Abstract
This essay examines the role of ethics in organizations or companies and how ethics can be taught and instituted in such entities. The research identifies that most organizations are set up to attain specific goals. In the case of companies, the main motive for creation is to attain the highest level of profits for shareholders. Ethics seem to reduce the economic returns of a company in the short run. This is in the form of direct costs for monitoring compliance and indirect costs in the form of lost opportunities. However, in the long-run, ethics seem to be beneficial rather than detrimental to companies. This is due to the fact that ethics help to maintain a positive reputation of a company and also ensure sensitivity to relevant stakeholders.
The research identifies that ethics are abstract in nature. And as such, they cannot be taught and instilled into the mind of learners. However, ethics can be defined by leaders and people in top positions. Once ethics are defined, they can be enforced and where there are failures, sanctions can be instituted by business leaders. This way, ethics can be imparted and relevant decision-makers can be forced to adhere to them through the fear of sanctions. Finally, this essay examines how ethics can aid leaders. It indicates that ethics create a set of objective rules and clear lines of codes that must be adhered to. This can be instituted and monitored throughout the organization and managers will have to comply with them or face the consequences. This way, ethics are entrenched and can be used to ensure consistency and appropriateness of conduct of various managers and employees of a company.
Introduction
“Ethics are the moral codes, principles and standards [that guide the] behavior of a group or person”. Ethics lead to a system whereby a group or organization commits to behaving in ways that are socially, culturally and environmentally responsible. When ethics are instituted, an organization or company does not focus only on its economic or profit motives. A firm goes beyond its quest to gain profits but consider social, communal and environmental factors in decision-making. The purpose of this paper is to critically evaluate ethics and how it relates to leadership in the corporate world. In order to attain this end, the following objectives will be explored:
A review of the role of ethics in corporate governance and management;
An evaluation of the process of instituting and implementing ethics;
An assessment of the importance of ethics to leadership.
Ethics and Organizational Goals
There is a fundamental question of whether ethics stand in the way of achieving organizational goals or not. According to Milton Friedman, the obligation of a company in a free economy like the United States is “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”.
The position taken by Milton Friedman implies that a company has an obligation to operate within the relevant rules and laws. Once a company meets all the minimum legal requirement, it can do whatever it deems fit and try to make as much profits as possible. Ultimately, a business is formed by shareholders who pool their resources to set up a business in order to gain dividends. Therefore, the fundamental role and essence of running a business is to do something that is legal and ensure that a firm positions itself to attain the optimal results in what they do.
Strictly going by Friedman’s position indicates that ethics and morality is unnecessary and wasteful. This is because any firm that seeks to attain ethical compliance and moral refinement does so at the expense of attaining higher profits. There are no immediate rewards for trying to operate in an ethical manner because following ethics is about doing things that are not necessary and will almost always come at a cost.
Corporate ethics is carried out through a stakeholder approach. This means a firm defines a group of people/entities that affect and are affected by the activities of the company and try to increase sensitivity to these groups of people. Corporate ethics involve the identification of standards and regulations that must be followed in dealing with these different classes of stakeholders. This provides a number of standards that are applied across the organization and managers and employees are to follow those standards in order to attain corporate goals and objectives.
Corporate ethics come at various costs. The first set of costs are related to compliance. These are payments made to managers and committees meant to supervise the company officials to ensure they follow ethical standards within the organization. The second set of costs include the losses and trade-offs that arise as a result of missed opportunities and revenue streams that are forgone as a result of obeying ethical standards and regulations. This means there are many sacrifices a firm has to make in order to follow moral and socially accepted norms that are not necessarily required by law. However, these sacrifices do not bring any direct benefits to the company.
A study conducted by Deloitte indicated that most large firms spend about $1 million to put in place controls and limits to ensure ethical compliance. This covers things like the cost of paying workers to supervise and report on ethical compliance and reviews within the firm. The procedure also includes the direct costs that are incurred as a result of actions and processes that are carried out to meet the board of directors’ ethical expectations in the company.
The evaluation of the opportunities lost and sacrifices made due to ethical compliance is not straightforward. This is because they are difficult to quantify and could run to trillions of dollars each year for large companies. Therefore, it is obvious that ethical compliance is something that leads to detriment for companies in the short-run.
However, in the long-run, ethical compliance has a lot of benefits for a company. Ethics fundamentally ensure the sustainable growth of an organization. This is because organizational ethics create a framework through which organizational trust and integrity can be instituted and nurtured. Being ethical shows that a company is willing and able to obey the spirit and letter of the law in society.
The process of ethics in a company shows that the company is ready to help not only its shareholders, but the society in general. This means there is the enhancement of the reputation of the company and the implication is that the society begins to view the company as an entity that has a positive impact on the entire society. The procedure helps to show that a company acts with integrity and this enables the company to grow into the future and show that it is willing and able to survive into the long-run.
Reputation is very important for the growth of a company. This is because it helps to enhance the brand of the company and create an impression on consumers and other stakeholders. The role of ethics is to create a corporate culture that ensures that the right things are done to promote the positive image of the company into the long-run.
Therefore, it can be concluded in this section that ethical values might require some commitment which could have direct and indirect costs to a company. However, ethical values ensure the long-term survival of an organization and promotes a positive image that can last for a long time and help in the attainment of organizational goals.
The main hypothetical question in this essay is – “can ethics be taught”. This is a complex question that has different perspectives. In a multicultural country like the United States where there is a secular constitution that provides for freedom of religion, conscience and association, it is not always easy to define what is right and what is wrong. This is because the secular constitution gives an opportunity for any religious and cultural worldview to be observed and practiced across the country. This means the right way of doing anything will vary across religions and cultures. What might be seen as right in one culture will be considered to be wrong and inappropriate in another culture. This implies that it is not possible to create a framework of ethics that can be respected and honored throughout the world.
In today’s world of globalization, it is not enough to just set up ethics and standards within the national context. There is the need to consider international and global social, cultural, economic and political variables in order to identify and do what is “right” in an ethical sense. The implication is that ethics are defined on the basis of a wide array of issues and matters. These have to be considered and it is therefore difficult and almost impossible to teach anyone what is right and wrong.
There is the issue of freewill which is about what a person will choose at a point in time. It is impossible to teach people the set of actions that are right and wrong and expect them to choose what is right all the time. This therefore suggests that it is impossible to teach ethics and apply it appropriately throughout all situations and spectrums. This confirms the assertion that ethics cannot be taught like science or the arts.
Ethical decisions and choices made by a person on a day-to-day basis might be influenced by things other than what was taught to a person. This is because pedagogical aids might help to improve a person and make a person understand what is right and wrong however, this does not necessarily mean that the teaching of ethics are effective.
This means there are practical solutions that can be instituted to ensure that ethics are followed especially in the organizational setting. This is done by putting in place a system for enforcing ethics. The procedure includes the identification of an ethical standard. And this is done by showing what is right and wrong. Once there is an identification of an ethical system and position on any matter, there are going to be rewards and sanctions for conduct that is within the scope of an ethical rule or outside the scope.
Ethical standards will have to be stated and identified in a clear manner. In the real world, ethics are handled within the context of corporate governance. This is done by formulating policies relating to stakeholder management, corporate governance systems and codes of conduct. These are often streamlined and defined at the board level. Once this is done, there is the identification of a reputational management framework which ensures that ethics are instituted and enforced throughout an organization.
Therefore, once an organization can define and institute ethics within an organizational framework, there is the opportunity to study the codes of best practice in academia and in the training of workers. This means there is the possibility to define a code of best practice in a particular industry and field. Once this is done, there is the ability to identify the rules and regulations for enforcing them. Since there are sanctions in place for people who fail to adhere to ethics, it can be said that ethics can be taught and also enforced throughout an organizational setting.
Importance of Ethics in Leadership
Ethics are a central part of every organization. This is important because it is necessary to establish the appropriate tone to streamline the action of workers in an organization. A leader of a company or organization will have to set and define minimum standards that must be observed throughout an organization in relation to some moral, social and ethical matters.
Organizational culture will have to include a set of ethical standards that will guide decision making, choice as well as rewards and punishment. Organizational culture is instituted through bureaucracy and a set of standards that guide the way and manner in which things are to be done. This way, there is an in-built system that will ensure that all things are done according to a hierarchy and every action that is undertaken at all stages in an organization considers the economic, social and ethical concerns that are relevant to any choice and decision. This should be done in ways that protects the corporate image and helps an organization meet the reputational standard it desires to attain.
Ethics promote integrity in an organization and it helps a leader to effectively attain and reach its goals. There are some standards of integrity that are generally expected within a company. These standards are generally higher than the legal standards expected in the society. Therefore, leadership in an organization ensures that the minimum standards of integrity can be met in all situations. Additionally, maintaining ethical standards enable a company to operate in ways that reduce the risks of lawsuits. This is because ethical standards are often higher than legal standards. Therefore, being ethical guards against the risks of falling into a legal complication that could sometimes be problematic and expensive.
Leadership is strongly linked to ethics because it is through ethics that a company can institute a set of standards for the attainment of optimal results. Ethics help a leader to define standards that are translated and transposed to all units. This guides the conduct of leaders and promote better sensitivity to moral and legal codes and expectations.
Conclusion
This research identifies that most firms exist to attain maximum profits for shareholders. However, ethics require that the company becomes sensitive to the needs of various stakeholders. This has direct costs and indirect costs related to missed opportunities that have no direct financial returns. However, ethics are important to ensure the long-term survival and growth of a company. Ethics promote the reputation of a company and as such, they do not stand in the way of organizational goals.
Ethics include a set of standards that must be defined. It is difficult to teach ethics and ensure that workers and all stakeholders to adhere to them. However, as long as a company defines its set of ethical standards and regulations they can be enforced. And by virtue of this, ethics can be taught and through proper supervision, workers can be encouraged to make the right choices.
Finally, ethics are important because they constitute the mechanism through which an organization can set moral and social standards that can be instituted throughout the company. This can ensure there are basic standards which must be observed throughout the organization. The implication is that it promotes better decision making and enhances the reputation of a company.
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