Managing Ethics and Sustainability in Business
Ethics within a business context can be best defined as moral thinking and analysis by corporate decision makers regarding the motives and consequences of their decisions and action. Ethics in decision making is not always clear or black and white due to the complexity and the various factors that come into play in managers decisions. Just because a decision or action is legal does not necessarily always make it ethical. Firms are now beginning to align business interests with society’s interests. Corporate Social Responsibility is proactive and reactive approach firms take to coincide with consumers social interests which will in return improve the company’s brand and reputation. Sustainability is used interchangeably but it is more focused on the environment. Managers are expected to behave ethically and instill a corporate culture that is ethical however sustainability and corporate social responsibility is not expected and is up to the board of directors and top management to partake in these initiatives. While it is difficult to quantify the initiatives and calculate the return on investment there is evidence that there are long term benefits in sustainability initiatives. There are many ethical issues that are relevant to today’s managers such as ethical business practices of anti-corruption and bribery, considering the safety and security of both employees and consumers, and the violation basic human rights all culminate things managers must consider.
Ethical situations the international managers face is not exclusive from the different operations of a company such as corporate strategy, finance, accounting, marketing, and operations so responding becomes all the more complex. Bribery and corruption are a few situations firms at times face when doing business in foreign countries. Most cases of bribery are when executives bribe government officials for exclusive business contracts or access to permits. This may be in firms’ best interest to pay the bribe in order to speed things along, but it is illegal and unethical, so it is necessary for executives to find other solutions. There are even cases of extortion when local gangs or mafia threaten to damage or halt operations if they don’t pay the protection money. Again, it may seem to the manager to simply pay the extortion fee, but it is actually a better solution to the more security. The most ethical decision tends to be the best long-term solution.
The Foreign Corrupt Practices Act makes it illegal for U.S citizens as well as foreign companies listed in American stock exchanges to bribe foreign government officials to further business interest. The U.S Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977 in response to investigations that revealed that over four hundred American companies made illegal and suspicious payments to government officials in foreign countries. This also forces foreign companies listed in a U.S stock exchange to maintain accurate records of transactions. Transparency International is a nongovernmental organization that fights against bribery and corruption. Transparency International is a great organization international manager can utilize tools and resources to outmaneuver corruption. A few of these tools include the Global Corruption Barometer, Corruption Perceptions Index, Bribe Payers Index, and information on the latest anti-bribery and corruption practices. The CPI or Corruption Perception Index ranks one hundred and seventy-six countries by their apparent level of corruption. The results are generated from opinion surveys and expert assessments. The range countries
are scored on are from 100 as very clean to 0 as very corrupt. In the 2019 Corruption Perception index Denmark, New Zealand, Finland and Singapore ranked highest on the list as the least corrupt while Somalia, Syria, South Sudan, and Yemen ranked as the most corrupt countries in the world. The BPI (Bribe Payers Index) assesses the likelihood of companies from the worlds largest economies to bribe and partake in other corrupt activities. Even though no country is one hundred percent clean when it comes to bribery Sweden and the Netherlands are ranked as the best while China, Russia, and Mexico ranked the worst in the list. The Transparency International official website hosts all of this information along with region-specific reports that may prove to be useful for global managers interested in entering a new market.
Situations where the security and safety of employees are undermined or in a location prone to danger arises further ethical concerns. It is management’s responsibility to ensure the safety of employees when traveling overseas. Usually, in areas where crime is more prominent or lack of local law enforcement executives and business persons tend to be targeted for kidnapping or extortion. The world is now more dangerous than ever and management should be well prepared in a variety of situations. One of my professors who used to be an investment banker once told the class that he had a trip in Lagos, Nigeria and he was there for business and he commented that he felt unsafe since he was being escorted in a jeep with men carrying submachine guns and the wealthy executives in Nigeria owned multiple homes in Africa just in case they had to escape. I found his experience to be eye-opening and would have never imagined that high-level businessmen would have to travel to locations that required guards to carry high caliber weapons. Situations were natural disasters may occur or equipment malfunction is safety issues managers must plan for. Piracy and instances if hijacks are prevalent in this modern globalized world. Companies should take safety precautions as well as invest in security to protect their assets and employees. If employees feel unsafe, they are more likely to switch careers or move to another company that requires less intensive traveling. Managing safety and security will require more attention in the future because companies are starting to establish themselves in emerging economies since this is where future company growth will be coming from these countries. Part of the reason companies are establishing themselves in emerging economies is because they are the fastest growing markets and they represent about seventy percent of the world’s entire population. Managers must begin to analyze and plan how can they make it possible for executives and employees train, work, and live in emerging countries.
Firms must also consider the safety and health of consumers utilizing their goods or services. Currently, the issue of protecting consumers data is a trending topic since companies collect mass amounts of data. Facebook has been at the spotlight for holding large amounts of personal data. CEO of Facebook Mark Zuckerberg was asked to testify before Congress regarding the misuse of consumer data of Cambridge Analytica. Cambridge Analytica is a political consulting and data analytics firm that was hired in President Trump’s election campaign in 2016. The firm gained access to private personal information from the large pool of Facebook users and with that information, they could use it to identify the personalities of voters and influence their vote. They did this by identifying Facebook users based on what posts or content they liked as well as identified their friend network to then target audiences with digital ads. Cambridge Analytica had access to this data because they allowed to for “academic purposes”. When Facebook
found out that their terms of service were being violated, they removed the app that collected survey information. Even though Facebook was not aware of what was going on they were responsible for protecting their user’s data. The security of important data such as bank accounts, passwords is another ethical concern tech companies should consider. If there is a breach in data, the firm collecting that data should be held responsible.
On the topic of protecting consumers health, managers must make ethical decisions when it comes to faulty products or unsafe for the end user. There is a wide range of examples where some are more severe than others. The instance where Samsung’s Galaxy Note 9 blowing up or Toyota having a recall crisis for faulty breaks are examples of situations managers were in a dilemma. They had to worry about the company’s revenue and profits that could be hurt in the process of recalling their products or making the decision of recalling all their products to ensure nothing faulty is still left in the market. While the ethical decision is the costly solution these firms should analyze their supply chain and see if manufacturing is following ethical manufacturing practices and not taking any shortcuts. The textbook uses cigarettes as a prime example of a product with ethical issues. The Center for Disease Control states that tobacco use causes more deaths annually than illegal drug use, alcohol abuse, automotive accidents, suicides, murders, and HIV combined. Another statistic from the CDC (Center for Disease Control), cigarette smokers on average die 14 years sooner than those who do not smoke cigarettes. What is the most shocking of these statistics is that tobacco is the leading most preventable cause of death in the entire world. The most typical ethical dilemma managers face is the recall of hazardous products. The textbook used Mattel toys as an example where they had to recall approximately twenty million toys that were made in China. The reason for the recall was because of two reasons; the first being the of fear from the dangerous levels of lead paint were prevalent in the toy and the second being a small powerful magnet that easily became loose and is swallowed by small children. There were three cases where kids needed surgery after swallowing the magnet. Mattel’s executives responded by saying it was China’s fault for the faulty production. This seemed like an easy choice to push the blame somewhere else however this was not the case and the issue actually resulted from a design flaw Mattel created and not one that came from the Chinese manufacturers. From an ethics standpoint, even if Mattel hypothetically was one hundred percent not at fault in the creation or design of the fault product Mattel is still responsible for overseeing their suppliers or supervising their vendors. The fact that Mattel tried to shift the blame to someone else is not ethical and instead should be proactive in identifying the issue that why it would not happen again rather than just simply avoiding bad press. Mattel’s executives did eventually accept the blame and apologized.
It is not always clear which course of action managers must take in ethical dilemmas since there are a lot of factors and variables the go in to decision making in global firms. Nonetheless, should assess the interests of the company along with compliance with the law as well as the stakeholders and align them together. In the case where consumers where exposed to a dangerous product, the manager must assess the repercussions they might face with each possible outcome and compare it both short and
long term. The most important thing to not do is to shift the blame elsewhere that way their level of moral culpability is decreased. Instead, collectively a solution should be the primary goal. Finding the correct balance for each situation is difficult but is manageable.
Corporate sustainability aims to create long-term stakeholder value through the implementation of a business strategy that focuses on the ethical, social, environmental, cultural, and economic dimensions of doing business. Sustainability from an environmental perspective is the belief that it is managements best interest to protect the earth and incorporate green initiatives because it guarantees that the firm will have a place to do business. There different types of actions firms take to being consists of the environment and it varies between industries. Pollution is one major environmental concern that pertains to environmental corporate sustainability. Air pollutions should be the top priority for businesses for a plethora of reasons. Polluted air is bad for business because it affects everyone from employees, consumers, and shareholders. Air pollution can make it difficult to recruit talent because they are seen as less desirable to live and work. Poor air quality can cause employees to call in more sick days a this hinders the firm’s productivity. Firms that focus on minimizing their carbon footprint in their supply chain are looked upon more favorably by consumers and this boosts their Brand reputation. UPS offers a carbon-neutral shipping option to consumers who want to be conscious of the environment. Another environmental issue currently trending is climate change. Nestle has been actively lowering their greenhouse gas emissions from their factories. Nestle also take an active approach in decreasing their greenhouse gas emissions from their supply chain by improving energy efficiency, using cleaner fuels and investing in renewable energy sources. Some of their strategies to decreasing their footprint in Europe is utilizing rail lines or short-sea shipping rather than long distance on road transportation. In Mexico, Nestle has switched its factories to use wind power to generate energy. Nestle’s operations in France, they have opted to install wood-fired boilers in their factories. Starbucks is also committed to responsible consumption by completely eliminating straws by 2020. Their plan to achieve this by manufacturing a strawless lid, that Starbucks designed, and it will become the standard for all of their beverages. Apparently, this straw less lid is already being used in the US and Canada, as well as being tested in China, Japan, Singapore, Thailand, and Vietnam.
Sustainability of social issues like human rights is another widely discussed topic. Issues like illegal use of child labor and fair employment standards are talking points for large companies that do their manufacturing in Asian countries that pay their workers very little. Firms such as Levi Strauss and IKEA that have large buying power use their influence to discourage the use of child labor by not purchasing with their suppliers that employ these illegal practices. Even though child or prison labor is very cost effective and would positively benefit these firms bottom line and increase profits they still align business interests with society’s interest. One similar dilemma is of Nike in the 1990s when they outsource their manufacturing jobs out of the United States to Asian countries where the labor is cheaper. Nike has been accused of slave wages, forced overtime, and workplace abuse. Even though this improved Nikes profit margins by decreased cost of creating the goods consumers were unhappy and many demonstrations and protest groups were formed which in turn negatively impacted Nike’s brand reputation. It wasn’t until the year 2000 where Nike started becoming an active participant in the UN Global
Compact and Global Reporting Initiative Nikes brand reputation began to improve significantly. These changes towards sustainability provided Netflix with economic, environmental and societal benefits.
In conclusion, managing ethics and sustainability initiatives is challenging and at times complex however there are long term benefits that stem from aligning business interest alongside society’s interest such as improved brand reputation,
- “5 Big Companies Reducing Their Carbon Footprints – Impact Hub.” Impact Hub, 1 Aug. 2018, impacthub.net/5-big-companies-reducing-their-carbon-footprints/.
- “Corruption Perceptions Index 2018.” Www.transparency.org, www.transparency.org/cpi2018
- Nowlan, Aileen. “3 Reasons Why Air Pollution Should Be a Top Priority for Businesses.” EDF Business, 5 Nov. 2018, business.edf.org/blog/2018/11/05/3-reasons-why-air-pollution-should-be-a-top-priority-for-businesses.