Unethical Business Practices Essay
693 WordsNov 1st, 20123 Pages
Unfortunately, in recent times, we have seen a number of examples of unethical behavior in organizations, often tied to the organization's handling of finances. In this question, discuss ethical issues facing the top leadership or financial managers in today's corporate environment regarding their approach to the financial matters of the firm. What pressures exist that might encourage unethical behavior, particularly as it pertains to the firm's financial reporting or situation? How might these be mitigated? (You might want to conduct a search to identify examples or to examine actions suggested or taken to help mitigate these instances.)
The financial officers of a firm are the stewards of the investors’ finances. They hold a fiduciary…show more content…
Company profit is another pressure that encourages unethical behavior and is closely tied to personal gain. Because “managerial compensation, particularly at the top, is usually tied to financial performance in general and often to share value in particular” (Ross, Westerfield, Jaffe, & Jordan, 2011, p.14) many officers are motivated to make the company appear more profitable in order to gain short-term investor confidence. As companies gain more investment activity officers gain more compensation. If this behavior is discovered the officers could face sever penalties (including jail time) and the company could face financial ruin as investors lose confidence. A recent example of this type of behavior can also be seen through the multiple failures seen in the face of the financial crisis such as Bear Stearns, Lehman Brothers, and Countrywide to name a few. Most recently, this might be seen with the recent $2 billion trading loss at JP Morgan Chase where large investments were made in hedge funds that were sold at a loss. Although company officers insist that this is was not the intent of the activity, there is speculation and an ongoing investigation.
The most obvious way to control these types of behaviors would be increased regulation in the financial industry. In 2010, Congress passed the Financial Overhaul Bill to do just this. This bill puts more focus on regulatory bodies within the
The study of business ethics and its implications for different stakeholders have seen tremendous growth in the past few decades. There has also been a rise in the use and development of codes of ethics and announcements for ethical practices by many firms; however companies are still criticized for their unethical practices at different levels (Papers4you.com, 2006). Business ethics, according to the literature has been entrenched with the philosophical details of Ethics (Trevino & Nelson, 1999). Ethics has been defined as ‘the activity of examining the moral standards of a society, and asking how these standards apply to ones life and whether these standards are reasonable’ (Velasquez, 1998; p. 11).
The literature on business ethics is divided on its views about the motivation and reason for businesses to have an ethical dimension. Drawing upon
Business ethics has been considered very subjective in nature and according to Paul (2001) is considered a function of time and culture. It has been established that with the passage of time business ethics have evolved and also that the cultural values and norms drive business ethics within national and regional boundaries. One of the major studies regarding the national values has been conducted by Hofstede (1983). According to this research, which was only based on four indicators i.e. individualism, power distance, uncertainty avoidance and masculinity, there is a great deal of differences among values across different nations and consequently the business ethics. Globalization combined with standardization has made businesses financially efficient but at the same time poses questions regarding the standardized codes of business ethics across national boundaries.
Vinten (1991) has divided the business ethical issues at different levels i.e. international business, domestic business and professional ethics. At the international level ethical issues include free-masonry and socialism versus capitalism; at domestic level these include religious dimensions, social marketing and ethical education; and lastly at the individual level these include bribery, corruption and data protection (Papers4you.com, 2006).
There are many reasons and criticisms for the failure of adoption of ethics in the business world. Firstly, the concept is considered to be overly theoretical and it also negates the basic purpose of any business i.e. to create shareholder’s wealth. Secondly, it has lack of direction and unanimity across different cultures and academic groups. Lastly, it has many inherent unresolved dichotomies that according to Sternberg (1994) make it a case of rejected relativism.
Harrison, J. (2001), Ethics for Australian Business, Prentice-Hall, French’s
Hofstede, G. (1983), The Cultural Relativity of Organizational Practices and Theories, Journal of International Business Studies, Vol. 14, No. 2, pp.75-89
Papers For You (2006) "S/B/92. What distinguishes ethical from unethical business activity and how significant are the principles of business ethics in modern business?", Available from [17/06/2006]
Papers For You (2006) "S/B/49. 'Should businesses strive to be ethical?' Critically Discuss", Available from [18/06/2006]
Paul, S. (2001), Cultural and Business Ethics, Cross Cultural Management: An international Journal, Volume 8 No. 1, pp 22-35
Sternberg, E. (1994), Relativism rejected: the possibility of transnational business ethics, in Hoffman, W.M., Kamm, J.B., Frederick, R.E., Petry, E.S. Jr (Eds), National Conference on Business Ethics. Proceedings from the 9th Conference on Business Ethics Sponsored by the Centre for Business Ethics at Bentley College, Quorum Books, New York, NY, pp.143-50
Trevino, L.K., Nelson, K.A. (1999), Managing Business Ethics: Straight Talk about How to Do It Right, 2nd ed., J. Wiley & Sons,
Velasquez, M.G. (1998), Business Ethics: Concepts and Cases, 4th ed., Prentice-Hall, Cliffs, NJ
Vinten, G. (1991), Business Ethics: Busybody or Corporate Conscience?, Managerial Auditing Journal, Volume 5, Number 2, pp. 123-144