BUSINESS ETHICS

Foundation:

- Good
- Self
- Other

There must be a balance reached between self and other. Sometimes being good purely for other will sacrifice
the self to a point where the self is no longer sustainable.

All laws are built atop ethics

- Policies = the laws of business

- These rules aim to find the balance between self and other through protecting what is seen as
essential for the other
o When opinions and culture gets involved the rules are used as a means of oppression

The differences in people’s values are attributable to various factors such as: culture, religion, climate, social
and economic status, personal experiences, age and gender. The differences between values that people hold
lead to differences in ethical judgment as well as ethical debate on certain matters.

The moral evaluation of business ethics occurs on three levels, namely:

 The economic system level (macro-economic level)

 The organisational level (meso-economic level)
 The intra-organisational level (micro-economic level)

unethical behaviour within an organisation is often attributable to unethical individuals

Accountants therefore have at least three sets of ethical standards by which they have to abide. They have
their personal ethics and the professional ethics (for example SAICA CPC) as well as the organisational ethics of
the firm where they work.

BUSINESS MYTHS

Dog-eat-Dog

This myth portrays the business environment as a lonely and hostile world in which you either trample on
others or get trampled upon. The truth in this myth is that one’s own interests do play an important part in
one’s economic activity, but where the myth is proved wrong is that one cannot just turn a blind eye to the
interests of others. Economic activity always consists of a complex network of human relations with
stakeholders, and each stakeholder is reliant on the other to ensure success within their business.

Survival of the fittest

According to this myth, business is essentially a competitive struggle in which only the fittest will survive. And
due to the competitive nature of business you cannot afford to be bothered by the interests of your
competitor, which will only jeopardise your chances of winning. The truth however is that competition is an
important aspect of business and has a rightful and vital place in business. However, healthy competition
respects the opponent and plays the game according the rules.

The same holds true for business, if ethics is abandoned in the name of competition, the future prospects of
the organisation could be in danger. The wider community generally shows intolerance towards unethical
business practices which undermine justice and safety and they could very easily call on government
interventions or penalties and exclusions that will allow for less freedom of conducting business in future.

Nice guys come second

This myth proclaims that it is impossible to be both ethical and successful in business as ethics and business
are seen as opposites. The element of truth however is that ethics might come at a price as it might demand
that you forsake certain opportunities to make money. In the long term however, ethics seems to be a
prerequisite for sustained success and even more so for excellence in business.

It is not serious

The myth propagates that although unethical conduct is wrong; it is not really harmful to society. Although
unethical conduct may cause some discomfort to a few people, it will not harm society at large. In fact there
might even be hidden benefits for society such as the re-distribution of wealth or the stimulation of economic
growth.

The truth is, however, that unethical conduct in business is a profoundly serious matter and can indeed lead to
financial loss, slacking in safety standards and even the loss of life.

If you can’t beat them, join them

People that buy into this myth reason that if it is the norm to act unethically in a certain environment, why be
different; join in and enjoy the spoils. They might also feel that there is no way that their ethical behaviour can
make a difference in a predominantly unethical environment. So, if you can beat them, join them or When in
Rome, do as the Romans do. The foundation for this myth is the argument that the majority knows best.
Although even in a liberal, democratic society governed by the wishes of the majority, it is accepted that the
majority does not always do what is morally acceptable or correct.

All the matters is the bottom line

This myth maintains that business is about one thing only and that is profit, the bottom line, which is the
measure of a company’s success, or lack thereof, in business. Therefore, anything that impacts positively on
the bottom line should be pursued and anything that distracts from it should be discarded. What should be
noted is that there is a distinct difference between admitting that profit is fundamental to business and the
claim that profit is all that matters.

This myth is also degrading as it implies that when human beings enter the world of business they are reduced
to mere profit-seeking creatures. Such an assumption violates the complexity of human nature. Given the
social nature of business, ethics is essential for maintaining the intricate network of relationships with all the
stakeholders, and research has found that ethical conduct can be linked to the positive financial performance
of a company.

INSIDER TRADING

Insider trading is the trading of a company’s shares or other securities by individuals with potential access to
non-public information about the company.

FRAUD

Fraud is defined as unlawful and intentional misrepresentation, which can lead to the actual or potential
disadvantage to another individual or group. The use of the term fraud is intended to include all aspects of
economic crime and acts of dishonesty.

Opportunity is the ability for an individual to commit fraud

Opportunity is created by weak internal controls, poor management oversight, and/or through the
use of a person’s position and authority.

Opportunity is however the element over which a business owner has the most control

The motivation or incentive to commit fraud is the second pillar of the fraud triangle. It is a pressure
or a “need” felt by the person who commits fraud.

rationalization is when the fraudster feels that committing fraud is acceptable for a variety of reasons

involves a person reconciling his behaviour with the commonly accepted notions of decency and trust.

NEPOTISM

Nepotism is referred to as the granting of favouritism towards relatives regardless of merit.

Ethic nepotism, another form of nepotism, refers to granting favouritism to members of the same religion,
race, nationality, tribe, and language or cast system.

Cronyism on the other hand is the showing of favour towards friends and acquaintances (not family) when
awarding business deals, awarding tenders and appointing employees.

INSTITUTIONALISING ETHICS
Where the financial accounting and reporting is well established and regulated, the same cannot be said for
the other two elements, namely socio-ethical and environmental reporting.

The code of ethics identifies the standards of ethical behaviour that all employees need to adhere to in their
decisions, actions and interactions with stakeholders of the company. There are generally two types of codes,
directional and aspirational.

Directional codes are very specific in prescribing clearly what kind of behaviour is unacceptable and which is
acceptable. The strength with directional codes lies in the fact that they are very specific and clear, but
consequently the fact that they are so specific leaves very little discretion to the individual employee to
interpret. They often give rise to the mentality of “what is not forbidden is obviously allowed”. Another
disadvantage is that when there are too many rules, they become difficult to remember.

Aspirational codes are less directive as they identify the ethical values, norms and principles that should guide
employees in their decisions and actions. Rather than being very specific, they provide employees with broad
guidelines which they are expected to apply with discretion. As a result, aspirational codes tend to be very
short and therefore easy to recall. This enhances the ability of an aspirational code to become a living
document that lives in the hearts and minds of all employees. The major drawback is that they can be
perceived to be very vague and provide insufficient guidance to employees.

At the strategic level the board of directors needs to take the responsibility of committing the company
formally towards the code of ethics. The commitment needs to be reflected in their vision, mission and
identity of the organisation and should also be communicated to all the relevant stakeholders.

In implementing a code of ethics and ethical strategy on a systems level, the board of directors needs to
delegate the authority of managing the ethical performance of the company to a board committee (such as an
ethics committee) or a compliance officer. The challenge for the key role-players involved in ethics
management is to design and implement systems to ensure that the vision and strategy for ethics are realised
throughout the organisation. There is a wide range of possible ethics management systems that can be
introduced, some examples include:

 Clear communication to all stakeholders.

 Communicating good news and bad news to stakeholders, therefore ensuring transparency.
 Instilling induction systems for new staff
 Ensuring proper human resource and staffing systems to ensure the organisation hires and promotes
individuals with integrity
 Institutionalising ethics through performance appraisal systems that reward ethical behaviour
 Ethics training can also continuously focus the employees’ attention to important ethical issues.
 Introducing ethics hotline and confidential reporting lines
 Disciplinary systems to punish and discourage non-compliance with the code of ethics
 Monitoring and evaluating the ethical performance of the company and trying to improve by
implementing various interventions.

BBBEE
 • Measurement in terms of the B-BBEE Codes is about scoring for the purposes of the B-BBEE
Certificate

• Obtaining a B-BBEE Certificate is not compulsory; however social obligation exists

• If not BBBEE other companies will choose not to do business with you as you directly effect
their BBBEE rating

May have to audit bee compliance, therefore, must understand the requirements and processes