Ethics in Business

Task #1
Discuss what is meant by ethics in business with reference to three examples?
Business ethics refers to the professional principles and ethical concerns that is applied to the
business decisions while taking into consideration business policies. While ethical issues arise
due to the changing business environment it is pertinent to be aware of the moral and ethical
principles and to base decisions based on those grounds.
As public corporation are not usually run by the owners(shareholders) they are managed by the
people who are paid salaries against their service, therefore the principal agent theory requires
managers to manage money of their employers in ethical and moral way by preserving their
wealth and avoiding undue risk exposure. Moreover, they are entitled to maximize wealth of
their owners along with ensuring that the decisions taken do not harm the wellbeing of the
society.
Such conflicting objectives of various stakeholders requires vigilance and clear policies at the
part of the management in order to smooth the working of the enterprise and decision-making
process.
Business ethics usually refers to the study of controversial issues that have emerged over a
period of time like insider trading, corporate governance, bribery, discrimination etc.
The global financial crisis of 2008 is an example which led to the liquidation of banks and other
institution resulting in a havoc for economies all over the globe due to the interconnectedness of
institutions. Therefore, study of ethics and its relevance has become of significant importance.
Globalization has led companies to spread their businesses into new markets. In order to increase
their presence all over the globe it requires the study of the environment where organization is
planning to enter. To create a feasible match of the policies and the new place where enterprise is
entering it is essential to study the culture of the country, laws, regulations in order to ensure a
smooth process of moving into new market.
Following are the examples given below:
1. Tobacco Companies:
Tobacco company’s products are harmful or their consumers that can cause cancer and
lung diseases. However, if a manager considers it right to work in such a company then it
should be the foremost task to protect and maximize the wealth of shareholders. In case if
the manager considers it that the particular company is not working ethically then he
should avoid drawing salary from such company in first place.

2. Marketing campaigns run by fast food chains:

Marketing campaigns run by fast food chain like McDonalds making dubious claims.
McDonalds was charged guilty for serving unhealthy food to children through advertising
 tactics. Moreover, the wage discrimination and not letting employees unionize has led it
to face ethical dilemmas.

3. Wal-Mart:
Walmart has faced allegations by competition commission for its low pricing strategy
resulting in driving out the competition in Germany. Moreover, it has also faced issues in
pressuring suppliers to sell at ultra-low prices. In case of employees Walmart faces
allegations of pressuring workers to work overtime without pay and denying them health
insurance. Numerous allegations have led it to be a place of bad ethics.

Task #2

Mintzberg’s conceptual horseshoe:

Historically the organizations were controlled by its owners, however as with development and
involvement of various stakeholder’s due to the impact of corporate policies on environment and
economy led to a debate whether corporations should be managed by owners or there should be
some kind of involvement by various stakeholders. [ CITATION RWA73 \l 1033 ]
Mintzberg’s horseshoe shows a spectrum of various steps that can be undertaken to manage
corporations having two goals on each extreme of the spectrum i.e
1. Social goals
2. Economic goals
Moving from social to economic goals a number of strategies are there:
1. Nationalize
2. Democratize
3. Regulate
4. Pressure
5. Trust
6. Ignore
7. Induce
8. Restore
In order to deal with ethical issues society can undertake steps as they find appropriate.
Moreover, as per recent development in the new world we can see how corporations are faced
with a number of challenges like wage disparity, climatic change, carbon emission etc.
Sethi’s Typology:
Sethi’s typology brings together three dimensions:
1. Social responsibilities
These include the economic, legal, ethical and philanthropic aspects
 2. Philosophy of social responsiveness
It comprises of pro action, accommodation, defense and reaction
3. Social issues involved
Consumerism, environment, discrimination, product safety, occupational safety and
shareholders.
The model helps in understanding that social responsibility is not separate from economic
performance.

Examples of Global Organizations:

1. McDonalds:
From the past three decades McDonalds has been growing and spreading its business across the
globe. Having international presence, it has resulted in a consequence and challenge for it to
ethically manage its business.
A number of ethical dilemma are being faced by McDonalds[ CITATION Mar \l 1033 ]
These include
1. Impact on eastern Asia culture
2. Food quality
3. Labor relations
4. Wage disparity

All these issues when seen in the light of the Mintzberg’s and Sethi’s model can help in
understanding these ethical issues and to find an appropriate strategy to manage it.
As per Sethi’s typology social responsibility and economic performance are not distinct they
come hand in hand. In order to spread its presence in new markets McDonalds has a social
responsibility to take into account a number of factors when entering markets having a different
culture.
By understanding the norms and values of eastern Asia like China it would not have to face the
challenge of offending their culture.
Other social issues include wage disparity of labor class and top management. This has led to a
rise of movement against corporations in the western world. Minimum wage has not only
impacted the life of labor class only it has a detrimental impact on the overall economy of US.
Through closure of outlets in different locations joblessness has created a havoc for many
workers without any proper compensatory plans.
Food quality issues regarding the patty used for the burgers is obtained from different supply
sources. This has caused a concern for food contamination having poor quality. Food concerns
over apple pies in Japan and beef flavoring in fries has resulted in McDonalds apologizing from
its customers. [ CITATION Int \l 1033 ]
All the above discussed issues require social responsiveness at the part of the top management.
The point of concern for corporations is to take proactive measures to manage issues like wage
disparity, cultural aspects in countries where its planning to expand its operations and food safety
to avoid any legal repercussions.
Social responsiveness includes by accommodating stakeholders like employees, customers,
general public and government. By following it the corporation can defend and react to the
challenges being posed.
McDonalds does not only have economic responsibility to maximize the wealth of shareholders,
Sethi’s model helps in taking into account the ethical, legal and philanthropic aspects into
consideration as well.
Through this it will help in achieving sustainability in managing the organization.
As per Mintzberg’s conceptual horseshoe having social and economic goals at two extremes of
the spectrum a number of steps can be taken to manage McDonalds. The extreme option is to
nationalize the enterprise for issues mentioned above. However, this could undermine investors
sentiments and create a problem for many stakeholders.
Other step includes to “Democratize it” that is to share the power of the management by
reallocating it. By electing the representative to the board, management can focus on employee
related issues. However, in practice it has been seen that such representation has a very less
impact and has not been able to resolve any issue.
Regulating the enterprise involves managing the affairs of the company through rules,
regulations, best practices etc. the actions of the management are controlled by higher authority
backed by courts. Under regulations constraints are imposed upon the corporation externally
while internal regulation is left with the managers.
At minimum regulations sets the standards of behavior. As regulation varies from industry to
industry they cannot be applied universally. As per the case of McDonalds minimum wage, food
quality issues can be regulated. However, these steps are crude standards of behavior at its
minimum level. A further step towards being socially responsible is need of the day.
“Pressure it” as everything is not managed through regulation here social activist play a role in
pressuring corporations to take into account the affairs of the environment if their strategies
effect the local sites, animal testing, or employee unions.
Activists can play a role in ensuring that food supply obtained from animals are kept in a healthy
environment and are fed, grazed properly to ensure that food is not contaminated.
Other steps include to “Trust it” the enterprise like google as they act socially responsible
ensuring stakeholder satisfaction.
While other steps move towards only the economic goals of the corporation. Like by inducing
only where it pays for the organization is not an appropriate approach as economic and social
goals cannot be considered in isolation.
Last step in the horseshoe is to “Restore it” the enterprise to its rightful owners i.e. shareholders.
Whereby the main objective is to make as much money as possible. By only focusing on
managing affairs for the sake of making money McDonalds in todays globalized world would
face a very high backlash. Such approach at one extreme of the spectrum could affect the
sustainability aspect of existence and threaten its survival.

2. Wall-Mart
Wall-mart has been getting away with unethical behavior for many years. They have committed
acts of bribery, mistreatment of employees and competition commission charges for pressuring
suppliers to lower prices. [CITATION htt4 \l 1033 ]
The sole purpose by these acts appears is to satisfy shareholders and maximize their wealth. A
predatory pricing policy is used to drive out the competition from the market thus gaining a
monopoly. Moreover, underpaying employees and keeping them away from health insurance
cover has led it to face many legal charges.
All these acts indicate that the sole aim of the enterprise is to make wealth at the expense of the
society at large.
It has committed charges of bribery and violating foreign country laws like making payments to
Mexican officials amounting to $24m.
As per Sethi’s typology Wall-mart has both social and economic responsibility to consider legal
economic and philanthropic aspects by being socially responsive to the challenges being posed.
They need to be proactive and accommodative regarding their mistreatment of employees. The
current approach to ignore the ethical issues poses sustainability issues and can have detrimental
impact on its survival.
Use of bribery can pose legal challenges to the enterprise. All these social and issues require
thought out approach to have an accommodative approach.
Moreover, pressurizing suppliers to lower prices because of the buying power of Walmart has
resulting in creating a monopoly. This has led drive out the competition.
Mintzberg’s horseshow provides a number of strategies to manage the above mentioned ethical
issues.
Taking into account the social and economic goals at two extremes of the model the steps that
can be taken include
Nationalize, Democratize, Regulate, Pressure, Trust, Ignore, Induce and restore the corporation
to the economic goals.
The above-mentioned strategies move in a continuum to two extremes.
Nationalizing the enterprise is an extreme step. It is better to democratize it to have
representation of employee union in the board. Such representation would help in having a say in
employee related issues like mistreatment of employees. Minimum wage debates can be taken
into account at the top level.
Moreover, regulating the enterprise involves use of minimum standards of behavior required by
the court of law. As acts of bribery has emerged stringent acts and regulations. Moreover,
corporations need to act as socially responsible citizen.
These require regulations as well as code of conducts to ensure best practice of business.
Trust the enterprise is to the fact that wall-mart behaves as a socially well-behaved organization
taking into consideration the needs and interests of various stakeholders into account.
Currently the approach used by Walmart is to ignore and induce only the aspects that pay well
for the organization’s acts. Such strategy is fulfilling only the economic goals of the organization
and ignoring the social goals. Moving towards the right of the spectrum would ensure long term
survival.
Ethical decision-making process:
The decision-making process includes the following steps:
1. Gather the facts
2. Define the ethical issues
3. Identify the affected parties (stakeholders)
4. Identify the consequences
5. Identify the obligations (principles, rights, justice)
6. Consider your character and integrity
7. Think creatively about potential actions
8. Check your gut
9. Decide on the proper ethical action and be prepared to deal with opposing arguments.
Examples discussed below would use the above-mentioned process to take into account the
ethical issues faced by the organization.
1. McDonalds
The first example is of the fast food chain McDonalds. In order to consider ethics in decision
making process first steps includes to gather the relevant data regarding the point to be discussed
along with the ethical aspects that might be affected or related to the decision.
After analyzing and interpreting the information collected we will define the scope of the ethical
issue. For example, minimum wage to be set for the employees require collection of industry
wide wage data, legal requirement asper law and how we can competitively set wage rate for the
employees.
The affected stakeholders here include employees, labor union and regulatory authority. In order
to ensure integrity and character and to avoid any legal consequence the above collected date
would help to consider all the aspects before making the final decision.
After taking into account all the relevant aspects the corporation needs to be prepared to react to
any further challenges being posed. They can now defend themselves legally and can protect
their image as a socially responsible citizen.
2. Walmart
Similar steps would be followed in making decision regarding purchase from suppliers. The laws
of competition commission need to be considered because ignoring such facts can result in heavy
penalties.
When gathering facts, it is essential to take into account the legal aspects and then devise a
procurement policy for its suppliers. Acts of bribery are illegal it is essential that while
considering which stakeholders would be affected they should be given a representation.
The ethical issues taken into account has an adverse impact on the image of the company as well.
It is essential to be proactive to identify the outcomes beforehand in order to be aware of the
consequences that might materialize in the future.
After taking into account the outcomes it is the policies that would guide the direction of the
decision. Integrity and character would play a dominant role in making the decision. As we have
made the decision an appropriate ethical action is to be devised and be prepared for any
challenge that might arise in the future.
By taking into account all the legal aspects it would help corporation to defend itself from all the
legal proceedings if they arise in the future. Moreover, as per Sethi’s typology it is essential for
an organization to be ethically responsible hence considering all stakeholders would help to
incorporate all the relevant issues affecting them.
References
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the Literature]' in B. Taylor and K. Macmillan, Top Management, New York, Longman,
1973 p. 411
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