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Russian Presidential Academy of National Economy and Public Administration
Department of Economic and Social Sciences
Corporate ethics its impotence
With the example of practical implementation
Written by Ivan Lapshin, 3d year student
Date:15\05\2013
Moscow 2013
Contents
I. Introduction
1. The corporate (business) ethics
1.1 The idea of corporate ethics
1.2 Areas of application of corporate ethics
1.3 Principles of corporate ethics
1.4 Entities supervising corporate ethics
2. The importance of corporate ethics
2.1 The importance of ethics for company
2.2 The importance of ethics for customers, stakeholders
3. Corporate ethics in Russia
3.1 Business ethics in Russia
3.2. Implementation of International Corporate Ethics
3.3 Corporate ethic of Gazprom
II. Conclusion
Bibliography
Introduction
The main reason why humanity has survived for so long is due to certain rules, values, mores and ethics, which all of us abide by. Just imagine, what would happen if suddenly we were left without any sense of morality or values. In such a scenario, no doubt, chaos will prevail everywhere. Thus, ethics and values are the very foundations on which this society is standing.
Ethics concern an individual's moral judgments about right and wrong. Decisions taken within an organization may be made by individuals or groups, but whoever makes them will be influenced by the culture of the company. The decision to behave ethically is a moral one; employees must decide what they think is the right course of action. This may involve rejecting the route that would lead to the biggest short-term profit.
An ability to act effectively in situations which involve ethical aspects is becoming one of the standards of corporate governance and a key element of business tasks solution and possible risks reduction. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws. Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviors tend to undermine the economy over time.
The main purpose of this work is to define the corporate ethics itself, determine its significance and spheres of application. This work is really very topical because more and more companies nowadays organize their internal structure by enforcing code of business ethics. Ethical behavior and corporate social responsibility can bring significant benefits to a business.
Businesses in general are working on the basis of an ethics that settles different interests. The standards and values within companies can be characterized as mutual respect. In this respect it is in everyone's interest, and is considering people as an end in themselves, not as a means, reciprocity and fairness. This ethics is passed down and filtered to a group of stakeholders who have an interest in the company. These parties usually are: personnel, customers, suppliers, subcontractors, shareholders, society and those who speak on behalf of the environment and future generations. Many ethicists say there's always a right thing to do based on moral principle, and others believe the right thing to do depends on the situation, ultimately it's up to the individual on what they do and on what they believe to be the right thing is. Sometimes the right thing is not necessarily the best thing to do. Executable ethical standards are essential to reduce risk of breaches when conventional measures of control prove inefficient. A system of corporate ethics to ensure that these standards are abided by is no less important than the standards themselves.
Chapter 1. The corporate (business) ethics
The idea of corporate ethics
Corporate ethics is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. Some corporations have well defined ethical parameters and others don’t, or they sacrifice ethical behavior to profit and determine that gaining profit and power are the most desired motives. When discovered in this type of activity, there is often a strong backlash that results in losing profits. This suggests that even if the decision to adopt defined corporate ethics is purely motivated by profit, it may be good business.
The ways companies conduct business are multiple and complex, and corporate ethics may operate on numerous levels. Ethical considerations can determine how a corporation competes at the business level with other corporations.
Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. Ethics implicitly regulates areas and details of behavior that lie beyond governmental control. The emergence of large corporations with limited relationships and sensitivity to the communities in which they operate accelerated the development of formal ethics regimes.
Corporate ethics reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a company. If a company's purpose is to maximize shareholder returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility.
Ethical issues include the rights and duties between a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. Issues concerning relations between different companies include hostile take-overs and industrial espionage. Related issues include corporate governance; corporate social entrepreneurship; political contributions; legal issues such as the ethical debate over introducing a crime of corporate manslaughter; and the marketing of corporations' ethics policies.
While corporate ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:
The success of any business depends on its financial performance. Financial accounting helps the management to report and also control the business performance.
The information regarding the financial performance of the company plays an important role in enabling people to take right decision about the company. Therefore, it becomes necessary to understand how to record based on accounting conventions and concepts ensure accurate records.
Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.
Very often it is held that business is not bound by any ethics other than abiding by the law. But still companies that violate obvious ethical practices can result in huge consequences. Problems usually start off small, but build into bigger ones unless standards are truly set and followed. With the pressure to achieve the numbers, bad decisions can be made. This can be pressure on the customer service representative to wrongly fill an order, to senior management falsifying the financial health of the company.
Some corporate ethics, however, are much more easily recognizable as being obviously ethically wrong. To name a few:
As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements (typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.
An increasing number of companies also require employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.
Many companies are assessing the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may call for unethical behavior. Lying has become expected in fields such as trading.
Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment.
Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favour by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly.
Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.
Jones and Parker write, "Most of what we read under the name business ethics is either sentimental common sense, or a set of excuses for being unpleasant." Many manuals are procedural form filling exercises unconcerned about the real ethical dilemmas.
Areas of application of corporate ethics
Corporate ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole.
In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions is increasing. Simultaneously, pressure is applied on industry to improve corporate ethics through new public initiatives and laws. Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviors tend to undermine the economy over time.
Corporate ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in corporate ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia.
Finance
Fundamentally, finance is a social science discipline. The discipline borders behavioral economics, sociology, economics, accounting and management. It concerns technical issues such as the mix of debt and equity, dividend policy, the evaluation of alternative investment projects, options, futures, swaps, and other derivatives, portfolio diversification and many others. Finance is often mistaken to be a discipline free from ethical burdens. The 2008 financial crisis caused critics to challenge the ethics of the executives in charge of U.S. and European financial institutions and financial regulatory bodies. Finance ethics is overlooked for another reason—issues in finance are often addressed as matters of law rather than ethics.
Ethical Issues in Finance:
Importance of Financial Statements:
In ethical reporting of finance, financial statements play an important role.
* The internal financial reporting has to be fair and honest.
* To run a business ethically, it is necessary to have trustworthy internal auditing system.
The steps that a company's management should take into account for true, fair and reliable management accounts are:
1. Determining the key elements of the business like the objectives of the firm and see how they are defined and measured.
2. Making sure that the funds are allocated to different activities on the basis of their importance.
3. Frame rules that have a positive effect on business activities. It is important to ensure that each project or department is allotted its fair share of funds and that the projected earnings of the project or the department are in accordance with the funds allocated to it.
Fairness in trading practices, trading conditions, financial contracting, sales practices, consultancy services, tax payments, internal audit, external audit and executive compensation also fall under the umbrella of finance and accounting.[40][75] Particular corporate ethical/legal abuses include: creative accounting, earnings management, misleading financial analysis insider trading,securities fraud, bribery/kickbacks and facilitation payments. Outside of corporations, bucket shops and forex scams are criminal manipulations of financial markets.
Human resource management
Human resource management occupies the sphere of activity of recruitment selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues. Corporate Ethicists differ in their orientation towards labor ethics. Some assess human resource policies according to whether they support an egalitarian workplace and the dignity of labor.
Issues including employment itself, privacy, compensation in accord with comparable worth, collective bargaining (and/or its opposite) can be seen either as inalienable rights or as negotiable. Discrimination by age (preferring the young or the old), gender/sexual harassment, race, religion, disability, weight and attractiveness. A common approach to remedying discrimination is affirmative action.
Potential employees have ethical obligations to employers, involving intellectual property protection and whistle-blowing.
Employers must consider workplace safety, which may involve modifying the workplace, or providing appropriate training or hazard disclosure.
Larger economic issues such as immigration, trade policy, globalization and trade unionism affect workplaces and have an ethical dimension, but are often beyond the purview of individual companies.
Sales and marketing
Marketing of age only as late as 1990s. Marketing ethics was approached from ethical perspectives of virtue or virtue ethics, deontology, consequentialism, pragmatism and relativism.
Ethics in marketing deals with the principles, values and/or ideals by which marketers (and marketing institutions) ought to act. Marketing ethics is also contested terrain, beyond the previously described issue of potential conflicts between profitability and other concerns. Ethical marketing issues include marketing redundant or dangerous products/services transparency about environmental risks, transparency about product ingredients such as genetically modified organisms possible health risks, financial risks, security risks, etc., respect for consumer privacy and autonomy, advertising truthfulness and fairness in pricing & distribution.
According to Borgerson, and Schroeder (2008), marketing can influence individuals' perceptions of and interactions with other people, implying an ethical responsibility to avoid distorting those perceptions and interactions.
Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions including price discrimination and price skimming. Certain promotional activities have drawn fire, including green washing, bait and switch, shilling, viral marketing, spam (electronic), pyramid schemes and multi-level marketing. Advertising has raised objections about attack ads, subliminal messages, sex in advertising and marketing in schools.
Principles of corporate ethics
One of the most important attributes for business success is the distinguishing quality of practicing admirable corporate ethics. Corporate ethics, practiced throughout the deepest layers of a company, become the heart and soul of the company's culture and can mean the difference between success and failure.
These principles deserve to be considered as an important insight for companies striving for long-term success and growth.
Principles of Corporate Ethics
1. Be Trustful: Recognize customers want to do business with a company they can trust; when trust is at the core of a company, it's easy to recognize. Trust defined, is assured reliance on the character, ability, strength, and truth of a business.
2. Keep An Open Mind: For continuous improvement of a company, the leader of an organization must be open to new ideas. Ask for opinions and feedback from both customers and team members and your company will continue to grow.
3. Meet Obligations: Regardless of the circumstances, do everything in your power to gain the trust of past customers and clients, particularly if something has gone awry. Reclaim any lost business by honoring all commitments and obligations.
4. Have Clear Documents: Re-evaluate all print materials including small business advertising, brochures, and other business documents making sure they are clear, precise and professional. Most important, make sure they do not misrepresent or misinterpret.
5. Become Community Involved: Remain involved in community-related issues and activities, thereby demonstrating that your business is a responsible community contributor. In other words, stay involved.
6. Maintain Accounting Control: Take a hands-on approach to accounting and record keeping, not only as a means of gaining a better feel for the progress of your company, but as a resource for any "questionable " activities. Gaining control of accounting and record keeping allows you to end any dubious activities promptly.
7. Be Respectful: Treat others with the utmost of respect. Regardless of differences, positions, titles, ages, or other types of distinctions, always treat others with professional respect and courtesy.
Recognizing the significance of business ethics as a tool for achieving your desired outcome is only the beginning. A small business that instills a deep-seated theme of business ethics within its strategies and policies will be evident among customers. It's overall influence will lead to a profitable, successful company. By recognizing the value of practicing admirable business ethics, and following each of the 7 principles, your success will not be far off.
Control over the corporate ethics
Ethics officers have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption, and abuse scandals that afflicted defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations.
In 1991, the Ethics & Compliance Officer Association (ECOA)—originally the Ethics Officer Association (EOA)—was founded at the Center for Business Ethics (at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,200 members) and was soon established as an independent organization.
Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.
Ethics officers often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making recommendations regarding the company's ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions.
A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions.
The effectiveness of ethics officers is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect little impact, at least over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually emanates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behavior: a more systemic programme with consistent support from general management will be necessary.
The foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual's early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.
Chapter 2. The importance of corporate ethics
The importance of ethics for company
Successful businesses fail, profitably running businesses suffer from a downfall and some seemingly effective corporates receive a great fall in their profits and popularity and one of the main reasons behind these surprising failures was the lack of corporate ethics.
Ethics is an important part of life and running a successful business is no exception to this. To become successful, a business needs to be driven by strong ethical values. The mindset of a businessman creates a mindset for his/her company, which in turn sets the work culture of the business organization. For a business to prosper and maintain its wealth, it ought to be founded on certain ethical principles. A business that is based on ethics can run successfully for long years. Moneymakers who do not heed to ethical values can only earn a short-lived success. To last long in the market, business ethics is essential.
For a business to achieve long-term profits, customer relationship is of utmost importance. To gain a long-term relationship with customers and achieve customer return for the business, the business needs to be based on ethics. The trustworthiness of a business, its customer service, its customer care, its way of dealing with customers and its urge to retain their old customers, is a part of ethics in business. Business ethics leave a long-lasting impression on the customers and the impression on their minds builds trust, fetching a business more customers while retaining the older ones.
Ethics is an integral part of running a business and hence ethical values accompany business by default. Without following certain ideals in business, one cannot become successful. Success that is attained without a foundation of strong ethics is bound to be short-lived. A business cannot continue to prosper without an ethical base. A few successes can be coincidences or flukes but persistent success can only be a result of a strong foundation of ethics.
The benefits given by the business organization should not be used in an unfair manner. The use of company resources for personal benefits and taking an undue advantage of business resources is completely unethical. Using the wealth of the business for personal reasons is not ethical. Using company funds for personal reasons is unethical. A thoughtful and a careful utilization of company resources is a part of business ethics. A vigilant and a prudent use of resources is an essential component of ethics in business.
Accepting bribes, pleasing the so-called 'important' clients, favoring a part of the customers while being unfair towards the others is against ethics in business. The primary aim of business is not just to maximize profits. It is rather to cater to the needs of society and work towards benefiting the masses.
‘Corporate (business) ethics’ is the application of ethical values, such as integrity, fairness, respect and openness, to business behavior. It relates to all activities of a company, from how it develops, produces and delivers its products and services, to its interactions with its customers, suppliers, employees and wider society. Embedding these values and being seen to do so has become increasingly important to overall business success.
When an organization behaves unethically it always jeopardizes itself. Employees, who don't like the engage in unethical behaviors, can sue the firm for hostile work environments and there is always a risk to be sued by the employees who feel discriminated by the firm.
Unethical practices compromises the long term viability of the firms, especially in countries like US and the Europe where people question more about the ethical practices of the organization. If the firms engage in unethical practices it loses the trust of its stakeholders and cannot survive in the long run. There are many firms which eventually went down by conducting unethical practices for example Enron and WorldCom. The organization that shows poor judgment breaks faith of its employee and peoples; is answerable to them and have to face the consequences of their actions. We know that workers are company's best asset and if you workers think that company is engaged in unethical actions they will simply not respect the company anymore, which in long run will generate losses for the company. So, creating an ethical environment is more important today than it was ever before.
Standards of conduct may need to be above that required by law to avoid reputational damage. Failure to comply with the law will always be unethical and damage reputation. But conduct may not be contrary to the law yet still be considered to be unethical and cause damage to a company’s reputation. A company’s concerns in relation to its reputation should extend beyond those for which it is personally responsible under a legal liability, for its reputation can be damaged by other high risk areas such as the actions of third parties, including advisers, suppliers, contractors, and business partners in joint ventures.
Failure to be seen to implement acceptable ethical standards of conduct can also impact upon the degree of regulation or legislation that might otherwise be introduced to constrain behavior.
Ethical behavior and corporate social responsibility can bring significant benefits to a business. For example, they may:
Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a firm's reputation and make it less appealing to stakeholders. Profits could fall as a result.
The importance of ethics for customers, stakeholders
Stakeholder is a person, group, organization, or system who affects or can be affected by an organization's actions. If the organization as whole engages in unethical behaviour this is affect each and every person related to that organization. If a word goes out in the market that the particular firm is behaving unethically then it will definitely lose the trust of its workers and also its customers. If you customer does not trust the firm then they will not buy from it and this is will generate loses for the firm in long run.
Building relationships with customers is critical because trust is a huge part of complex or huge purchases. Customers need to find business credible and have benevolence when deciding to spend millions on a contract with it. The factors that influence a successful relationship are customers trust; with customer trust, they are more likely to buy from you than from someone else that they know nothing of. When they see firsthand how company operates and what types of people run the company, they will have a better understanding of company to make an informed decision. Firms should not always give what the customers want. It depends on the situation and the scenario. The CEO sets the standards of the company and needs to enforce it so that the whole of a company is unified. Also, even if it is within the realms of the company's culture, spending ridiculous amounts of money such as taking them on a cruise for a small contract cut too much into their profits than a simple drink at a bar. The head of a company would need to set standards and boundaries for its employees.
There are many ways where management can take to reduce unethical practices. One way would be to set boundaries on what can and can't be done. Non adult entertainment related events or nights out on company terms. These events could offend female clients or even their own salespeople; and not only that, the females will be at a huge disadvantage if the male salespeople went without them which will only force them to go to make the commission.
Another way management can reduce unethical practices is to train their employees. For new or old employees they should have an ethics training class that teaches them about ethical business behaviors for the company. Just because something is not illegal does not mean it's ethical, employees should consider that and think outside the box.
Business stakeholders have higher expectations of how an organization undertakes its activities. Failing to live up to these expectations can impact upon a company’s reputation, which can take a long time to develop or rebuild but can be damaged in a short space of time. It can influence current and prospective customers and the companies’ business prospects; employee morale; recruitment, particularly senior positions; and in comment in the media relating to companies, the analyst community and in capital markets. Even where a company has done nothing to justify an attack on its reputation, a negative perception will itself be seriously damaging over time.
Failure to be seen to implement acceptable ethical standards of conduct can also impact upon the degree of regulation or legislation that might otherwise be introduced to constrain behavior.
Companies are increasingly attempting to maintain or improve their reputations by ‘getting their houses in order’, designing new initiatives such as Codes of Ethics. Many have a long way to go if they are to implement and be seen to implement these successfully and embed a culture of ethical business conduct within the day to day running of their businesses.
What constitutes acceptable ethical business conduct changes over time and conduct that at one time may not have damaged the company’s reputation could subsequently cause considerable damage. Companies need to regularly monitor the overall implementation of their ethical policies and procedures to ensure they match the acceptable standards of the time.
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