Business ethics and corporate social responsibility

Business ethics are moral principles that guide the way a business behaves. The same principles that determine an individual's actions also apply to business.

Acting in an ethical way involves distinguishing between “right” and “wrong” and then making the “right” choice. It is relatively easy to identify unethical business practices. For example, companies should not use child labor. They should not unlawfully use copyrighted materials and processes. They should not engage in bribery.

However, it is not always easy to create similar hard-and-fast definitions of good ethical practice. A company must make a competitive return for its shareholders and treat its employees fairly.  A company also has wider responsibilities. It should minimize any harm to the environment and work in ways that do not damage the communities in which it operates. This is known as corporate social responsibility.

Codes of behaviorThe law is the key starting point for any business. Most leading businesses also have their own statement of Business Principles which set out their core values and standards. In Anglo American's case, this is called “Good Citizenship”.

A business should also follow relevant codes of practice that cover its sector. Many companies have created voluntary codes of practice that regulate practices in their industrial sector. These are often drawn up in consultation with governments, employees, local communities and other stakeholders.  Anglo American has played an active part in initiatives such as the Extractive Industries Transparency Initiative, the United Nations Global Compact and the Global Reporting Initiative.

Anglo American has also contributed to the Voluntary Principles on Security and Human Rights. This code sets out principles and practices for ensuring that a company's need to ensure the security of its employees and operations in volatile countries does not adversely impact upon the local population. Thus the Principles provide guidance on how both private and public security forces assigned to protect a mining operation or an oil and gas facility should be vetted, trained in human rights, monitored and controlled.

Anglo American also aims to ensure that it plays a role in protecting the human rights of its employees and local people in countries in which it operates. The company supports the principles set forth in the Universal Declaration of Human Rights.

All companies need to make a profit. However, Anglo American recognizes that this objective must take account of ethics as shown in its statement on corporate responsibility: “Though providing strong returns for our shareholders remains our prime objective, we do not believe that these can or should be achieved at the expense of social, environmental and moral considerations. Indeed a long-term business such as ours will only

thrive if it also takes into account the needs of other stakeholders such as governments, employees, suppliers, communities and customers.”

StakeholdersAn important process used by Anglo American is that of stakeholder engagement. This enables it better to understand the perspectives and priorities of external groups that are affected by its activities and to factor them into its decision-making processes. To support this work at a local level, Anglo American has developed a Socio-Economic Assessment Toolbox or SEAT process.

This “toolbox” helps managers to measure the impact of activities on the company and communities. It also helps to improve a mine's contribution to development through, for example, using its supply chain needs to generate new businesses or to improve the water or electricity infrastructure. They use this toolbox to engage with stakeholders including community representatives.

Sometimes communities have to be resettled, with government sanction, in order for important mineral deposits to be accessed. This can cause controversy and divisions in the communities concerned. International best practice sets out a number of key stages in such a process including the need for structured consultation, fair compensation and the importance of restoring and enhancing the livelihoods of people in their new locations.

Recently Anglo American has had to undertake two such relocations in South Africa at the villages of Ga Pila and Motlhotlo. These were undertaken with the support of the provincial government and local tribal leadership and after consultation with local people lasting for several years leading to agreement with each householder. New villages have been built with better houses and infrastructure and more land for farming. The relocation program was voluntary. The relocation program at Motlhotlo is still under way but at Ga Pila 98% of those living in the old village took up the offer to move to the new village.

The Nature of Business Ethics

According to the dictionary, the term ethics has several meanings. One of the meanings given to it is: “the principles of conduct governing an individual or a group.”

We sometimes use the term personal ethics, for example, when referring to the rules by which an individual lives his or her personal life. We use the term accounting ethics when referring to the code that guides the professional conduct of accountants.

A second and for us more important meaning of ethics according to the dictionary is this: Ethics is “the study of morality.” Just as chemists use the term chemistry to refer to a study of the properties of chemical substances, ethicists use the term ethics to refer primarily to the study of morality. Although ethics deals with

morality, it is not quite the same as morality. Ethics is a kind of investigation and includes both the activity of investigating as well as the results of that investigation whereas morality is the subject matter that ethics investigates.

Business Ethics is now a Management Discipline Business ethics has come to be considered a management discipline, especially since the birth of the social responsibility movement in the 1960s. In that decade, social awareness movements raised expectations of businesses to use their massive financial and social influence to address social problems such as poverty, crime, environmental protection, equal rights, public health and improving education. 

An increasing number of people asserted that because businesses were making a profit from using our country's resources, these businesses owed it to our country to work to improve society. Many researchers, business schools and managers have recognized this broader constituency, and in their planning and operations have replaced the word "stockholder" with "stakeholder," meaning to include employees, customers, suppliers and the wider community. 

The emergence of business ethics is similar to other management disciplines. For example, organizations realized that they needed to manage a more positive image to the public and so the recent discipline of public relations was born. Organizations realized they needed to better manage their human resources and so the recent discipline of human resources was born. As commerce became more complicated and dynamic, organizations realized they needed more guidance to ensure their dealings supported the common good and did not harm others -- and so business ethics was born. 

Note that 90% of business schools now provide some form of training in business ethics. Today, ethics in the workplace can be managed through use of codes of ethics, codes of conduct, roles of ethicists and ethics committees, policies and procedures, procedures to resolve ethical dilemmas, ethics training, etc.

What are Business Ethics? MeaningEthics is a branch of social science. It deals with moral principles and social values. It helps us to classify, what is good and what is bad? It tells us to do good things and avoid doing bad things.

So, ethics separate, good and bad, right and wrong, fair and unfair, moral and immoral and proper and improper human action. In short, ethics means a code of conduct. It is like the 10 commandments of holy Bible. It tells a person how to behave with another person.So, the businessmen must give a regular supply of good quality goods and services at reasonable prices to their consumers. They must avoid indulging in unfair trade practices like adulteration, promoting misleading advertisements, cheating in weights and measures, black marketing, etc. They must give fair wages and provide good working conditions to their workers. They must not exploit the workers. They must encourage competition in the market. They must protect the interest of small businessmen. They must avoid unfair competition. They must avoid monopolies. They must pay all their taxes regularly to the government.In short, business ethics means to conduct business with a human touch in order to give welfare to the society.

Definition of Business Ethics

According to Andrew Crane,"Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed."

According to Raymond C. Baumhart,"The ethics of business is the ethics of responsibility. The business man must promise that he will not harm knowingly."

Features of Business Ethics

The characteristics or features of business ethics are:-

Code of conduct: Business ethics is a code of conduct. It tells what to do and what not to do for the welfare of the society. All businessmen must follow this code of conduct.

Based on moral and social values: Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit others, etc.

Gives protection to social groups: Business ethics give protection to different social groups such as consumers, employees, small businessmen, government, shareholders, creditors, etc.

Provides basic framework: Business ethics provide a basic framework for doing business. It gives the social cultural, economic, legal and other limits of business. Business must be conducted within these limits.

Voluntary: Business ethics must be voluntary. The businessmen must accept business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.

Requires education and guidance: Businessmen must be given proper education and guidance before introducing business ethics. The businessmen must be motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations and Chambers of Commerce must also play an active role in this matter.

Relative Term: Business ethics is a relative term. That is, it changes from one business to another. It also changes from one country to another. What is considered as good in one country may be taboo in another country.

New concept: Business ethics is a newer concept. It is strictly followed only in developed countries. It is not followed properly in poor and developing countries.

Factors influencing business ethics:

Leadership Strategy and performance Individual characteristics Corporate culture and environment

Leader: is a person who leads the people towards achieving a common goal. Leader can be good or bad, great or small they arise out of the needs and opportunities of a particular time and place. Not all leaders are considered to be perfect in their decision making because each and every decision they make will depend upon the character of person which differ from person to person. Character of a person includes their inborn talents, learned and acquired traits which were imposed upon them by life and experience. Leaders are models and mentors to their followers therefore they follow the path way set by their leaders. In a large organization the top level managers or CEO are considered to be the executive and supervisory leader. The CEO should have strong commitment towards ethics and ethical conduct and should give a constant leadership in renewing the values of an organization. They play a key role in creating, maintaining and changing the ethical culture. It is necessary for the leader to set good examples, and follows ethics. One such good leader is JRD Tata who set a good example for his successor and they still follow it. Where there are good leaders there will be good ethical practices in business.

Corporate governance: is the set of systems and processes that a company follows to ensure that it is in the best interest of the stake holders. Stakeholders are the shareholders, employees, customers, creditors and the community.

Sustainability has three components according to john elkington's triple bottom line concept they are economic, social and environmental. According to elkington the business does not have one single goal of attaining profit but to extend the goal set by adding environmental and social values. Thus sustainability has become the new goal set by the organization.

Environmental perspective: natural resources.

Economic perspective: about the future generation.

Social perspective: over exploiting of employees and not providing equality in gender employment, caste creed and religion based employment employing child labor.

Organizational culture: is the set of shared values, beliefs, goals, norms etc that prevails within an organization. The organizational culture emphasis on ethics but as it grows it may change, as in the case of tyco where its organizational culture supports unethical practices. If the company makes huge profits in unethical way then individual who joins the organization would also have to practice unethical things to survive in the company. As in the case of enron where many executives and managers knew that the company was following some illegal and unethical practices, but the executives and the board of directors did not know how to make the ethical decisions and corporate ethical culture. Thus they fall back and managers have to pay 0in the form of fines and imprisonment.

Business ethics is the application of ethical principle in the organization or business. An organization should produce or make its own ethical cultures, but this ethical culture formulated should be drawn from the

concept of what is ethical to all and not what is right for the organization itself. The employees of the organization, also has to follow the same ethical principles. The organisation being ethical will provide certain social responsibilities such as they do not harm the stake holders, the general public and the society as well. "Business that treat their employees with dignity and integrity reap rewards in the form of high moral and productivity" (Frederic, Post and Davis).

There are three major types of ethical issues that arise in a business they are, face to face ethics, corporate policy ethics and functional area ethics. Face to face ethical issues happen between the employees of an organization in their day to day organizational life. The employee face these ethical conflicts when their personal standards differs from what their job demands. Corporate policy ethical issues happen in the basic operations of a company. The top level management including the board of directors and CEO's are responsible for ethical practices of the organization. Functional area ethics issues arise at all functional levels of the organization. For example in the accounting department, if unfair pressure is put on employees to deliver an audit report which has been altered or not showing current accounts of the organization would be un ethical, as it does not follow the standards and policies set by the organization.