Monday, January 24, 2011

Strategic Opportunities for Ethical Companies

In a typical market system, dominated by rational self-interested business agents, could one still say that ethical business behaviour is beneficial or profitable?

An ethical company is one that endeavours to consistently apply ethics in every of its business relations with all the 2nd and 3rd parties with which it does business. It is not always easy to instil ethical values into a firm, but once it is instilled, say through drawing out and observing some form of ethical code, it endures, in so far as it is exploited and serviced. Being ethical does not just pay off. For the ethical company to gain materially, it must exploit its ethical values in every relation, most especially long-term cooperative relations, with all those in the society around which business success revolves. Businessmen must be aware that every business encounter is a unique multi-million opportunity that must be utilized strategically in view of the future.

Introducing and practicing ethical values in a company's operations provide strategic opportunities. This, however, does not mean that ethical behaviour is absolutely correlated with profitability and success, since the unethical company at times thrives more than ethical companies. Wirtenbuger argues that

"it would be vain to maintain that good morality is always profitable in the short run, it may well be costly to do the right thing. However, over the longer pull, good morality will be good business simply because people do not patronize nor have confidence in a businessman who is dishonest."

There is more than one necessary and sufficient condition for business success. Business success is the product of a complex interaction of many factors, such as new products or services, organizational structures, compensation policies, exploitation of new markets, quality products, possession of valuable production factors, advance management techniques like empowerment, flat structures, high involvement concepts, quality circles, work teams, etc. These factors taken individually will scarcely give a company competitive advantage over rival companies. This is because they are replicable or imitable. For a company to gain competitive mileage over others, they must of necessity introduce another factor, one that will make the difference, one that is non-imitable as such, and a sort of secret code of operations.

But how does ethical behaviour do this, when we know that being ethical restricts a firms operation, so to speak? Does honesty really pay? Most authors proffer three answers to this:
1. Ethical behaviour gives a company a reputation, which
2. Makes other 2nd and 3rd parties it relates with to trust it, and
3. it promotes employee commitment to its success.

Companies that are known to consistently seek to promote the interest and welfare of all those with which they deal (employee, customers, suppliers, investors, shareholders, distributors, managers, etc), to consistently behave honestly, trustworthily, etc; in short, in a consistently ethical way, sooner establish a unique, enviable reputation that will make others easily want to enter profitable and productive relations with them. An excellent reputation is mostly essential for business because the quality of most products and services cannot be ascertained at the time of sale; and because most products and services are such that the conditional support and servicing of the products are always demanded. There may even be some conflict of interest between the customer and the seller, employer and employee, etc. Trustworthiness and reliability is therefore what absolutely matters.

Business interactions between business agents are repetitive and on-going, such that so long as a company lives up to its ethical reputation, it will always continue to reap its fruits and benefits. Good reputation, through ethical behaviour therefore becomes a strategic opportunity for ethical companies. Somehow then, business success seems to be based/founded on ethical behaviour.

Businessmen and companies who therefore always seek to take advantage of opportunities to fleece and dupe others, who make nothing of relationships, will never have such an advantage. The fleeced, duped and unsatisfied 2nd and 3rd business parties will definitely seek revenge, retaliation or justice in one way or the other. A large body of research in social psychology has concluded that

"people in all kinds of social situations react to perceived injustices with distress and will attempt to eliminate their distress by restoring justice, while they will be attracted to just organizations and will reward the just organization with loyalty and commitment."

Retaliation or punishment that may be meted out to such companies or businessmen may be simply "refusing to buy from, refusing to work for, or refusing to do business with the unethical party. [It] may be more complex such as sabotage, getting other kinds of costs on the business," etc.

Customers are the best and most reliable advertising agency for company products and services, for nobody keeps the good to himself, all persons share the good. Customers will always turn against companies that apply the Machiavellian principle in business relations, always fleecing their customers. They will stop buying their products and will even encourage new comers to do the same. There is nothing positively opportunistic in business than consistent pure and unalloyed service to customers.

Firms that consistently treat their employees ethically, by being committed to their welfare, trusting them; giving them their basic inalienable and contractual rights; treating them responsibly; acting justly and respectfully towards them, unknown to them, enhance in the employees high motivation and subsequent dedication and commitment to the welfare and success of the firm. These behaviours that incorporate the employees into the family of the firm, build productive relationships both in the present and future, and a sense of belonging. This is why:

"Employees who feel their company's decision-making processes ... are just ... exhibit lower levels of turnover and absenteeism, higher levels of trust and commitment to the organization and its management, and demand lower wages ... they are more willing to see the leadership of managers as legitimate."

Added to this wide vista of opportunities available to the ethical firm is the potential of attracting more than a fair proportion of their share of the best head/experts as employees from the labour market. And with this monopoly of experts, they stand a better chance of fairing more than less principled firms, in the other factors necessary for business success (i.e. product quality, efficient management, high competence, advanced management techniques, etc). No man will ever want to go into partnership, or patronize somebody who is reputed to be a cheat. Business truly is a game nobody will want to lose or be outdone in. There are many firms today that have combined a good history of profit with good ethics and who continually reap the fruits of their long-term project. These include: Xerox, Hewlett - Packard, Levi - Strauss, Monsanto, Sony, etc.

All economic activities must be subordinated to the common good and the service of mankind. It is a call to humanize economic growth, so as to bring about the best for the entire human society of persons.

Profit should not be the absolute end of economy/business, nor should it be a sign of efficiency. This is because the exaltation of the profit motive in human economic relations has led to many ills that have adversely affected the human race even to the extent of the threat of extinction. Embittered by this canker, the Supreme Pontiff, Pope John Paul II has characterized the present human situation as being soaked in the throes of a "culture of death."

It therefore renders imperative the need to begin afresh a new foundation for the human world, a foundation laid on values and moral principles. This is because it is the destruction, isolation and belittling of values that have launched man into this present state that he finds himself. Human welfare cannot be sacrificed on the altar of profit maximization nor self-interest.

man is no pure "homo economicus". He is a dynamic and exalted being. The basic stance of man in his existence is that man is a moral being. He is a person, whose existence is value-laden, such that without morality, life becomes for him a camouflage and a nuisance. It is only in ethical operation that he realizes himself and lives to his fullest of being. Therefore the call to marry ethics with business then becomes a call to rise above that Hobessian state of nature, where "homo lupus homini", to the realization of that Papal call for solidarity among persons, as the bedrock of world peace and progress.

At a "face-valued" glance at this work, people will ask: "what has ethics got to do with business?" This question clearly demonstrates that lack of knowledge on the validity of a course on business ethics. Consequently, this calls for a profound integration of the course into all spheres of human study, since the student today is the tomorrow's businessman, the tomorrow's manager, partner, etc; who must have a right conscience for society to be humanized.

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