RIGHT OF CENTRE: More ethical lapses likely
As demand intensifies for higher standards of corporate social responsibility, companies, professional firms and individuals are being held increasingly accountable for their actions.
Most companies recognize that in order to succeed, they must earn the respect and confidence of their customers by improving their business practices to promote ethical behaviour.
Unfortunately, we have learnt the difficult lesson that ethical behaviour is not always the norm. Unethical and illegal activities of corporations such as Enron at the beginning of the last decade resulted in loss of pensions, jobs and investments, and the closure of companies.
As a result of this unethical behaviour and greed, concomitant legislative and regulatory changes were made to improve financial reporting and public confidence such as the Sarbanes Oxley Act.
However, less than a decade later in 2008, the ensuing financial crisis resulted in large part from unethical behaviour in the sub-prime lending market.
The predatory lending practices of Countrywide Financial and other institutions were considered to be not only unethical but scurrilous.
Lessons from previous financial events, changes in regulatory and legislative requirements did not deter further breaches of fiduciary trust by corporations.
Unethical behaviour has shaken the foundation of trust that formed the basis of marketplace relationships between companies and stakeholders. As such, there appears to be a need for companies to strengthen internal regulations and implement ethical training throughout the organization in order to prevent a recurrence of these events so as to regain the trust of customers.
One may argue that the cost related to developing processes that ensure adherence to high ethical standards could result in a reduction in competitiveness and profitability.
However, examples from the business community suggest that companies viewed as ethical by their stakeholders – like customers, employees and suppliers – enjoy several competitive advantages, including reduced cost of doing business, higher levels of efficiency in operations, commitment and loyalty from employees, perceived product quality, customer loyalty and retention, and thus, better financial performance.
These companies also maintain social capital, a vital part of an organization’s image.
Certainly, there are those who believe that unethical business practices will not be discovered and there will be no negative business implications.
In fact, we will most likely see more ethical lapses among business organizations in the future. However, there are good reasons that business organizations should be concerned about their reputations.
Unethical business practices, once they have become public, can lead to regulatory or governmental intervention and legislation that could be financially costly for companies to adhere to and more problematic to businesses than self-policing.
Of greater importance than governmental intervention is trust. Companies lacking trust by employees, business partners and customers will suffer financially in the long term.
Trust based on an ethical reputation is even more important to the long-term growth and profitability. Once the public views a company as corrupt, the taint can be permanent. It takes years to build a good business reputation, but one false move can destroy it overnight. Oftentimes organizational values exist that foster unethical behaviour and undermine integrity.
For example, the bottom-line-mentality which supports financial success as the only value to be considered. It promotes short-term solutions that are immediately financially sound, but might cause problems for the organization in the long term.
In addition, certain industries may predispose organizations to develop cultures that encourage their members to commit unethical acts like bribery.
For example, if an organization’s major competitors are performing well through unethical activities, it could become difficult for that organization’s employees to remain ethical if good morals and ethics are not a hallmark of that business.