Chinedu Adeyemi Hassan had just graduated as an accounting major and had landed a job with a small regional accounting firm in western Nigeria. Working there would give him the experience he needed to qualify as a certified public accountant (CPA). He, his wife, and their two small children settled in to enjoy small-town life. His employer was experiencing tough competition from large accounting firms that were able to offer more varied services, including management consultancy, computerized data processing services, and financial advice.
During one of his first audit assignments of a local savings and loans (S&L) company, he uncovered evidence of fraud. Law restricted the S&L at that time to mortgages based on residential property, but it had loaned money to a manufacturing company. To conceal this illegal loan from Hassan, someone had removed the file before he began the audit. Hassan suspected that the guilty party might have been the S&L president, who, in addition to being the largest owner of the manufacturing firm, was also a very influential lawyer in the town.
Hassan took the evidence of wrongdoing to his boss, expecting to hear that the accounting firm would include it in the audit report, as required by standard accounting practices. Instead, he was told to put the evidence and all of his notes through a shredder. His boss said. “I will take care of this privately. We simply cannot afford to lose this client.”
When Hassan hesitated, he was told, ‘You put those papers through a shredder or I’ll guarantee that you’ll never get a CPA or work in an accounting office in this state for the rest of your life.”
If you were Chinedu Adeyemi Hassan, what would you do? If you were his boss, would you have acted differently? What is the ethical thing to do?
Ethical puzzles like this occur frequently in business. They are troubling to the people involved. Sometimes, a person’s most basic ideas of fairness, honesty, and integrity are at stake.
The Meaning of Ethics
Ethics is a conception of right and wrong conduct. It tells whether our behavior is moral or immoral and deals with fundamental human relationships – how we think and behaves toward others, and we want them to think and behave toward us. Ethical principles are guides to moral behavior.
For example, in most societies lying, stealing, deceiving, and harming others are considered unethical and immoral. Honesty, keeping promises, helping others, and respecting the rights of others are considered to be ethically and morally desirable behavior. Such basic rules of behavior are essential for the preservation and continuation of organized life everywhere.
These notions of right and wrong come from many sources. Religious beliefs are a major source of ethical guidance for many. The family institution – whether two parents, a single parent, or a large family with brothers and sisters, grandparents, aunts, cousins, and other kin- imparts a sense of right and wrong to children as they grow up.
Schools and school teachers, neighbors and neighborhoods, friends, admired role models, ethnic groups – and of course, the ever-present electronic media – influence what we believe to be right or wrong in life. The totality of these learning experiences creates in each person a concept of ethics morally and socially acceptable behavior.
This core of ethical beliefs then acts as a moral compass that helps to guide a person when ethical puzzles arise.
Ethical ideas are present in all societies, organizations, and individual persons, although they may vary greatly from one to another. Your ethics may not be the same as your neighbor’s; one particular religion’s notion of morality may not be identical to another’s, or what is considered ethical in one society may be forbidden in another society.
These differences raise the important and controversial issue of ethical relativism, which holds that ethical principles should be defined by various periods of time in history, a society’s traditions, the special circumstances of the moment, or personal opinion. In this view, the meaning of ethics would be relative to time, place, circumstances, and the person involved. In that case, there would be no universal ethical standards on which people around the globe could agree.
For companies conducting business in several societies at one time, whether or not ethics is relevant can be vitally important. In spite of the diverse systems of ethics that exist within our own society and throughout the world, all people everywhere do depend on ethical systems to tell them whether their actions are right or wrong, moral or immoral, approved or disapproved. Ethics, in this sense, is a universal human trait, found everywhere.
What is Business Ethics?
Business ethics is the application of general ethical ideas to business behavior. Business ethics is not a special set of ethical ideas different from ethics in general and applicable only to business. If dishonesty is considered to be unethical and immoral, then anyone in business who is dishonest with its stakeholders – employees, customers, stockholders, or competitors – is acting unethically and immorally. If protecting others from harm is considered ethical, then a company that recalls a dangerously defective product is acting in an ethical way.
To be considered ethical, a business must draw its ideas about what is proper behavior from the same sources as everybody else. The business should not try to make up its own definitions of what is right and wrong. Employees and managers may believe at times that they are permitted or even encouraged to apply special or weaker ethical rules to business situations, but society does not condone or permit such an exception. People who work in the business are bound by the same ethical principles that apply to others.
Employees often admit that they feel pressure at work, which may lead to unethical behavior. In a survey carried out among workers over a period of six months in three different companies showed that over half of the workers felt some pressure to act unethically on the job. Nearly half of the workers, 48 percent, reported that they had engaged in unethical or illegal actions during the past year and attributed their actions on workplace pressure.
Why Should Business Be Ethical?
Why should the business be ethical? What prevents a business firm from pilling up as many profits as it can, in any way it can, regardless of ethical considerations? For example, what is wrong with Hassan’s boss telling him to destroy evidence of a client’s fraudulent conduct? Why not just shred the papers, thereby keeping a good customer happy (and saving Hassan’s job, too)?
Corporate stakeholders expect business to exhibit high levels of ethical performance and social responsibility. Companies that fail to fulfill this public demand can expect to be spotlighted, criticized, curbed, and punished.
A second reason businesses and their employees should act ethically is to prevent harm to the general public and the corporation’s many stakeholders. One of the strongest ethical principles is stated very simply: Do not harm. A company that is careless in disposing of toxic chemical wastes that cause disease and death is breaking this ethical injunction. Many ethical rules operate to protect society against various types of harm, and businesses are expected to observe these commonsensical principles.
Some people argue that another reason for businesses to be ethical is that it pays. In a recent study, scholars concluded that the organizations that promote ethics by adopting a code of conduct to guide their operations were “more effective in managing their ethical activities and were more successful and profitable – both in the short term and the long term.”
Being ethical imparts a sense of trust, which promotes positive alliances among business partners. If this trust is broken, the unethical party may be shunned and ignored. This situation occurred when Malaysian government officials gave the cold shoulders to executives of a French company. When asked why they were being unfriendly, a Malaysian dignitary replied, “Your chairman is in jail!”
A fifth reason for promoting ethical behavior is to protect business firms from abuse by unethical employees and unethical competitors. Security experts estimate that employee pilferage (stealing) has caused more businesses to go into bankruptcy than any other crime. Stealing by employees accounts for 60 to 75 percent of all business losses according to a recent survey in several organizations. A study by the Department of Commerce in the US showed that employee theft in manufacturing plants alone amounted to $8 million a day nationwide. It is worse in developing countries, especially in the banking sector. For the retail industry, it is a larger cost to store owners than customer shoplifting. One of the reasons for the magnitude of the problem is the difficulty of detecting the crime. Some owners admit that they are often at the mercy of employees to act honestly.
High ethical performance also protects people who work in the business. Employees resent invasions of privacy ( such as obtrusive video surveillance in workplace restrooms) or being ordered to do something against their personal convictions ( such as falsifying an accounting report) or being forced to work in hazardous conditions ( such as entering unventilated coal mines or being exposed to dangerous agricultural pesticides in the fields). Businesses that treat their employees with dignity and integrity reap many rewards in the form of high morale and improved productivity. It is a win-win-win situation for the firm, its employees, and society.
A final reason for promoting ethics in business is a personal one. Most people want to act in ways that are consistent with their own sense of right and wrong. Being pressured to contradict their personal values creates much emotional stress. Knowing that one works in a supportive ethical climate contributes to one’s sense of psychological security. People feel good about working for an ethical company because they know they are protected along with the general public.