Unit 44: Ethical Behaviour in Business

Introduction

Whenever you think about the behaviour you expect of yourself in your personal life and as a professional, you are engaging in a philosophical dialogue with yourself to establish the standards of behaviour you choose to uphold, that is, your ethics. You may decide you should always tell the truth to family, friends, customers, clients, and shareholders, and if that is not possible, you should have very good reasons why you cannot.

Clients, customers, suppliers, investors, retailers, employees, the media, the government, members of the surrounding community, competitors, and even the environment are stakeholders in a business; that is, they are individuals and entities affected by the business’s decisions. Stakeholders typically value a leadership team that chooses the ethical way to accomplish the company’s legitimate for-profit goals.

Being successful at work may consist of much more than simply earning money and promotions. It may also mean treating employees, customers, and clients with honesty and respect.  Thus, business ethics guides the conduct by which companies and their agents abide by the law and respect the rights of their stakeholders, particularly their customers, clients, employees, and the surrounding community and environment. The video below provides information on how to be ethical in five very distinct areas.

Ethical vs. Legal

Many people confuse legal and ethical compliance. They are, however, totally different and call for different standards of behaviour. The concepts are not interchangeable in any sense of the word. The law is needed to establish and maintain a functioning society. Without it, our society would be in chaos. Compliance with these legal standards is strictly mandatory: if we violate these standards, we are subject to punishment as established by the law. Therefore, compliance in terms of business ethics generally refers to the extent to which a company conducts its business operations in accordance with applicable regulations, statutes, and laws. Yet this represents only a baseline minimum. Ethical observance builds on this baseline and reveals the principles of an individual business leader or a specific organization. Ethical acts are generally considered voluntary and personal—often based on our perception of or stand on right and wrong.

Some professions, such as medicine and the law, have traditional codes of ethics. The Hippocratic Oath, for example, is embraced by most professionals in health care.  Business is different in not having a mutually shared standard of ethics. This is changing, however, as evidenced by the array of codes of conduct and mission statements many companies have adopted over the past century. These have many points in common, and their shared content may eventually produce a code universally claimed by business practitioners of how to treat with honesty and integrity customers, clients, employees, and others affiliated with a business.

Behaving ethically requires that we meet the mandatory standards of the law, but that is not enough. For example, an action may be legal that we personally consider unacceptable. Companies today need to be focused not only on complying with the letter of the law but also on going above and beyond that basic mandatory requirement to consider their stakeholders and do what is right.

Ethisphere provides an annual report on the world’s most ethical business based on several categories: ethics and compliance program, organizational culture, corporate citizenship and responsibility, governance, and leadership and reputation.  Take a look at the Canadian companies that made the 2020 list.

The Benefits of Being Ethical

The notion that maximizing profit is the sole objective of any business does not reflect the modern business environment.  Today, leadership is grounded in doing right by all stakeholders directly affected by a firm’s operations. That is, business leaders do right when they think about what is best for all who have a stake in their companies, and not just think about maximizing profit. Not only that, research shows that companies benefit financially when they take a holistic approach to their operations, especially over the long run.

Although it is certainly permissible and even desirable for a company to pursue profitability as a goal, managers must also have an understanding of the context within which their business operates and of how the wealth created can add positive value to the world. Even as a company pursues the maximizing of profit, it must also acknowledge that it owes a reciprocal obligation to do what is best for as many stakeholders as possible.

What Employers Owe Employees

A contemporary corporation always owes an ethical, and in some cases legal duty to employees to be a responsible employer. In a business context, the definition of this responsibility includes providing a safe workplace, compensating workers fairly, and treating them with a sense of dignity and equality while respecting at least a minimum of their privacy. A discussion of three such ethical responsibilities follows.

Modelling Ethical Behaviour

If a corporation expects its employees to act ethically, that behaviour must start at the top, where managers hold themselves to a high standard of conduct and can rightly say, “Follow my lead, do as I do.” At a minimum, leaders model ethical behaviour by not violating the law or company policy. One who says, “Get this deal done, I don’t care what it takes,” may very well be sending a message that unethical tactics and violating the spirit, if not the letter, of the law, are acceptable. A manager who abuses company property by taking home office supplies or using the company’s computers for personal business but then disciplines any employee who does the same is not modeling ethical behaviour. Likewise, a manager who consistently leaves early but expects all other employees to stay until the last minute is not demonstrating fairness.

Transparency

This duty begins during the hiring process when the company communicates to potential employees exactly what is expected of them. Once hired, employees should receive training on the company rules and expectations. Management should explain how an employee’s work contributes to the achievement of company-wide goals. In other words, a company owes it to its employees to keep them in the loop about significant matters that affect them and their job, whether good or bad, formal or informal. A more complete understanding of all relevant information usually results in a better working relationship.

Transparency can be especially important to workers in circumstances that involve major changes, such as layoffs, reductions in the workforce, plant closings, and other consequential events. These kinds of events typically have a psychological and financial impact on the entire workforce. An ethical company will give workers advance notice, a severance package, and assistance with the employment search, without being forced to do so by law. Proactive rather than reactive behaviour is the ethical and just thing to do.

Safety and Security

Employers also have an ethical and legal duty to provide a workplace free of harassment of all types. This includes harassment based on sex, race, religion, national origin, and any other protected status, including disability. Employees should not be expected to work in an atmosphere where they feel harassed, discriminated against, or disadvantaged.

Two relatively recent examples of workplace environments that descended into the worst excesses of sexist and other inappropriate behaviour occurred at American Apparel and Uber. In both cases, principal leaders engaged in ruthless, no-holds-barred management practices that benefitted only those subordinates who most resembled the leaders themselves. Such environments may thrive for a while, but the long-term consequences can include criminal violations that produce hefty fines and imprisonment, bankruptcy, and radical upheaval in corporate management. At American Apparel and at Uber, these events resulted in the dismissal of each company’s CEO, Dov Charney (who also was the founder of the company) and Travis Kalanick (who was one of the corporation’s founders), respectively.

In 2017 and 2018, a renewed focus on sexual harassment in the workplace and other inappropriate sexual behaviours brought a stream of accusations against high-profile people in politics, entertainment, sports, and business. Entertainment industry mogul Harvey Weinstein; Pixar’s John Lasseter; on-air personalities Matt Lauer and Charlie Rose; politicians such as Roy Moore, John Conyers, and Al Franken; and Uber’s Kalanick, to name just a few.

What Employees Owe Employers

Employees must also do their part in maintaining ethics in the work environment.  A few of the obligations that employees owe their employer are discussed below.

Loyalty

Our understanding of commitment and loyalty between employer and employee is changing. An ethical employee owes the company a good day’s work and his or her best effort, whether the work is stimulating or dull. A duty of loyalty and the best effort are the primary obligations of employees. However, a manager who expects a twentieth-century concept of loyalty in the twenty-first century may be surprised.

One indicator that our understanding of the term is changing is that millennials are three times more likely than older generations to change jobs.  According to a Forbes Human Resources Council survey, about nine in ten millennials (91 percent) say they do not expect to stay with their current job longer than three years, compared with older workers who often anticipated spending ten years or even an entire career with one employer.

Loyalty to an employer requires that an employee refrains from acting in a manner contrary to the employer’s interest. This duty creates some basic rules employees must follow on the job and provides employers with enforceable rights against employees who violate them.  In general terms, the duty of loyalty means an employee is obligated to render “loyal and faithful” service to the employer, to act with “good faith,” and not to compete with but rather to advance the employer’s interests. The employee must not act in a way that benefits him- or herself (or any other third party), especially when doing so would create a conflict of interest with the employer.

Confidentiality

Employers can also expect their employees to owe them a duty of confidentiality.  In the competitive world of business, many employees encounter information in their day-to-day work that their employers reasonably expect to be kept confidential. Proprietary (private) information, the details of patents and copyrights, employee records and salary histories, and customer-related data are valued company assets that must remain in-house, not in the hands of competitors, trade publications, or the news media. Employers

Respecting the Brand

Every company puts time, effort, and money into developing a brand, that is, a product or service marketed by a particular company under a particular name. As Apple, Coca-Cola, Amazon, BMW, McDonald’s, and creators of other coveted brands know, branding—creating, differentiating, and maintaining a brand’s image or reputation—is an important way to build company value, sell products and services, and expand corporate goodwill. In the sense discussed here, the term “brand” encompasses an image, reputation, logo, tagline, or specific color scheme that is trademarked, meaning the company owns it and must give permission to others who would legally use it (such as Tiffany’s unique shade of blue).

Companies want and expect employees to help in their branding endeavors. Disloyal or disgruntled employees can damage a company’s brand, especially on social media.  Consider these examples:

• A photo posted on Taco Bell’s Facebook page showed an employee licking a row of tacos.
• A Domino’s Pizza employee can be seen in a YouTube video spitting on food, putting cheese into his nose and then putting that cheese into a sandwich, and rubbing a sponge used for dishwashing on his groin area.
• A Burger King employee in Japan posted a photo of himself on Twitter lying on hamburger buns while on duty.

All three companies experienced financial and goodwill losses after the incidents and struggled to restore public trust in their products. The immediate and long-term costs of such incidents are the reason companies invest in developing brand loyalty among their employees.

Respecting Customers

As the public’s first point of contact with a company, employees are obliged to assist the firm in forming a positive relationship with customers. How well or poorly they do so contributes a great deal to customers’ impression of the company. And customers’ perceptions affect not only the company but all the employees who depend on its success for their livelihood. Thus, the ethical obligations of an employee also extend to interactions with customers, whom they should treat with respect. Employers can encourage positive behaviour toward customers by empowering employees to use their best judgment when working with them.

It may take only one bad customer interaction with a less-than-engaged or committed employee to sour brand loyalty, no matter how hard a company has worked to build it. In the same way, just one good experience can build up goodwill.

Following Codes of Conduct

Companies have a right to insist that their employees, including managers, engage in ethical decision-making. To help achieve this goal, most businesses provide a written code of ethics or code of conduct for all employees to follow. These cover a wide variety of topics, from workplace romance and sexual harassment to hiring and termination policies, client and customer entertainment, bribery and gifts, personal trading of company shares in any way that hints of acting on insider knowledge of the company’s fortunes, outside employment, and dozens of others. A typical code of conduct, regardless of the company or the industry, will also contain a variety of standard clauses, often blending legal compliance and ethical considerations.  Table 7.1 provides examples of some areas that are typically covered in a company’s code of conduct or code of ethics.