Business Ethics - Is a more social economy possible?

Is a more social economy possible?

In the face of the present economic crisis spreading over the globe more and more people increasingly seem to question the purpose and reliability of the market economy. Especially in the Unites States of America and Europe, more individuals join the “Occupy Wallstreet”-Movement and organize protest events in more than 1,500 cities worldwide (occupywallst.org, 2011). This movement is protesting for a more social and less corrupt economy. It is a bottom up movement criticizing the role of the Wall Street and the massive power multinational corporations and major banks. According to the occupy-movement, they are responsible for the increasing economic recession.

Whether capitalism can persist at its present form is to be disputed. However, considering the increasing economic crisis, voices for a more social economy are getting louder. Questions about more economic responsibility and sustainable ways of doing business are raised. In addition, demands about more economic regulation are articulated in order to control the egoistic and unethical behavior of a few powerful individuals and/or institutions affecting a great number of people. To whom do we have to be responsible? Who is affected by our actions? It seems as if the present economic recession is posing a threat to the market economy, as it is known today. It seems as if alternative solutions are needed and already developed on a serious level. The alternative angels claim that the economy should be more redistributive, economical and socially sustainable and less unequal. To all appearances the need for a more social economy is no longer seems to be merely a theoretical alternative: “Mainstream opinion has begun to recognize the potential of the social economy to build socio-economic capability and tap latent economic potential based on welfare markets” (Ash, 2009, p.5). Social economy is different in the sense that “market engagement and profit-making […] [are considered to be the] means to a different kind of economy; one that values social entrepreneurship, collective working, integrating work and family life and social and environmental responsibility” (p.7).

The present work inquires the question whether a more social economy is. In doing so firstly, the concept of Business Ethics is introduced. Here the relationship between ethics and economy is illustrated and the importance of ethical ways of doing business as important marketing strategy for reputation building is stressed. This chapter is followed by a short overview of some of the constitutive moral theories. The knowledge of moral theories is very important in order to address ethical dilemmas. Even though they can only offer a theoretical framework, it is nevertheless essential to be acquainted with them. The selection presented here serves as a rough guide into ethical theory, to illustrate the importance of moral theories within the field of Business Ethics. Presented are utilitarian theory, consequentialist theory and deontological. With the purpose of taking a more practical angle towards the question whether a more social economy is possible, theories that are more applicable are discussed. Consequently, questions of social responsibility within the world of international trade and global business are addressed. What is the interdependency of stakeholders and shareholders? What purpose should business serve – to satisfy shareholders only? Are not stakeholders also affected by the actions of entrepreneurs? Moreover, the concept of social entrepreneurship as a practical solution towards a more social economy is introduced. In the last part of this work, the findings are summarized.

Business Ethics

Ethics is an important element of the world of business. It plays a major role in the economy and is a significant topic to consider. Either due to its non-observance or based on the fact that business is done in accordance with fair and ethical rules; ethics does have a stake in business. Hitherto it does not mean that competition is expelled. Competition is the most vital element of business. Nevertheless, it is often believed that competition and ethics are mutually exclusive, or on the other extreme, that competition is a justification for unethical demeanor. Yet “[t]here are two main points that counter the myth: competition does not exclude ethics. Ethics is a precondition for ongoing competition” (Rossow & von Vuuren, 2004, p.17). Based on a survey conducted in 1999, Deloitte and Touche (Deloitte & Touche, 1999) concluded that unethical behavior in business matters is the greatest danger faced by the African continent today. Botswana was the only country, out of seventeen African countries, where deception was not on the increase. Not only the mere existence of fraud is a danger for the African continent, but even worse is that it was identified in so many countries. This comportment poses a risk to become a standardization process in doing business. The absence of ethical values presents a serious danger that it may turn into a parameter of how business should be done.

It is a question of morality whether one would consider this correlation as problematic or insignificant. Is it morally right to adhere to ethical rules when doing business? Is it morally wrong not to do so? When one is dealing with these kinds of questions, one is immediately involved with the study of business ethics. Crane and Matten (2007) define “[b]usiness ethics [as] the study of business situations, activities, and decisions where issues of [morally] right and wrong are addressed” (p.5). However, the interest in business ethics is not only left to the academic world. Its significance is gaining more and more attention in the world of business as well. Rossow and von Vuuren (2004) argue, “the neglect of business ethics constitutes high risk behavior that can cost companies dearly in terms of both reputational and financial damage” (p.ix). Thus, companies should be sensitive about that amount of their consumers who attach great importance to topics such as social responsibility and ethical rules of standard. The formation of the Fair Trade Foundation for example shows that consumers’ concerns do have a stake in business. The Fair Trade Foundation is a company that combines consumers’ expectations and producers’ needs. It operates along a clear set of standards that guarantee the fair international – and thus intercultural – trade between the First and the Third World. Based on a monitoring system these guidelines are verified. Based on the interest of a big group of consumers the Fair Trade Foundation was found. It shows that collective opinion was able to influence the creation of a new company within a given system and that the opinion of consumers does have an influence on the market. Furthermore, one may argue that there exists a clear link between financial growth and corporate reputation. Reputation is a significant aspect that influences the financial performance of a company. Nakra (2000) defines it as the consumers’ cumulative opinion grounded on the company’s earlier performance. In addition Hall (1992) mentions, that it is not easy to build up a good reputation, due to the fact that it cannot be bought or sold. In his point of view it “represents the knowledge and emotions held by individuals […] [and it] can be a major factor in achieving competitive advantage through differentiation” (p.138). A company’s reputation is build up over a long period of time, because it is not like fame that “can be bought with advertising spending in the short time” (idem). It is constructed in combination with a brand name and is linked with it. It is this arrangement that makes reputation so powerful. Incorrect corporate decisions noticed by consumers may harm the business reputation. Therefore, it is important for a company to be aware of its reputation, because its financial performance is linked to it. Reputation is important, but Schwaiger (2004) criticizes that

“[w]ithin the past few years, the importance of intangible assets in general and the significance of corporate reputation in particular have grown rapidly. To create market entry barriers, to foster customer retention, and thus to strengthen competitive advantages, intangible assets are vitally important. Creating and exploiting them allows companies to drive markets, rather than to be market driven. At present, the significance of corporate reputation is not acknowledged by the state of the art” (Schwaiger, 2004, p.47).

A recent development however demonstrates that people do show interest for example in the production processes of touch screens for Apple’s iPhones. The British newspaper the Guardian reported in February 2011 that Chinese workers, employed at the Taiwanese company Wintek, contacted Apple with an urge that they were poisoned with n-hexane while producing touch screens for iPhones. This chemical was used as a substitute for alcohol, because it evaporates faster. In this way, production processes could be accelerated due to shorter waiting periods. Workers who got in contact with n-hexane reported about fatigue, painful swollen feet, numbness in hands and weakness. After the poisonings became public, Wintek assured that n-hexane was no longer used during production and that alcohol was used since. More importantly however is that this is not the first time that Apple was criticized for the working conditions of workers employed at China-based-suppliers. Apple’s main supplier Foxconn in China came under critique because of series of worker suicides. Workers employed at Foxconn killed themselves due to bad working conditions (Reuters, 2011). When the critiques became public Apple’s supplier decided to raise worker’s salaries in order to improve their living conditions (Associated Press, 2010). However, before this decision, Foxconn denied the existence of bad working conditions, long hours, high pressure, low pay, strict discipline and poor treatment by superiors. Many of the workers lived in isolated dormitories on the factory premises. Labor activists repeatedly demonstrated in front of Foxconn factories and some of them burned images of Apple's iPhone. One organization in Hong Kong even called for a worldwide boycott of the iPhone (su/AFP/dpa, 2010).

This example shows firstly how interwoven international trade is. Apple has various suppliers worldwide and it is a significant operation for Apple to control the production standard and whether unethical ways of conduct are involved. The essential interrelation between financial success and ethical reputation is pointed out by Van Luijk, that doing business in an ethical way is central to the

“success of companies such as Texas Instruments, IMB, or Marks and Spencer. […] They know that their reputation – a reputation for fair dealing, which gains them trust of their customers, suppliers, and the community at large – is crucial to their bottom line” (quoted by Zadek, 1998, p.1422).

Hence, gaining trust of the stakeholders and confidence of the market is not only a matter of competition but also the essence of securing corporate reputation. A good corporate reputation in turn will interest and certify investor and consumer confidence and appeal to talented staff (Rossow & von Vuuren, 2004). Moon and Boony (2011) state the findings of an UK survey conducted in 1999 of FTSE 350 companies, where the reasons for ethical business activities were scrutinized. The most common motive that effected business ethics actions was the ambition to increase or defend corporate reputation. Roberts and Dowling (2002) argue that good corporate reputation is a positive criterion in negotiation processes with stakeholders.

Furthermore, it is an advantage in competition with other companies in the sense that it generates marked barriers and thus reinforces the strategic position of a company (Schwaiger, 2004). In Schwaiger’s words, corporate reputation is considered to be “an intangible asset that is scarce, valuable, sustainable, and difficult for a competitor to imitate” (p.51). Moreover, he points out that reputation it a characteristic of a company that is closely related to individual’s feelings, motives, attitudes and opinions. This means that it is difficult to build up, its creation process is time-consuming, and its benefits might not be visible for a long period of time. Most importantly however is that reputation can be destroyed in an instant, where as it establishment may necessitate longer periods of time. Good reputation therefore has a positive effect on the business performance and therefore also influences the financial growth of a company. Good reputation goes hand in hand with a brand’s differentiated image within the business environment. To operate in accordance with a social, ethical and sustainable agenda is a fundamental marketing instrument that may affect corporate reputation and consequently generate advantages for business competition. Brønn and Vrioni (2001) point out that in order to survive the business environment of today an organization should maintain its crucial networking relationships and pay attention to its reputation. In their opinion however, the social and ethical angle needs to be believable and reliable. As soon as these actions get non-credible they are not supporting but rather harm a good reputation. Therefore, the engagement needs to be strategic and based on a well thought out approach.

From the point of view of Stanwick and Stanwick (1998) financial growth and stability is a prerequisite for ethical engagement and corporate social responsibility actions. Social responsibility is encouraged and flourished by corporate financial growth and profitability. Another argument mentioned by Frombrun (1988) is that one cannot evaluate the level of corporate social responsibility alone on an organization’s success. It is rather in terms of perception that a flourishing company is observed as more interested in social issues. This is because of the fact that growing corporations seem to have more capacities to offer employees good and supportive working conditions that foster creativity and advancement.

Webley and More (2003) nevertheless, have a different point of view. In their study, they were interested in the correlation between codes of ethics and financial performance. Stanwick and Stanwick do make an important argument, when they say that a company needs some kind of financial stability to implement an agenda of social responsibility in the first place. Yet Webley and More found out that companies with implemented code of ethics surmounted those that unequivocally mentioned that they do not have a code of ethics. The financial performance was measured based on four variables, where actually in total three of them were fulfilled by corporations that do have a code of ethics. These variables included the price-to-earnings ratio, marked value added and economic value added. Additionally these companies did have a more stable price-to-earnings ratio over a period of four years. Webley and More conducted their study based on a sample of 86 corporations ranked as FTSE 350 companies, with complete and assimilable data for the period of four years (1997-2001). Notwithstanding these findings, point out that it is important to operate with a code of ethics. Nevertheless, it is important to keep in mind that “[…] it cannot be stated unconditionally that good ethics will guarantee good business” (Rossow & von Vuuren, 2004, p.38). Good reputation that is credible and sustainable seems to go not without the adherence to ethical standards. Hitherto what does it mean to be ethical? What is ethics? In the following part of this work, a small variety of moral theories is presented. This selection serves as a rough guide and points out how important it is to be acquainted with moral theories in order to address ethical dilemmas.

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