Why Be Ethical ? - Report

COMM351 Group Report Danial Munsoor 3259882
Gautam Aggarwal 3293610
Tahir Momin 3255438

Table of Contents

I.Introduction:..............................................................................................................................................3

II.What is Ethics?.........................................................................................................................................4

III.Advantages of being ethical:....................................................................................................................4

IV.Disadvantages of being unethical:...........................................................................................................5

V.Financial Crisis and the collapse of Ethical Behavior:...............................................................................5

VI.What are Business Ethics?.......................................................................................................................5

VII.How to follow Business Ethics?..............................................................................................................6

VIII.Advantages of Business Ethics:..............................................................................................................7

IX.Companies which followed Business Ethics:............................................................................................7

X.Companies which violated Business Ethics:..............................................................................................9

References:................................................................................................................................................12

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Executive Summary

Ethics is a branch of philosophy that deals with morality. Ethics is concerned with
distinguishing between right and wrong in everyday situations. Being ethical carries
many advantages. Firstly people would be honorable, loyal and supportive. Secondly
happiness would exist in the society. Thirdly people would have a feeling of security.
Fourthly if people are ethical they would automatically be just and fair in solving
complicated issues. And lastly people would be honest and open. As far as the
disadvantages of being unethical are concerned, being unethical is a disadvantage in
itself. Financial Crisis which began in August 2007 was mainly due to the unethical
behavior of the banks. Banks just wanted to build leverage and show large amounts of
receivables on their balance sheet for their own benefit only, and for this they sold
mortgages to people who could not even afford them. They managed to sell these
mortgages through misleading advertisements. All this resulted in a huge loss for the
society. When people talk about Business Ethics, they mean, avoid breaking the law or
avoid actions resulting in civil law suits, or avoid actions that would affect the company’s
image and reputation. There are many advantages gained by companies that follow
business ethics. Firstly it increases in efficiency and productivity of the employees.
Secondly it increases employee loyalty and motivation. And lastly it makes the customer
trust the product and hence makes them loyal towards the company. Companies
like Tylenol, Aaron Feuerstein & Malden mills and Levi Strauss are those companies
that benefited by their ethical conduct. This is reinforced by the explanation of Prisoners
dilemma in context of ethical behavior. On the other hand companies like Union
Carbide, Hayward and Guzman, Stamford Machine Corporation and Acme Hardware
lost their reputation due to their unethical conduct. Moreover they were sued and had to
pay heavy fines to compensate for the losses.

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WHY BE ETHICAL?
I. Introduction:
1. Origin of Report:

This report of COMM351 on “Why be ethical?” is submitted to Dr. Mohammed
Khalili, who is a lecturer at the University of Wollongong.

2. Objective:

The objective of this report is to discuss the advantages of being ethical and the
disadvantages of being unethical, followed by various examples of ethical and
unethical companies.

3. Background:

Ethics is a branch of philosophy that deals with morality. Ethics is concerned with
distinguishing between right and wrong in everyday situations. Being ethical
carries many advantages. As far as the disadvantages of being unethical are
concerned, being unethical is a disadvantage in itself.

4. Report Preview:

This report on the reasons for following business ethics firstly talks about the
advantages of following business ethics and the disadvantages of violating
business ethics. It then goes on to discuss how the Financial Crisis occurred due
to the unethical behavior of the banks. The report concludes with some examples
of ethical and unethical companies.

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II. What is Ethics?
Ethics is a branch of philosophy that deals with morality. Ethics is concerned
with distinguishing between good and evil in the world, between right and wrong
human actions, and between virtuous and non virtuous characteristics of people
(Dictionary.com). “Integrity” forms a major part of ethics.

III. Advantages of being ethical:
Being ethical carries the following advantages:

1. Honorable, loyal and supportive people:

People would be honorable, loyal and supportive which in turn would contribute
to decrease human suffering.

2. Happiness:

There would be happiness in the society as people would be living a life of
sharing and contribution.

3. Security:

When people are ethical they would be able to distinguish between right and
wrong, and would automatically refrain from doing the wrong or the unlawful
activities. This would lead to a crime free society.

4. Just in affairs:

Ethical people always try solving out issues the correct or moral way.

5. Honest and open people:

People would be honest and open which would develop trust among everyone in
the community or society.

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IV. Disadvantages of being unethical:
Being unethical is a disadvantage in itself. Being unethical means doing the
wrong things, and nobody would indulge in unlawful or illegal activities until we
have a desired motive to perform such an act.

V. Financial Crisis and the collapse of Ethical Behavior:
Financial Crisis began in August 2007 and was mainly due to the unethical
behavior of the banks.

Back in the early days people used to obtain mortgages from bankers whom they
knew personally. The banker held the mortgage on his balance sheet and cared
very much whether the paper was good or not, in other words the banker was
more concerned about the quality of the mortgage. As days passed this
procedure began to evolve rapidly and by the 21st century, bankers started to
care more about quantity rather than quality because they were being paid on the
amount of mortgages they bring in and not on how many good mortgages they
bring in. Banks just wanted to build leverage and show large amounts of
receivables on their Balance Sheets for their own benefits only. Banks also sold
mortgage loans through misleading advertisements to people who could not even
afford them (Curtis, 2008).

VI. What are Business Ethics?
When people talk about business ethics they often mean either of the following:

1. Avoid breaking the business laws.

2. Avoid actions resulting in civil law suits.

3. Avoid actions that would affect the company.

Businesses are especially concerned with these three things since they involve
loss of money and company reputation. For over 2,000 years philosophers have

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systematically addressed the issue of right and wrong conduct but today, people
are still confused between ethical and unethical behavior (Fieser, 1998).

VII. How to follow Business Ethics?
1. Be Trustful:

It’s a fact that customers want to do business only with a company they can trust.
They can easily rely upon character, ability and strength of a business they trust
(Moment, 2009).

2. Have Clear Documents:

Re-evaluate all print materials including advertising, brochures, and other
business documents making sure they are clear, precise and professional
because they are major sources of communication with the potential buyers and
customers. Companies should make sure that they don’t misinterpret and they
don’t mislead the consumers (Moment, 2009).

3. Become Community Involved:

Businesses should remain involved in community-related issues thereby
demonstrating that they are a responsible community contributor (Moment,
2009). For e.g. Standard Chartered launched a program known as “Seeing is
Believing” for the blind people. Another e.g. is of Star Bucks which uses recycled
tissues and it is also printed on them.

4. Maintain Accounting Control:

Companies should take a pro active approach in maintaining correct accounts
and record keeping, not only because to see how well they are performing and
their progress, but as a resource for any "questionable activities” for e.g. the
financial statements might be reflecting incorrect figures and information –
increased profitability, understating loses etc. Gaining control of accounting and

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record keeping allows organizations to end any doubtful activities which might
harm the reputation of their business (Moment, 2009).

5. Be Respectful:

Companies should treat customers, other business partners and communities
with respect, regardless of differences, positions, titles, or other types of
distinctions (Moment, 2009).

A business that adopts business ethics within its strategies and policies will be
prominent among customers and would also be a profitable and successful
company.

VIII. Advantages of Business Ethics:
There are many advantages for the businesses following ethical behavior. Firstly,
it increases efficiency and productivity. Employees and businesses start trusting
each other and this leads to increased efficiency and productivity, which leads to
higher profitability. Secondly, it creates customer loyalty and thus more business.
Businesses which are ethical win customer loyalty and thus get more business.
Winning customer loyalty is the most important thing in today’s business
environment. The biggest problem in marketing a new product is getting the
customers to trust the product. Ethical companies can create this trust faster.
Thirdly, it leads to increased employee motivation and efficiency as it happened
in the Aaron Feuerstein & Malden mills case. Lastly, it leads to better recruitment.
Everyone wants to work for the company that has good ethical behavior. (Frank,
2004)

IX. Companies which followed Business Ethics:
1. Tylenol:

Tylenol case is an example of company which successfully reestablished its
brand Tylenol after it killed many people. Seven people died after taking Tylenol
tablets in 1982 that were contaminated with one of the most poisonous chemical

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called “Cyanide”. There was a lot of panic across the country and people were
advised not to take Tylenol. Marketing experts thought that Tylenol would be
doomed by the public doubts and the brand Tylenol is gone. But company acted
ethically by calling back 31 million bottles of Tylenol worth more than $100 million
for the safety of its customers. Advertisement and production was also stopped.
It was unusual for a company to do something like this. For example when traces
of benzenes were found in Perrier water, it only recalled a limited number of
Perrier bottles. The media praised Johnson & Johnson for stopping production
and advertising of the drug. It then started marketing the drug with triple seal
tamper resistant packaging. Tylenol comeback was the result of the ethical
conduct by Johnson & Johnson. Without such ethical conduct, brand could not
reestablish itself (Weiss, 2006)

2. Aaron Feuerstein & Malden mills:

This is an example where employees were motivated by the ethical conduct of its
CEO. 3 of the 4 buildings, which formed Malden mills, a textile business in
Lawrence, Massachusetts was burned to ground. Employees thought Feuerstein
is going to pocket insurance claims and shut down the factory. But he told them
he was going to build the factory and everyone will receive full pay during
construction. All the employees cheered and some even wept. Few weeks after
starting the work, the output reached 230000 yards per week as compared to
130000 yards per week before the fire. The increased production was due to the
employee’s creativity in doing their jobs and their commitment to Feuerstein
(Leung, 2006).

3. Levi Strauss:

This is the case where Levi-Strauss acted in an ethical and unconventional way.
When it became aware of its suppliers in Bangladesh employing children under
the age of 14, it did not stain the relation with supplier but chose an alternative
course of action. Conventionally, companies were throwing these children out of
the jobs and were making their lives even more miserable. Children were mostly

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forced to beg after losing their jobs. But, Levi Strauss required children to be sent
to school and not only paid fees and but also paid wages to families. It also
promised to re-employ the children when they reached fourteen. This saved the
misery caused to children for losing their jobs. By doing this, Levi Strauss was
trying to merge its code of ethics with the reality of countries like Bangladesh
(UNICEF, 2004).

4. Prisoners Dilemma:

Prisoners Dilemma explains the situation where cooperation between two players
leads to higher payoff for both the players whereas pursuing self-interest leads to
lower payoff for both. However, one of the players can get a higher pay off easily
by pursuing their own self-interest. But if the other player retaliates then both get
a lower pay off as compared to what they would have otherwise received.
Companies which compete with each other in unethical way by, for example, by
corrupting people of the other organization, leads to both companies getting
lower pay offs. However, by competing in ethical ways, like creating better
products, companies can lead to higher payoff for them and their competitors.
This would be good for the society as well (Wedekind & MIilinski, 1996).

X. Companies which violated Business Ethics:
All businesses have social responsibility towards environment, employees and
their stakeholders. It is their moral duty, not conduct any unethical practices.
There have been instances in past which has led to damages to the society,
employees, environment, consumers and shareholders.

1. Union Carbide:

The first case is based on Union Carbide’s unethical behavior which caused
harm to the society and the environment. The company is U.S. based
corporation which had a manufacturing plant in Bhopal, India which used to
process a toxic chemical for pesticides. In December 1984 the chemical was
stored in a tank by which equipment which controlled the temperature failed but

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the chemical vaporizes at 35 degree Celsius so failure of the equipment led to
temperature to rise and thus the liquid quickly vaporized and formed a thick cloud
over the entire city (Hartley, 2005).

This incident led to 2500 deaths and 300,000 injured with genetic birth defects to
those women who were pregnant at that point of time. The company faced harsh
criticism which led their image to be down sided and soon the share prices saw a
fall leading to a loss of market value of 900m worth. They were skeptical and did
not have much information about the gas leak (Hartley, 2005).

Trails were held in India instead of U.S. where labor laws and the environment
laws at that point of time were strict but due to insufficient labor laws and
environment laws in India Union Carbide had to only pay $ 425m fine and was
freed from all the litigations (Hartley, 2005).

2. Hayward and Guzman:

Most of the corporations tend to cheat consumers and price their product
according to the demand instead of having on price. The second case is of
Hayward and Guzman, the manufacturer and retailer of contact lenses came up
with two new kinds of lenses. The first one was a 2 week disposable lens without
rigorous care, and the other one was a 24 hr disposable lens which would
replace the traditional glasses. When they could not decide the price of each
product according to higher sale of the product, other lens was soon replaced
with the carton of lower sold carton, and in that way the customers were cheated.
Then they were sued by one of the customer and had to pay compensation of $
40,000 (Hartley, 2005)

3. Stamford Machine Corporation:

The third case is based on racial discrimination of employees in a typewriter,
photocopier and projector manufacturer based in New York, Managers would
send their Black Sales Person to those areas were there wasn’t much scope to
gain commission and promotion. This would not encourage the employees to

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work and hence they would have low morals but In contrast white sales people
would be assigned to business areas like Wall Street. So the black people would
be excluded from warning a higher commission and promotions by not assigning
them to higher profitable territories. 6 Black salesmen filed a law suit of $92, 000
against the company and eventually won the case of racial discrimination (Sharp,
2006).

4. Acme Hardware:

Shareholders are also the ones to be affected by the unethical practices of
managers. The last case is about Acme hardware, a retailer in building materials
which was unaware that 7 of its store managers fiddled with the net income
computations by lowering cost of inventory and recording advertising expenses in
as advance for the current year. This allowed them to have higher profits and
more bonuses for themselves but less earning per share to their shareholders.
Since shareholder are not that active in the business so it is the duty of the
managers to run the business which benefits everyone especially shareholders
cause they are the owners of the business. (Sharp, 2006)

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References:
Curtis, G. (2008), ‘The Financial Crisis and the Collapse of Ethical Behavior’, Ritholtz,
Available: http://www.ritholtz.com/blog/2008/12/the-financial-crisis-and-the-collapse-of-
ethical-behavior/.[Accessed 1 October, 2009].

Frank, F 2004, what price the moral high ground: Ethical dilemmas in competitive
environments, Princeton University Press, Oxford shire.

Hartley, R (2005). Mistakes and Successes. U.S.A: Leyh Publishing, 159-171.

Inc. (2000), ‘The Importance of Being Ethical’, Inc, Available:
http://www.inc.com/articles/2000/11/14278.html. [Accessed 7 October, 2009].

Leung, A., (2006). The Mensch Of Malden Mills: CEO Aaron Feuerstein Puts
Employees First. Available [Online]:
http://www.cbsnews.com/stories/2003/07/03/60minutes/main561656.shtml. Accessed
10 Sept 2009.

Moment, R. (2009), ‘7 Principles of Admirable Business Ethics’, About, Available: http://
sbinformation.about.com/od/bestpractices/a/businessethics.htm.

[Accessed 3 October, 2009].

Sharp, D (2006). Cases in Business Ethics. 4th ed. U.S.A: Sage Publications. 43-78.

UNICEF, (2004). “Developing child labour policies: examples from four major
businesses.” Child Labour Resource Guide. Available[Online]:
http://www.unicef.se/assets/child-labour-resource-guide-appendix-6_e4fec6c.pdf,
Accessed on 11 Sept 2009.

Wedekind, C. & MIilinski, M., (1996). “Human cooperation in the simultaneous and the
alternating.” Available[Online]: http://www.pnas.org/content/93/7/2686.full.pdf, Vol 93,
pp. 2686-2689.

Weiss, J 2006, Business ethics: A stakeholder and issues management approach,
Thomson Higher education, Mason.

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