The purpose of business relationships comes across as leaving the participating parties in relatively better circumstances than those circumstances from before the relationship began.
With that, the premise of business interactions pervades as trading a product or service in exchange for some type of compensation. The traders expect fairness and equity, which entices the parties to trade again in the future. A fair trade relates to an ethical trade. This outlines the basics of ethical business practices. Ethical business practices allow for all participants to benefit evenly, which encourages further participation in the future. The course of ethical business practices is proven to increase revenue, retain customer loyalty, and encourage employee satisfaction. The source and application of ethical business practices varies across companies and industries. However, the conclusion is the same. The more ethical the business practices, the more successful the business becomes over the course of time. Therefore, ethical business plays a key function.
Introduction to Business Ethics
Companies participating in ethical business practices highlight numerous areas of business: accounting, marketing, management, sales, etc. Each area in which a company participates ethically provides the opportunity for that company to participate unethically. Ethical companies follow the credence of fairness, honesty, and reliability. The businesses uphold their missions, visions, and values that act as the foundation for all actions taken by employees. These businesses uphold the promises to and contracts with all stakeholders: customers, the government, employees, vendors and suppliers, managers, and owners.
Numerous myths exist about the reality and premise of ethical business practices. HR
Matters, a business magazine, explains a number of misunderstandings about ethical business practices. These myths include the belief that a company must function as a nonprofit in order to
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be considered ethical. This premise, however, is false. Ethics lies in the intangible areas of business: the fairness, the honesty. The revenue of a company holds no bearing on its ethics.
Another myth stemming from ethical business practices is that companies participating in ethics fail to generate large profits. While companies that operate ethically will make less “profits” for paying employees fair wages, for properly reporting tax information to the government, and for utilizing environmentally-friendly resources, the company benefits with lower employee turnover, more loyal customers, and no governmental fines. Ethical business practices may actually generate higher profits than unethical business practices. A related myth is that ethical business practices cost too much money. While carefully meeting all regulations requires more time and more money, these precautions inspire much greater benefits that outweigh the added cost. The cost of marketing to new customers, training new employees, and contracting with new vendors proves much more expensive than maintaining the relationships with current customers, employees, and vendors. Ethical business practices are not too expensive.
A fourth myth about ethical business practices states that one-time ethics training proves enough for employees. Training must have repetition on a regular basis. The more ethical business practices are encouraged, the more likely employees will recognize the importance of these practices. With continual reminders of these practices, with ethics integrated into the mission of the company, employees’ actions will more likely achieve the goals leading up to the completion of that mission.
Many managers consider ethics as part of a religious obligation, not as part of a management and leadership style. However, even in a secular organization, ethics is a form of leadership. Managers and leaders must portray the same behavior expected of their employees.
Therefore, with the expectation that employees behave ethically, managers must act ethically,
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lead ethically, and supervise ethically. Regardless of employees’ religious background or orientation, ethical business practices result from a universal form of morality centering on the benefit of the common good. Further along these lines, many regard breaking the law as the only means of acting unethically. However, unethical business practices fall into several other categories, including: acting in a way that is not in the client’s best interest, acting in a way that does not benefit the client, and acting in a way that violates company policy. The resounding truth, as Figure 1 highlights, is that illegal practices only encompass a small portion of actions employees know not to perform. Unethical practices can lie much further away from the center, illegal practices, than this myth concedes.
While navigating these myths, companies continue to question the purpose of ethics. The main reasons for partaking in ethical practices include:
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The financial cost of unethical behavior
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Employee turnover
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Increased profits from ethical behavior
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Higher standards of morality within the lives of employees
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Avoiding punishment for bad behavior
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The mission, vision, and values of the company
The most notable reason for ethical business activities is the financial cost of unethical business activities. When companies break legal standards, the federal government may engage in litigation against the company in a civil suit, or even a criminal suit, depending on the severity and nature of the actions. For example, the major pharmaceutical company, Pfizer, faced $430 million in criminal fines and civil penalties in January 2004 after marketing and selling
Neurontin to medical professionals. The drug was intended to treat epilepsy; however, it was
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never approved by the Federal Drug Administration. Rather than learning from this instance, the company proceeded to market and sell unapproved Bextra to treat pain in September 2009. This time, Pfizer paid $1.19 billion in criminal charges and $1 billion in civil settlements. Here is simply one example of a company acting illegally.
Employee turnover is often a result of unethical behavior on the part of the company.
When companies treat employees poorly, employees seek alternative occupations. The cost of training employees is extremely high, and maintaining current employees is much lower. As
Figure 2 of the Appendix examines, the Dr. Vrajlal Sapovadia’s and Sweta Patel’s CAFÉ Model explains the relationship between employee turnover and business ethics. The “catastrophic” category represents businesses where employees and employers contentedly accept unethical business practices. The “averse” category represents businesses where employees fail to accept the unethical business practices of employers, demanding higher ethical standards from the company, and ultimately leaving the company. The “feeble” category represents businesses with high ethical standards and high employee turnover, indicating that the ethical behavior fails to benefit the employees directly. Finally, the “exemplary” category represents companies with high ethical standards and low turnover, where employees feel satisfied with their work and participation in the company. Sapovadia and Patel report that “Studies show that not only job satisfaction and organizational commitment reduce turnover, but corporate ethical practices lead to reduced turnover, increased job satisfaction, and organizational commitment” (Sapovadia and
Patel 4). Employee turnover alone generates an unnecessary cost that could be avoided with sound ethical practices. As businesses examine these costs, the logical course of action appears as maintaining lower costs with lower turnover and high ethical standards.
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Another reason that ethical business practices make sense is because they result in increased profits . As the myths above examine, unethical business practices add more expenses on the income statement. The fewer the expenses, the higher the retained earnings and profits of a company. With lower litigation costs and lower costs for training new employees due to a high turnover rate, ethical business practices prove less costly. Further, this promotes customer loyalty. Maintaining current customers is less expensive than obtaining new customers.
Higher ethical standards also promote higher standards for morality . When businesses lead consumers with a virtuous and righteous example, the expectations for higher ethical behavior increase in society overall. Said another way, as businesses promote higher standards within the corporation, they promote higher standards within the lives of employees.
As more and more employees develop higher ethical standards, their standards resonate within the lives of those around them, creating concentric circles of increasing morality around the company. Therefore, better business practices lead to a better society.
Besides developing a better society, high ethical standards help individuals avoid punishment for bad behaviors . As unethical companies receive fines, imprisonment of top executives, and bad publicity through the news of their unethical activities, ethical companies receive praise and support from reporters, awards for ethical approaches to business, and support from the community. Ethical businesses are more likely to receive numerous awards for their activities, rather than numerous punishments, fines, and economic penalties.
Lastly, the main reason for supporting ethical business practices is related to the mission, vision, and values of a company . When establishing a business, the founder(s) must consider the mission of the company. Many businesses publicize their mission statements to gain support from the community. The mission should offer a concise explanation of the purpose of the
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company. The vision represents the strategic long-term orientation of a company that allows that company to maintain a competitive advantage relative to others in the industry. As Michal E.
Porter cites in his book Competitive Advantage , the competitive advantage is the unique value that the company offers. The vision is how the completion of the company’s mission will change the world. More importantly, the values of a company offer guidelines by which the company will follow in order to complete its mission. The values of a company often represent the underlying ethics of a company, and vice versa. Therefore, following the ethical guidelines and values of a company allows a company to come closer to completing its mission and achieving its vision. Ethical behavior is logically essential to the ultimate success of the company.
Corporate Social Responsibility
Another aspect of ethical businesses practices comes through corporate social responsibility. The most effective model of corporate social responsibility comes from Archie B.
Carroll, as Figure 3 in the Appendix shows. Carroll’s model explains the aspects of corporate social responsibility in four categories: economic, legal, ethical, and philanthropic.
The bottom of the pyramid represents the economic aspect of corporate social responsibility. Companies must maximize value for stakeholders (consumers, employees, owners, community, etc.), the purpose of business transactions. Companies uphold a responsibility to maximize value. Regina Anaejionu concisely summarizes Archie B. Carroll’s book Business and Society: Ethics, Sustainability, and Stakeholder Management in her article
“What is Corporate Social Responsibility” saying “a company's economic responsibilities include being profitable in order to provide a return on investment to owners and shareholders, to create jobs in their communities and to contribute useful products and services to society. Part of being economically responsible means streamlining processes to find the most efficient ways to
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run your business and innovating your product offerings and marketing to increase revenue.”
With this, economic responsibility functions as a foundation for corporate ethics. This economic side promotes a responsibility that focuses on the community as well as the company itself.
The next phase of corporate social responsibility categorizes legal aspects. Legal responsibility reaches further than simply obeying the law. It protects consumers from unsafe products. It also involves honest financial reports to owners and shareholders. Legal responsibility further encompasses honest marketing to consumers about products.
Above the legal characteristic of corporate social responsibility rests ethical responsibility, the third level of the Corporate Social Responsibility Pyramid. Carroll explains that ethics includes environmental aspects of operations, such as waste management and pollution. For instance, the B Corp, a business that rates companies on different aspects of business performance, Best for the World List of environmentally-friendly “certified” companies outlines firms with the best environmental practices. Ethical responsibility also involves creating sustainable production methods to protect future generations. Ethics further contains honest advertising, rather than tricking a consumer into purchasing a product. Carroll also claims that proper treatment of employees falls into the ethical responsibility category. Proper treatment of employees includes, according to Carroll, fair wages, enticing benefits, valuable insurance policies, and safe working conditions.
The top of the pyramid comprises the philanthropic responsibilities of a company.
Philanthropy translates into promoting good will and the welfare of human beings. While some companies view philanthropy solely as donations to community projects, Carroll asserts that philanthropy means “being a good corporate citizen.” For instance, Forbes rates the Top Ten
Most Generous Companies of 2012, including Walmart, Wells Fargo, and Chevron for giving
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hundreds of millions of dollars in just one year. A corporate citizen performs good works within the organization, and furthers those works in the community as a representative of the company.
One means of doing this is via donations.
Introduction to Catholic Social Thought
The center of business morality, for practicing Catholics or others, is the doctrine of
Catholic Social Thought. Catholic Social Thought directly links to business ethics. “Catholic” may refer to the Roman Catholic Church; however, “catholic” also means “universal.” Thus, this universal form of social thinking applies directly to all of society as a guideline for morality, beyond that of a religious or a faith-based institution. Rather, this form of morality integrates the secular world. Catholic Social Thought finds its foundations in Pope Leo XIII’s encyclical from
1891 Rerum Novarum regarding the issues of poverty and socio-economic problems throughout the world. He incorporates the philosophies of St. Augustine of Hippo and St. Thomas Aquinas.
With this, St. Francis DeSales incorporates numerous ideals of Catholic Social Thought into his
Salesian Spirituality. While the guidelines for this morality originate in the Catholic Church, these teachings apply universally to the secular world with their logical outline for diminishing the negative effects of poverty and disease. The seven principles of Catholic Social Thought include:
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Life and Dignity of the Human Person
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Call to Family, Community, and Participation
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Rights and Responsibilities
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Providing Options for the Poor and Vulnerable
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Dignity of Work and Rights of Workers
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Solidarity
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 Caring for God’s Creation
Of the principles of Catholic Social Thought, the life and dignity of the human person represents the lowest tier of the pyramid: the foundation for this form of morality. This principle encompasses the most basic form of respect for all people. Understanding the dignity of the human person requires a foundational comprehension of the value of the human person. From a
Catholic perspective, this translates to holding the imprint, the image of God, and the Holy Spirit in the soul of every living person from the moment of conception until the moment of death.
From a catholic perspective, this encompasses ensuring others have a reasonable quality of life in order to sustain an adequately happy life. Part of this dignity includes the opportunity to offer some form of employment to society. This foundational piece of Catholic Social Thought allows for people to respect each other, to treat each other well. This means, among other things, providing a livable wage and a safe work environment.
The second element of Catholic Social Thought comes through the call to family, community, and participation as a means of morality. For the Catholic leader or manager, this involves seeing beyond the individual to the community surrounding that individual: seeing beyond the self. This establishes the family as the foundation, the basic unit for society, and the initial interference for individuals. The family necessitates obtaining a “family wage” whereby the working members of the family earn an income high enough to sustain a dignified life for the entire household. This obviously translates into employers and businesses offering employees a fair wage. Further, the family function requires reasonable working hours and reasonable levels of taxation from the government. In order to foster the most stable family unit possible, employers must consider the well-being of the family, and thereby the community, in relation to workers. Catholic Social Teaching aligns on the function of morality as fostering a stable family
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in an unstable world. The need for the stable family unit would diminish poverty with a family wage, diminish divorce rates by relieving some tension with reasonable working hours, and diminish the separation of individuals in a family by unifying its members beyond the individual.
This also calls for upper-level management to take an active role in the workplace, participating themselves.
The third element of Catholic Social Thought includes rights and responsibilities as an individual and as a member of the overall community. From a Catholic perspective this includes the right to life, from conception until natural death, and the right to preserve that life by reasonable means. With this, all individuals maintain a right to property, healthcare, education, and employment. Each layer of these rights builds upon the right to life, which holds more value than anything. The secular catholic perspective views these rights as the Constitution outlines them: life, liberty, and the pursuit of happiness. This logical application of morality also maintains a responsibility to fulfill the duties of a contributing member of society: caring for the family unit, acting legally in the context of the government, and respecting the rights of other members of society as a whole. This includes employers allowing members of the workplace to participate in innovation and to act creatively. Further, this includes holding employees and managers (including upper-level managers) accountable for their assigned responsibilities.
The fourth element of Catholic Social Thought is the principle of providing options for the poor and vulnerable as contributing members of society. The Catholic perspective places special emphasis on caring for the poor. God emphasizes the necessity of caring for individuals who cannot care for themselves. A universal catholic application of this layer comes with offering opportunities to disabled workers, healthcare for employees with illness, and reasonable modifications to the workplace dynamic for those with certain conditions. This involves moving
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beyond the average treatment of equal individuals to the special care and advocacy for those in need.
The fifth element of Catholic Social Thought comes through the principle of dignity of work and rights of workers , applying directly to the business realm. The Catholic perspective views working as a way to partake in society. This reaches far beyond earning an income to allowing a dignified setting for workers with safe and reasonable conditions. Likewise, a catholic perspective encourages the right to join a union, the right to fair wages and benefits, the right to reasonable hours, and the right to honest contracts and hiring measures.
The sixth element of Catholic Social Thought is the element of solidarity that encompasses fairness and justice. The Catholic teaching of this element means recognizing that each member of society constitutes one body: every individual is a neighbor and brother to every other individual. This translates into a catholic outreach of tolerance of each other’s differences and cultures. This reaches beyond indifference toward each other to a respect and love of each other, a promotion of harmony and togetherness in the context of society and the workplace.
Businesses must support the community in all ways, as the relationship between the business and the community proves a symbiotic one. The business supporting the local community, respectfully utilizing the raw materials rather than stripping the area of necessary resources without returning anything to the community, is essential.
The final element of Catholic Social Thought is the idea of caring for God’s creation by respecting, sustaining, and reasonably utilizing it. This extends not only to protecting the environment, limiting pollution, and waste, but also to sustaining practices that will benefit the environment and continue its healthy treatment in the future. A Catholic manager applies respecting God’s creation as a means of respecting God. From a catholic perspective, this
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translates to limiting the harmful effects of production, supporting environmental initiatives, and enforcing environmental standards and guidelines for the company itself. In this way, Catholic
Social Thought universally falls into place in the scheme of management.
Integration of Catholic Social Thought with Salesian Spirituality
As Saint Francis DeSales offers numerous axioms as guidelines to the Catholic faith,
Catholic Social Thought engages these same principles on its different levels. Each principle of
Salesian Spirituality corresponds, directly or indirectly, with an element of Catholic Social
Thought. In this way, the teachings of Catholic Social Thought seamlessly become even more applicable in reasonable business practices. Salesian Spirituality, the series of principles that
Saint Francis DeSales explains as the foundations of leading a Devout Life, offer guidelines for
Catholics. These matters of ethics outline not merely a faith-based rationale, but also a logical and dignified means of conducting business that benefits the company, the employees, and the community. However, the connection to Salesian Spirituality in no way diminishes the validity of the logic supporting Catholic Social Thought. Rather, it offers a means of supporting it.
Salesian Spirituality
Ordinary made Extraordinary
Rights and Responsibilities
Gentleness and Civility
Relational Essence
Doing All Things Through Love
Everyone is Called to Holiness
Catholic Social Thought
Care for God’s Creation
Liberty of Spirit
Options for Poor and Vulnerable
Family and Community
Dignity of Workers and Workers’ Rights
Life and Dignity of the Human Person
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Salesian Spirituality emphasizes “doing the ordinary extraordinarily well.” This mildly corresponds with “care for God’s creation” of Catholic Social Thought, which calls followers to not simply maintain “acceptable” manufacturing practices, but to engage in preventative action to ensure environmental protection and safety. This translates to taking added precautions: acting extraordinarily, beyond the ordinary. While this connection may not be self-evident, it exists in a way that connects the business world to the spiritual realm. Rather than allowing the ordinary practices of unsafe environmental treatment, Salesian Spirituality calls for an extra effort to protect the environment.
The “rights and responsibilities” of Catholic Social Thought directly correspond with the principle of “liberty of spirit” from Salesian Spirituality. While citizens must maintain legal duties and ensure the fulfillment of all obligations, society must also protect the rights and freedoms of others. This extends beyond the principles of protecting life and property, including the freedom of the spirit to navigate the spiritual realm: free will. As Saint Francis DeSales emphasizes free will, this falls under the realm of rights that society, including employers and managers, must protect.
While Salesian Spirituality furthers the need for “gentleness and civility,” Catholic Social
Thought outlines the necessity for “options for the poor and vulnerable” as a means of maintaining respect and dignity for all human beings. Both principles focus on the idea of aiding those in need, those with disabilities, or those suffering in weakness. Salesian Spirituality focuses on the need for compassion and respect. This emphasizes that idea by stressing patience and caring for those in need, including those with special needs in the work environment.
As Catholic Social Thought highlights the “family and community,” Salesian Spirituality includes the “relational essence of the Devout Life” as a guideline for morality. As Catholic
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Social Thought engages the family as the foundation of the community, Saint Francis DeSales emphasizes the need to develop strong relationships as a means of participating in society.
Morality involves much more than just the individual. Rather, it encompasses the entire community as one body of neighbors and brothers. Society functions as one large and dynamic family.
While Saint Francis DeSales proclaims a need for “doing all things through love, not force,” Catholic Social Thought agrees with the “dignity of work and workers’ rights.” As managers consider proper means of motivation for employees, “force” or “punishment” overwhelmingly proves as a failure. Rather, offering employees opportunities for involvement in decisions, offering generous benefits packages, offering forms of “love” by means of compassion: these are successful means of managing and motivating employees. Again, this relationship is not particularly strong. However, this is a way to connect the business realm to the aspects of spirituality that guide ethical principles.
While Catholic Social Thought encourages the “life and dignity of the human person,”
Salesian Spirituality states that “everyone is called to holiness” as the purpose of life. Since every individual follows a calling to holiness, every individual holds equal value and dignity. For this reason, every individual should have the same equal treatment of fairness, respect, and justice. Salesian Spirituality calls everyone to the utmost best of their existence. Catholic Social
Thought acknowledges that this utmost best is fully obtainable by every individual. Therefore, treat every human being as someone who embodies holiness and who may aid others in obtaining holiness.
The Purpose of Business Practices: Corporate Social Responsibility
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When people enter business endeavors, numerous factors drive the success of the company. The mission and vision of the company determine the purpose of the business.
Companies adjust strategic plans to comply with the most successful completion of the mission.
When a company’s mission involves offering the highest possible customer service, for instance, the administration would focus likely resources (time, money, space) to training employees on a regular and thorough basis. At the same time, should a company’s mission involve protecting the environment in the production of a product whose competitors tend to harm the environment, that company would focus on waste management, limiting pollution, and utilizing renewable energy.
Focusing on the issue of ethics, the purpose of the business must fall into consideration.
One common expectation of business comes in the form of profitability, as Milton Friedman states: the purpose of business is to make money. However, no company maintains the mission
“to make the most money possible.” Companies devote resources according to the mission. If the mission states “to make the most money possible,” that business would not stay open. Customers demand more: higher quality products, better customer service, and other forms of value . If a company seeks only to make money, then it would likely break laws with income tax fraud and failing to meet safety regulations. Rather, the mission of each company in some way seeks to satisfy a pertinent need in a unique way. This logical foundation for a business maintains the competitive advantage a company needs in order to make money. Therefore, companies, contrary to popular belief, do not enter contracts to make money. However, companies still make money, and money is a driving force.
Companies seek profits for solving the needs and fulfilling these missions. When business leaders make financial decisions, focusing on optimizing income becomes essential. For
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this reason, companies must evaluate the cost, or profit, of corporate social responsibility. Based on cumulative ethics research, it appears that corporate social responsibility falls into three categories: proactive, reactive, and inactive. Each category holds varying degrees of success.
Studies agree that proactive corporate social responsibility earns the highest profits. For instance, the Ivey School of Business (Figure 4) cites that customers are more willing to pay more for products from companies they know use ethical practices than for products from companies they know use unethical practices or products from companies they know nothing about. Further, these studies show that customers only purchase unethically-produced products at a discount. Therefore, engaging in proactive corporate social responsibility proves a wise investment. Further, companies must also convey these ethical practices to consumers, which convinces the customer to pay a higher premium and, therefore, earns a higher profit. Ron
Robins, author of Investing for the Soul , conducts all the aspects of corporate social responsibility. Robins notes that one way to communicate these ethical business practices to consumers comes in obtaining a place on FTSE4Good or Dow Jones Sustainability Indexes. This would promote a higher stock price, as well. Robins also examines in 2011 a meta-analysis of 52 studies with 33,878 respondents taken over a series of years to affirm his conclusion that investment in corporate social responsibility increases profits in the longer term.
One instance of proactive corporate social responsibility is Starbucks. Starbucks files a
Corporate Social Responsibility report each year, describing the annual efforts toward building up the local community in which it operates. Starbucks emphasizes supplier diversity, only agreeing to contract with companies 51% owned, operated, and managed by women, minorities, and/or by some other disadvantaged group. Starbucks also purchases all capital at fair price, supporting its growers in numerous countries. Starbucks contributes to charity often, including
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CARE International and Green Teams on Earth Day. Further, as Starbucks outlines its goals as a company, profitability appears last on the list, because it must first adhere to its values, which will lead to profitability. Starbucks’ financial success appears to be a direct result of its values, its ethics, and its proactive corporate social responsibility.
Meanwhile, other companies practice a reactive corporate social responsibility, such as
Apple. The details of Apple’s manufacturing practices show its priorities: money. Apple utilizes a “Spoke and Hub” management model, whereby it outsources its departments to companies: marketing, financing, manufacturing, etc. Apple, therefore, does not directly participate in unethical manufacturing, for example. Rather, it purchases from suppliers who treat employees with low wages, unsafe conditions, and an unfair working environment. Foxconn, for example, manufactures many Apple products. In 2011 and 2012, Foxconn’s poor treatment of employees in unsafe and unhealthy conditions became apparent. When customers learned of these unfair practices, Apple evaluated its suppliers and learned of many violations to its Supplier Code of
Conduct and requested corrective action. However, Apple continued contracting these suppliers in a reactive form of corporate social responsibility. Apple seeks to maintain customer support by marketing its high environmental standards on its website and incrementally fair treatment of domestic employees. The company masks its unethical stigma with its prestige pricing and highend marketing.
When companies fail to partake in any form of corporate social responsibility, the effects of inactivity affect the brand. Enron exhibits a company with inactive corporate social responsibility. Enron’s unethical actions, falsifying accounts and fraudulent filings, led to its eventual bankruptcy and the imprisonment of several employees. The stigma of Enron pervades
American history as an example of inactive corporate social responsibility. The company’s
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destruction left over 20,000 people unexpectedly unemployed. When companies fail to participate in ethical behavior and further unethical behavior instead, it leads to an eventual downfall of the company and its employees.
Branding, Perception, and Value
When customers value ethical business practices, such as fair trade or high environmental standards, companies that promote these values through their brands receive that customer’s loyalty. Marketing widely describes the process of creating, distributing, and communicating value to consumers. Marketing creates a brand name. Brands create the perception of value and understanding of a company. Different forms of marketing create different ideas of brands.
Companies manipulate the price of the product, the promotion of the product, the product itself, and the distribution of the product. The price affects the perception of value. High prices indicate a prestigious brand while lower prices typically indicate a lower-level brand. Price affects the perception of quality, as most believe high price indicates high quality. Promotion utilizes advertising, sales, and branding. Promotion allows companies to center the target market with the most appealing slogan and product depiction for that target market. Changes to the product itself allow the company to target specific segments: the environmentally-conscious, the healthconscious, etc. These changes all influence the brand. Distribution centers also affect brand perception. The location of the product in the store, which stores sell the product, and the delivery of the product all indicate different parts of the product’s value. Marketing allows the company to alter the brand perception and, therefore, the value of the product in the eyes of consumers.
Brand perception is a key driver of revenue. Sudhir Voleti, Paul Nelson, and Sanjog
Misra state in “Brand Equity as a Revenue Multiplier” that brand perception creates higher
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revenues through a study. Comparing two companies with the same marketing mix (mix of product, price, promotion, and distribution) obtain drastically different revenues simply based on brand perceptions. This explains the relationship between customer perception of products and revenue. When customers recognize the brand of a company, they engage their perception of that company in their purchase decision. Depending on what customers value (quality, service, price), the brand perception plays a significant role.
Recognizing an ethical brand, such as Patagonia or Starbucks, consumers develop a stronger loyalty to these businesses, as a study by Bucknell University’s School of Management expresses in “Business, Society, and Government.” Therefore, since a strong correlation exists between revenue and brand perception, companies must utilize these customers as their target markets while developing a marketing mix. Communicating ethical business practices proves just as important as performing them, as Figure 4 mentioned above indicates. When consumers are made aware of ethical business practices of a firm, they award the firm accordingly. With this, companies must focus on creating value for the customer by engaging in ethical business practices.
Ethical Business Theory and Secondary Research Analysis
Numerous theories investigate the relationship between ethical business practices and improvement in business. Business improvement comes in the form of higher employee retention, higher customer loyalty, increases in profit, and increases in revenue, just to name a few. One such theory, Milton Friedman’s Stockholder Theory, states that the stockholders in the company own part of the company and therefore set the guidelines for managers to follow: the sole responsibility of a business it to maximize shareholder profits. Stockholders create strict ethical guidelines for managers. Another theory, Edward Freeman’s Stakeholder Theory, states
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that a business’s success falls on the ability to balance the stakeholders (employees, customers, suppliers, board of directors) and maximizing the value for these stakeholders as a priority. John
Locke’s Social Contract Theory claims that businesses have a responsibility to consumers and employees to act ethically and with justice. These theories represent the normative business ethics theories that many accept. The general idea is that businesses treating employees well will have employees that treat customers well. When employees treat customers well, customers maintain a loyal relationship with the company.
Numerous stakeholders investigate the dynamics of ethical business practices. The relationship between ethics and increasing business appears vague, because various aspects of business affect sales revenue, employee turnover, customer loyalty, and supplier contracts.
Governmental policies, economic trends, cultural ideals, technological changes, and environmental circumstances all uncontrollably influence the nature of business. However, a strong positive correlation tends to exist between companies performing ethical business practices and earning higher amounts of revenue and profit. While no study holds the power to conclusively state that these aspects of sales are directly related, many studies speculate the plausibility of a causal correlation.
Research looking at the correlation between ethical business practices and sales revenue stretches across nations. For instance, Caribbean Business, a reputable business magazine from
Puerto Rico, performed such a study. DePaul University sponsors this study and concludes that companies that maintain a high commitment to corporate social responsibility tend to have higher sales and revenues.
A correlation also exists between ethical business practices and job satisfaction. As
Figures 6 and 7 outline in the appendix, this relationship maintains stronger relationships
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between the employees and the company because of positive relationships within the workplace.
The study confirming this relationship specifically notes that “The results show a positive relationship existing between salesperson perceptions of business ethics, his/her employer’s ethics, consumer attitudes, and the salesperson’s job satisfaction and reduced turnover intentions” (Pettijohn, Pettijohn, and Taylor abstract). This study conclusively investigates the perspective of salespeople as consumers, as employees, and as businesspeople. With this, another positive correlation exists between ethics and an improved business environment.
Despite these findings, not every company participates in ethical business practices. As
Figure 7 of the appendix indicates, some companies fail to follow the written code, maintain no written code, fail to enforce the written code in profit-altering decisions, or only maintain the written code with no further efforts to enforce it in any way. The study contributing to Figure 7, from Douglas Grisaffe and Fernando Jaramillo performed in 2007, concludes that these companies rank into categories of ethical practices. Those utilizing more ethical practices tend to benefit more than those who fail to perform ethical practices in terms of higher profits. Further, companies in the “Live Above the Code” category fair better than every other category. This comparison of companies and salespeople provides a strong evidence-based argument of the benefits of ethical business practices.
Although many studies support the findings that a positive relationship exists between sales and ethical practices, others claim that no relationship exists and consumers remain indifferent. For instance, Timothy Devinney offers his opinion that consumers act unethically and selfishly. Devinney explains an experiment in which customers in a coffee shop see the option of receiving fair trade coffee at no extra cost on a sign at the register, less than one percent of customers ask for the fair trade coffee. Further, when employees ask customers if they would
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like either regular or fair trade coffee, only thirty percent ask for the fair trade coffee at no extra cost. When the employee asks the customer in front of other customers, seventy percent of customers agree to the fair trade coffee. However, this shows a study on human behavior, not customer ethics. Customers needing to actively request the more “ethical” beverage means placing the consumer in an uncomfortable situation of requesting a special type of coffee, rather than passively accepting the standard type of menu item. Further, actively asking the customer whether or not to use fair trade coffee might confuse the customer or, again, the customer might not insist on requesting a change in the order. This experiment fails to prove that consumers act unethically unless facing peer pressure.
Although some critics claim no relationship exists between sales and ethics, a logical examination of the evidence shows otherwise. Several studies, especially the ones mentioned above, support the notion of a relationship between sales and ethics. When examining this evidence, administrators and managers must consider the authenticity of claims from either side of the argument. In this case, many more claims for a positive relationship between sales and ethics exist. For this reason, the existence of a relationship between sales and ethical business practices proves more likely and more reasonable than the lack of an existence of a relationship between the two.
Sources of Ethical Standards within a Company
Companies that maintain ethical business practices utilize several resources to develop an ethical system. Each company navigates its niche, its industry, and its target market differently.
However, any company has the opportunity to partake in ethical business practices. Ethisphere
Institute promotes a list of the most ethical companies each year, examining nominees who “not only promote ethical business standards and practices internally, they exceed legal compliance
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minimums and shape future industry standards by introducing best practices today.” Ethisphere formulates its Ethics Quotient to evaluate companies on the level of ethical business practices.
Many companies formulate a code of ethics for employees to follow. Creating a written code for the company is as important as creating a mission and vision for the company, because ethical responsibility often lends to success. The code of ethics should move beyond a mere document to the promotion of customer relationship management and the communication of value on behalf of the company to the consumer. When employees and managers follow a written code of ethics, the company outlines the basis for building relationships with all key stakeholders. While the normal customer relationship management system for companies translates to a database with customer demographics and notes, a code of ethics endorses behaviors to sustain an actual relationship. This means truly investigating the needs of the customer and matching the needs of that customer to a product or service. Further, the code of ethics outlines the treatment of suppliers. It offers guidelines for choosing the suppliers, not only the cheapest but those with strong ethics themselves, and building the relationship with them in an ethical way, without bribery or unfair bidding. Managers must not only establish a code of ethics. They must follow it. These leaders of the company set the example for the employees to follow, and merely filing away a code of ethics fails to develop an ethical system. Managers must promote, highlight, and feature the code of ethics throughout the workplace, and then must ensure that all employees live by the code.
Beyond a mere code of ethics, ethical training acts as a way to further the assurance that ethical business practices take place. Training must continue on an ongoing and regular basis. In order to ensure that ethics functions as an integrated piece of the business, employees must
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recognize it and operationalize it. Ethics training comes in several forms: in-services, workshops, virtual classes, etc. Each company utilizes the most effective means of training for its employees.
The mission of the company itself promotes a style of ethics in its vision and values. As mentioned above, the values of the company offer guidelines to the managers and employees in making decisions on ethical matters. These guidelines provide support and direction to employees at the time of ethical dilemmas. However, ethics moves beyond the values of the company. Rather, managers and employees must also consider the beliefs surrounding the values of the company. For instance, should the company value environmental sustainability, the manager must also consider recycling, waste management, decreasing pollution, promoting environmental standards to the local community, utilizing reusable materials, etc. Simply valuing environmental protection is not enough. The company believes in far more than protecting the environment. The mission, vision, and values communicate the ways the company reaches its ethical standards. For example, Ben & Jerry’s has a three-part mission. The product mission is to make fantastic ice cream for its own sake. The economic mission is to manage the company for sustainable financial growth. The social mission is to use innovative ways to make the world a better place. This mission leads Ben & Jerry’s to improve the quality of life for those in the local and international community. In terms of application, the company minimizes waste from manufacturing, offers equal opportunity to all members of the community to “bridge the gap” between the rich and the poor, and uses only non-toxic and sustainable practices in growing products. These exemplify merely a few ways the company seeks to live by its values.
The legal environment surrounding the company highlights the laws the company must follow. This offers another source of behaviors that support ethics. However, legal doctrine often proves faulty against ethics. Merely following the law is not enough. For instance, Ford Motor
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Company faced law suits for the faulty production of the Pinto model. When the Ford Pinto was involved in an accident, it often burst into flames, causing death or serious injury to victims. The executives of Ford Motor Company calculated that the cost of recalling the model and adjusting the parts to prevent this would cost more than the cost of settlement for the civil and criminal lawsuits. Therefore, the company settled its damages and failed to recall the product. While the company faces no legal obligation on the basis of safety standards, the company does face an ethical obligation to its customers. This highlights the blunt difference between legal standards and ethical standards. While the law provides a base for ethical considerations, it fails to sustain them in many cases.
Following these guidelines for ethical business practices, many companies achieve success. Figure 8 in the appendix demonstrates the companies that Ethisphere believes achieve the highest ethical standards. The exact criteria for the Ethisphere companies includes:

Company’s Ethics and Compliance program (25%);

Leadership, Reputation, and Innovation (20%);

Governance (10%);

Corporate Citizenship and Responsibility (25%);

Company’s Culture of Ethics (20%).
Meanwhile, Figure 9 in the appendix shows the companies that Covalence, a reputation tracking index that measures companies in the areas of social, governance, corporate social responsibility, ethics, and sustainability, ranks as the least ethical companies. The criteria for Covalence includes: Labor Standards, Waste Management, Human Rights Records, and more across over
580 companies. The exact practices of these companies vary; however, the overall impression of each company proves similar on the basis of consumer perception.
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A Case Study: Coca Cola Company versus Pepsi Company
Two of the most well-known competitors in the United States of America include Coca
Cola Company and Pepsi Cola Company. The two beverage suppliers operate in the same industry. However, even with the fierce competition of the soft drink environment, these two companies prove fair and socially responsible to the local communities in which they operate.
Coca Cola Company and Pepsi Cola Company operate in the “Cola Wars” as a means of winning market share, recruiting numerous celebrity endorsers to convince consumers of their superior taste and partaking in numerous marketing campaigns about their respective superiority.
However, another realm of this long-lasting rivalry includes the ethical battle grounds.
Both Pepsi and Coke operate in an industry that involves a great deal of environmental impact. The ingredients of the beverage, the plastic bottles and aluminum cans, and the issue of pesticides all create an ethical dilemma for the companies. In the environmental sphere, Pepsi and Coke both race to create a completely plant-based plastic bottle. While both companies view this environmentally-friendly production of the product as a means acting ethically toward the local community, neither company fully succeeds in creating the “green” plastic bottle.
However, the efforts increase the heat of the competition between the Cola Companies. This increases the media buzz on the two companies, altering consumer perceptions to further view the two beverage giants as more ethical companies.
In terms of the ingredients of the soft drinks, water is by far the biggest ingredient of the final product. The Water Footprint Network cites in a study on soft drinks, “The water footprint of this soft drink is estimated between 170 to 310 liters per 0.5 liter bottle.” This means that the average production facility for Coke and Pepsi needs enormous amounts of water from the local environment in order to fuel manufacturing operations. Pepsi claims on its website to increase
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water use efficiency by 20% in all production efforts. The company states, “The improvements we have made in efficiency enabled PepsiCo to save nearly 14 billion liters of water in our direct operations in 2012, which, in turn, enabled the company to save more than $15 million in water costs.” The company currently seeks to inform the local communities on water conservation and methods of finding new sources of water as a means of counteracting the effects of soft drink production. The company invests its time and resources to supplying over three million people with fresh water, and Pepsi continually seeks to provide irrigation techniques to the people of
India. Coke seeks a similar initiative in India. The company’s website claims “Outside our plants, we’re striving to replenish more than 100 per cent of all the water we use throughout
India. By the end of 2012, we replenished approximately 110 per cent of the water we use…”
(“What Has Coca Cola Done..”). This creates an ethical perception of Coca Cola as a major water-conserving company. However, another ethical option for the company comes as not stripping the region of its water resources at all or finding a more advanced, water-conserving means of creating the product.
Meanwhile, Coke and Pepsi both face the issue of carcinogenic pesticides infesting the products the company sells abroad, particularly in India. When an environmental study concludes that the products contain twenty-four times more pesticides than the safe amount, according to the New York Times article “Pesticide allegations trip up Coke and Pepsi,” the two companies outright deny all allegations. Rather than immediately seeking to remedy the unhealthy production, the companies hide all details of the case and react in silence. This leads to suspicion on the part of the consumer. The two companies’ offering unsafe products to foreign markets creates a scandal, but also emphasizes a highly unethical practice and a lack of
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responsibility and accountability on behalf of the company. This creates a decrease in the ethical perception of both companies, despite the outstanding track record with environmental actions.
This analysis of Coca Cola Company and Pepsi Cola Company sheds a different light on ethical behavior. Even as two giants in the beverage industry control the large majority of the market share, the ethical behaviors and the way the media portrays those behaviors greatly influences the perception on behalf of the consumer. When Coke and Pepsi attempt “green” production, consumers view the companies as environmentally-friendly. When Coke and Pepsi restore the water to the local community that production destroys, consumers view the companies as socially responsible. When Coke and Pepsi fail to track the production methods of products abroad, resulting in a pesticide outbreak, consumers view the companies as suspicious and unsafe. All these allegations affect consumption patterns due to the brand perception, and all these actions tie in with the ethical behaviors of the company. Despite the neck-and-neck race between the two companies, many perceive Pepsi Cola as the more ethical of the two companies, because Pepsi Cola leads the efforts to becoming a more ethical company while Coca Cola follows behind. Pepsi makes the first step and the longest stride in terms of social responsibility, and Coke attempts to keep with pace. However, both companies fare well in the tides of the ethical battleground.
Recommendations for Ethical Practices: How to Incorporate Ethics into a Company
Becoming an “ethical” company means strengthening various areas of management practices throughout the company. While the code of ethics, government, company mission, and ethics training all provide a basis for developing ethics in a company, only continual support can sustain these efforts. Companies must capture these sources of ethical guidance and partner them with ongoing practices. In order to make ethical decision-making an integral part of the
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company, it must function as a part of the culture. The means by which this cultural change takes place varies by company, industry, and environment. However, only a continuous effort by all parties of the company ensures the success of an ethical program. The full list of ethical recommendations includes:

Accountability

Code of Ethics

Ethics Training

Seminars

Management as Leaders

Incentives for Employees

Communication with Consumers
Accountability serves as one measure for moving toward an ethical workplace. Holding employees accountable for assigned responsibilities creates a respectful environment. When employees know the expectations of managers and administration, no room for excuses exists in times of ethical dilemmas. Furthermore, managers must act as accountable for the actions of employees under their supervision. This would not only encourage ethical behavior in managers, but also in employees. If managers require high expectations for employees and administrators require high expectations for managers, the overall culture of the company shifts to a more ethical and a more responsible one. Enforcing reasonable punishments ensures that this cultural shift takes place smoothly and remains in place.
Another means of developing an ethical corporate culture is a code of ethics . As mentioned above, the code of ethics provides an outline for the company to follow while making decisions involving ethical issues or dilemmas. This provides a source of ethics for established
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companies. It also provides a means of establishing ethics for developing companies or companies without any ethics. Companies attempting to develop an ethical culture must begin with a code of ethics for employees and managers to adhere to and follow.
Ethics training provides another means of developing an ethical company. Ethics training, as mentioned above, must take place on an ongoing basis. Means of providing this ethical training include certification programs for employees. Employees would need to complete a certain amount of hours of training, testing, and workshops in order to complete the training process. Regular re-testing would ensure employees remain up-to-date with the training program. Further, certified ethicists provide the proper training courses, such as Ethisphere
Institute. Organizations like Ethisphere provide training in Anti-Corruption Certification,
Compliance Leadership Verification, and Ethics Inside Certification as a means of verifying the ethics training in companies. As mentioned above, Ethisphere Institute also provides the annual list of the World’s Most Ethical Companies.
Another form of ethics training beyond classes and workshops comes in the form of seminars. These seminars should take place on an ongoing and regular basis. These would provide time for open discussion between colleagues about ethical dilemmas. It would offer a chance for open question and answer negotiations among employees on all levels of the company. Ethical culture would develop with mandatory enforcement of these seminars. Open conversations offer a chance for free thinking and progress. Seminars move beyond simple instruction to an actual interaction with certified ethicists, breakouts, retreats, keynote speakers, and consultation on special topics. These regular programs offer a chance for an ongoing development of the ethical culture. When employees, managers, and administration begin
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participating in an ethical program, the program may take place over several months before its completion. A regular reinforcement in the form of a seminar creates a more effective system.
The actions of management and leaders of the company are another form of ethical cultural change. In order to instruct all employees to act in an ethical manner, administrators and managers must act in an ethical manner themselves. The upper levels of the company stand as leaders of the company. When these leaders act a certain way, the employees will follow suit.
Therefore, managers cannot only “talk the talk,” but must “walk the talk;” they must act as they encourage employees to act. Part of acting ethically as managers includes treating employees fairly. This also includes treating customers fairly. If managers set the example for employees to follow, the shift toward an ethical culture proves much smoother and employees will offer much less resistance as the entire management engages in the change in behavior.
Branching off the example of management and employers, incentives for employees function as an integral part of moving toward an ethical culture. Positive reinforcement offers a chance for employees to realize the benefits of their efforts to act ethically. As employees put forth an effort to change the culture of the company, to change their own behavior, or to offer an example to their colleagues, they need managers to congratulate their efforts. Incentives may come in the form of monetary gifts, employment advancement, or certificates of achievement.
These supply a means of encouraging further efforts beyond the first step of ethical actions.
Incentives entice employees to put forth more and more effort toward the cultural shift toward an ethical workplace.
The most important step in creating a cultural shift toward an ethical workplace is communicating these cultural changes to the consumer. This would complete the cycle of benefits reaching from employees to suppliers to the community to the customer, encouraging
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further customer loyalty and gaining stronger support. The cultural shift toward an ethical workplace is futile if the company fails to inform consumers, because consumers provide the profit. Telling consumers about the ethical culture of the company sometimes comes in the form of a section on the website, advertisements of awards, such as earning a place on the World’s
Most Ethical Companies list, word of mouth practices through community charitable events, etc.
Some companies communicate the ethical practices to the consumer directly through promotional advertisements, such as Panera Bread explaining that it donates its leftover bread to the homeless at the end of each day or Pantene explaining its donations to Locks of Love for breast cancer patients for each purchase of shampoo. Companies utilize numerous means to communicate their ethical programs and/or initiatives to consumers, and they recognize the initial importance of this communication.
Ethical Decision-Making
The true test of an ethical company comes in the form of decision-making during times of ethical dilemmas. When managers, executives, and employees face problems in the workplace, ethics become a difficulty and a burden. However, these ethics come into question for all stakeholders involved in the company, including the customer, the community, the government, and the suppliers. Each of these stakeholders provides an opportunity to act unethically, either as an employee or as an outsider to the company. With all of these interactions, each connection means a chance for the company to injure the stakeholders or a chance for the stakeholders to injure the company. Examining each stakeholder’s decision-making agenda provides a better understanding of the means by which these relationships function.
Managers are the most important stakeholder, because managers interact directly with all other stakeholders. Managers hold the responsibility to maintain employment and to grow
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business. In this position, managers hold the chance to treat employees unfairly, offering poor wages, benefits, hours, etc. Managers also hold the opportunity to treat consumers unfairly. As managers interact with consumers, this treatment includes prices, false advertisements, unsafe products, etc. In terms of offering a reasonable effort of a full day’s work, managers must put forth a sincere effort for the amount of hours of pay the company plans to pay. Managers must also offer full disclosure of all activities to the company. Should the manager partake in any form of dishonest behavior, it affects the entire company. Administrators must ensure that managers embrace the necessary training and instruction to carry out these duties in a responsible and ethical manner.
Company employees directly interact with consumers and the company as a daily job function. When employees face customers on a regular basis, the chance to embezzle money or defraud the customer often arises. Stealing presents a regular temptation for employees interacting with money or intellectual property. The lure to sell trade secrets, clientele lists, or other confidential details occurs regularly. Further, the company counters this challenge with the temptation to treat employees unfairly, keeping relevant information from them, paying unfair wages, or placing them in unsafe working conditions. Employees, for their part, must attempt to act with honesty, integrity, and full disclosure. As employees perform assigned tasks for management, plagiarism becomes an instant temptation. On another angle, employees aware of unethical business practices hold the responsibility to act as “whistle-blowers,” alerting the necessary authorities (whether this includes the government, upper-level managers, or legal authorities) where unethical/illegal internal activities go unchecked and unaddressed. Further, employees, like managers, must put forth a fair day’s work for the amount of compensation the company pays. Clocking eight hours each day and working eight hours each day may prove to be
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two very different things. Employees, therefore, function as an integral part of the company, representing the ethical standards of the company to the community and the consumer.
Consumers, a third kind of stakeholder, can often act unethically. When consumers interact with a company, the temptation to steal things, offer invalid promotional coupons, to damage items without purchasing them, and defraud the company comes regularly. On the flip side, it is the company’s responsibility to deliver high quality products to the customer. The company must also add value. When the company convinces customers to purchase unnecessary or unfitting products at an unreasonable price, the company defrauds their clientele. This unfair treatment of the clientele not only harms the customer, but this also limits the customers’ desire to remain loyal to the company. A study by Salesforce claims that “It is six to seven times more costly to attract a new customer than it is to retain an existing customer” (Thornton). This shows the importance of maintaining customer loyalty. Salesforce also notes that “Consumers are two times more likely to share their bad customer service experiences than they are to talk about positive experiences” (Thornton), which shows how the reputation of the company and the brand of the company depend on word of mouth communication from consumers. Further, “It takes 12 positive customer experiences to make up for one negative experience” (Thornton). This emphasizes the importance of treating consumers fairly and well at all times, adding value as often as possible. As employees and managers interact with the public, customer service remains as one of the most important aspects of a business and its ethical culture. More notably, “55% of consumers would pay more for a better customer experience” (Thornton); this speaks to the profitability of ethical business practices in terms of customer relationships. Employees and managers must act responsively and fairly toward customers, satisfying needs as the consumer communicates them. Customers recognize the way companies treat the community and know
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when the deal appears unfair. For this reason, companies must treat the client fairly, reasonably, and well.
The relationship with the supplier stakeholder proves another opportunity for ethical decision making. As companies decide which suppliers to partner with, the ethical standards of the supplier must come into consideration. If the suppliers treat the manufacturers, resource providers, or other members of the value chain unfairly, in unsafe working conditions, with inhumane hours, or other unethical behavior, then the company should maintain responsibility for those standards as well. Companies, such as Apple, who partner with unethical suppliers receive the backlash for the policies of the suppliers. Therefore, companies must carefully evaluate the standards of possible partners. Further, fair pricing and gifting must fall into consideration under supplier contracting decisions. When suppliers offer gifts as bribery, the temptation to simply agree to the best bribe easily slips into play. However, when companies consider the most ethical partner with the highest quality at the most reasonable price, these unethical questions sort themselves out for the managers.
The next stakeholder includes the local community. A company interacts with the local community simply by establishing a presence in that community. Producing a business in any community lends to creating more traffic, increasing pollution from manufacturing, generating more environmental damage, and raising prices for the local real estate. The ethical dilemma is to choose between taking advantage of the community, destroying the environment and drying up all resources before leaving, or advancing the economic development of the community.
Establishing a business offers the chance to increase the standard of living in that community.
Forbes notes that the number one way to increase economic growth is through startups and innovation. Therefore, the mere presence of a business aids the local economy. However,
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mistreating the community and destroying its resources acts counterproductively to this mission.
Businesses have a responsibility to the local community to protect the resources it utilizes and to replace these resources with economic development.
The government acts as yet another important stakeholder. Governments hold the opportunity to treat businesses unfairly through heavy taxation, restricting regulations, or other stifling economic policies. Meanwhile, businesses face the temptation to file incorrect accounting records or false taxes reports or falsify annual filings for government requirements.
Companies must comply with the regulations of the government in order to act ethically, because these regulations ensure safety, fairness, and competition. Further, the government must act ethically toward the company by regulating fairly, justly, and with the people’s best interest in mind. With all of these interactions, the company’s legal compliance alone, as mentioned above, proves as merely the first step in becoming an ethical institution.
Each stakeholder examination offers a two-fold study of the ethics involved in every decision a company makes. These stakeholders range from employees to managers to customers to the local community to the actual shareholders seeking profitable investments. When companies examine the effect that each decision makes on these stakeholders, the administrators begin understanding the scope of ethical decision making. This involves a company-wide effort toward understanding and satisfying the needs of all key stakeholders. When all the participants receive full consideration, the chances of reaching an ethical conclusion increase greatly. With this, administrators should consider all stakeholders when making decisions.
When companies and managers make decisions, the steps taken to reach a conclusion vary by each company, each decision, and each set of circumstances. No perfect decision-making model exists for companies to make the best decision each time an ethical dilemma arises,
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because the circumstances surrounding each decision change continually. However, many example models offer hints on how to perform the decision-making process. Figure 10 in the
Appendix provides one such example from a managerial perspective, examining an eight-step process in the pursuit of ethical decision making.
The initial step to making any decision includes identifying the problem . This moves beyond merely holding an awareness of the existence of an ethical dilemma. Rather, identifying the problem translates to understanding the cause of the problem, such as budget restrictions or changes in governmental action, understanding the circumstances surrounding the problem, such as the restrictions in managerial power, and understanding the ethics around the decision, such as the nature of outcomes as “good” or “bad.” When evaluating these pieces of the decision, the
Markkula Center for Applied Ethics at Santa Clara University cites that this stage of making decisions calls into question whether this decision “is more about what is legal or more about what is efficient” and evaluating how this decision leans more toward either option (“Making
Ethical Decisions…” 2). With this, managers, administrators, and employees must consider not only the legal aspects to a decision, but also the ethical aspects. As mentioned above, the legal framework of a decision only provides the beginning stages for an ethical decision. The morality of the decision takes further consideration.
After identifying the problem, the decision makers must develop decision-making criteria . This includes a consideration of how to make the decision, including following the ethical code of the company, utilizing ethics training and seminars, or consulting the company mission and vision and values. This also integrates answering, “What are the options for acting?
Have all the relevant persons and groups been consulted?” (“Making Ethical Decisions…” 2).
This means evaluating all the stakeholders and the way the decision affects them. This also
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includes deliberating options with employees, shareholders, managers, and administrators in order to properly consider all stakeholders in these major decisions. However, consulting all these members of the business proves unnecessary should the decision account for only small everyday actions. In simpler cases, employees must use their own discretion evaluating the decision-making criteria. This also includes answering, “What individuals and groups have an important stake in the outcome? Are some concerns more important? Why?” (“Making Ethical
Decisions…2).
In some circumstances, the consumers hold higher stakes, such as in cases of product safety. In other instances, the employees prove more important, such as benefits packages. After developing criteria, the decision-maker must evaluate its relevance and strength in the situation. This means deciding how effective the criteria should prove against the strong test of an ethical dilemma.
With the criteria in place, the decision maker more easily generates alternatives and evaluates these alternatives based on the criteria. All possible alternatives must fall into consideration; however, the evaluation of these alternatives depends on the criteria. The decision maker must carefully draw all creative alternatives, as well as the obvious. This means gathering all possible data and facts, all necessary information, and all relevant statistics. The criteria determine the alternatives. This means considering the ethical theory of the company, including the code of ethics, the mission, the vision, the values, and the ethics training. Once the decision maker establishes a moral theory, that decision maker evaluates each alternative by weighing the alternative and its outcome against the ethical values and principles of the company. This could mean asking any of the following questions, based on the values of the company: “Which option will produce the most good and do the least harm? Which option best respects the rights of all who have a stake? Which option treats people equally or proportionately? Which option best
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serves the community as a whole, not just some members? Which option leads me to act as the sort of person I want to be?” (“Making Ethical Decisions…” 2). Each question lends to a different theory of ethics. Therefore, each company would need to ask a different question. This furthers why every decision-making model for every company contains some variation in the process. After evaluating each alternative, the decision maker chooses the best alternative , most aligned with the company’s ethics. Implementing this decision also varies by company and by circumstances. However, the company must consider how public to make each decision, as well.
Addressing the issues of determining which stakeholders to inform of each decision and how to publicly communicate the decision comes as part of this process.
Perhaps the most significant step to the decision-making process comes in evaluating the chosen alternative . This means more than a reflection on the outcome. From a managerial standpoint, this means measuring the effectiveness of the implementation and strategy, such as calculating financial growth or changes in customer loyalty. From an ethical standpoint, this means asking, “If I told someone I respect—or told a television audience—which option I have chosen, what would they say?” (“Making Ethical Decisions…” 2). This ethical dimension of the decision holds no concrete response or answer. Rather, it provides a hypothetical approach for measuring the way in which the decision follows the ethics of the company. This may include several tests asking questions, including “How will my decision and the outcome look in the newspaper?” These tests force the decision maker to consider the decision from an outside perspective, to consider the effect of the decision more thoroughly from an outsider’s point of view, and to consider how the decision affects the image of the company. As noted above, brand perception focuses on the company image and influences the decisions of consumers. Therefore, the company’s reputation proves an essential consideration in these decisions. Further, upon
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evaluating the decision, a poor outcome needs follow-up. Should the decision result in poor ethical judgments, bad press, and a negative brand image, the company must undergo the decision-making process again, implementing a new and more ethical alternative.
For a more deliberate and concrete approach to measuring the ethics of a decision and the ethics of a company overall, more realistic tests exist. For example, measuring employee turnover rates provides a means of measuring the ethical treatment of employees. However, numerous factors influence employee turnover rates, such as the current economic situation or changes in the industry. These extraneous circumstances must fall into consideration when evaluating ethical decisions. A simple means of measuring the ethics of a company includes the amount of philanthropic donations a company pursues. Many businesses utilize a system for tracking donations and charitable activity, such as an annual quota or a monthly raffle of businesses eligible for donations. Beside these donations holding tax-deductible status, these works of charity allow the company to practice implementing its values and ethical mantras.
Customer service satisfaction functions as a measure of ethical treatment toward customers.
Surveys evaluating customer experiences generate the data on this measurement of satisfaction.
Furthermore, ethical awards provide a measure of ethics. If the company earns these awards, its ethical standards meet high expectations. The means by which the award-giving institute measures the ethics of the company varies greatly. For instance, Ethisphere rates responses from a questionnaire to develop an Ethics Quotient, by which it ranks companies. Another example comes from IEEE who judges nominations, per the institution’s website, for “evidence of: (a) exemplary ethical behavior/practices or (b) persuasive advocacy of ethical behavior/practices should reflect the relationships of that behavior or those practices to the IEEE Code of Ethics.”
Before IEEE evaluates nominees on this basis, the nominators must provide the ways in which
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the company and individuals of this company fit these requirements for receiving the award.
Each of these awards, and numerous others, hold different criteria for nominees. With this, each award provides a different measurement of ethics in a company. Although measuring ethics proves difficult, various metrics allow for some form of ethical measurement.
Conclusion
Examining the relationship between ethical business practices and profitability in the business world offers a conclusive positive relationship. The ethical business practices of a company generate increases in revenue, customer loyalty, and satisfied employees. This comes not as a chore, but as a proactive means of creating a better standard of living based on the outlines of Catholic Social Thought and Salesian Spirituality. While these practices benefit the community, they also benefit the company. Therefore, better practices mean a better world of fairness and equality. There is no reason not to pursue such a pristine goal.
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Appendix
Figure 1
Source: http://501cweb.wordpress.com/2007/02/07/ten-myths-about-business-ethics/
Figure 2
Source: http://raijmr.com/wpcontent/uploads/2013/04/1_111_Dr._V._Sapovadia_Ms._Sweta_Patel.pdf
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Figure 3
Source: http://www.witszen.com/how-companies-should-use-social-media-for-better-corporatesocial-responsibility/
Figure 4
Reward and Punishment
What consumers were willing to pay for a pound of coffee based on what they were told about the company's production standards
Ethical standards . . . . . . . . $9.71
Unethical standards . . . . . . . . 5.89
Control (no information) . . . . . 8.31
A Matter of Degree
How much consumers were willing to pay for all-cotton T-shirts based on what they were told about the proportion of ethical production
100% organic cotton . . . . . . . $21.21
50% organic cotton . . . . . . . . 20.44
25% organic cotton . . . . . . . . 20.72
Unethical behavior* . . . . . . . 17.33
Control (no information) . . . . 20.04
Attitude Adjustment
Consumers with high ethical expectations of companies doled out bigger rewards and punishments than consumers with low expectations. What each group was willing to pay for a pound of coffee based on production standards:
Consumers with high expectations:
Ethical standards . . . . . . . $11.59
Unethical standards . . . . . . . 6.92
Consumers with low expectations:
Ethical standards . . . . . . . $9.90
Unethical standards . . . . . . . 8.44
Source: http://online.wsj.com/news/articles/SB121018735490274425
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Figure 5
Figure 6
Source: Journal of Business Ethics. Apr2008, Vol. 78 Issue 4, p547-557. 11p. 3 Charts.
Figure 7
Source: Journal of Personal Selling & Sales Management. Fall2007, Vol. 27 Issue 4, p355-371.
17p. 1 Diagram, 2 Charts, 1 Graph.
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Figure 8
Source: http://www.forbes.com/sites/jacquelynsmith/2012/03/15/the-worlds-most-ethicalcompanies/2/
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Figure 9
Source: http://www.huffingtonpost.com/2010/01/28/the-least-ethicalcompani_n_440073.html?slidenumber=0ZHHXzV%2FaPE%3D&slideshow#slide_image
Figure 10
Source: http://catalog.flatworldknowledge.com/bookhub/reader/11627
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