to the community is one of the top reasons they desire to work for the company” (Needleman, 2008).

As a reason to implement CSR, the impact of customer related issues cannot be avoided. Some customers prefer to buy from socially responsible companies. For example, some Australian retailers (Target, Kmart, Rivers and Coles) were accused of being involved in worker abuse in Bangladesh (ABC, 2013). Thus, Australian shoppers requested a change in this situation. According to a survey conducted by Oxfam, a not-for-profit aid organisation, about 70% of Australians are happy to spend more for garment shopping if workers were provided with reasonable wage and worked in a responsible and safe factory.

Companies that put environmental consideration into action as their way of being ethical and CSR, can reduce their cost and save money in the production process. (Sprinkle G B, 2010). Recycling and using recycled raw material can be one example of this saving.

Finally, companies can utilize CSR as part of their risk management plan. (Sprinkle G B, 2010). For instance, firms may have the tighter self-regulatory system than what is required by law to protect themselves against possible lawsuits and losing reputation (A Stitch, 2008).

Having said above items, they are not the only reasons firms and people consider ethical decision makings. They could be a result of a personal belief or culture. Or even it could be to attract more capital from the investors as people may prefer to invest their money where they feel morally more comfortable (Sprinkle G B, 2010).

To have a guideline to perform corporate social responsibility by firms, ISO has developed a standard to cover all the areas. ISO 26000 provides guidance on how businesses and organizations can operate in a socially responsible way. This means acting in an ethical and transparent way that contributes to the health and welfare of society. (ISO 26000)

Originally published on Entrepreneurship and Innovation Hub Blog

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