Does better ethics lead to better business?


1) In The Sociological Imagination, how does the author distinguish the difference between “troubles” and “issues”?

 

According to the author, troubles and issues are different based on who experiences them and the setting that associated with them.  Troubles are considered personal matters, and are experienced in a private matter.  Troubles have only to do with an individual and the current setting they are in.  They have some sort of control over the situation because it pertains specifically to them.  Issues, on the other hand, are problems experienced by a whole group of people or a society.  Issues are a product of a structure’s organization, and many people within a society can feel the burden of these issues.  An example that would separate the two words could have to do with unemployment.  A trouble in this case would be if I personally didn’t have a job and suffered as a result.  It is my own personal trouble.  It becomes and issue when there is mass unemployment, and it is the fault of the organization of society that leads to mass unemployment.  This problem isn’t only occurring within my environment, but rather it is a problem faced by many within the system.

 

2) In your own words, briefly describe the details that lead to the financial crisis in 2008.

 

The first thing that really set the 2008 financial crisis in motion was the lowering of the Fed Funds rate by Alan Greenspan.  Lowering this rate made it very easy for people to borrow money at almost 0% interest.  Understandably so, this change caused a lot of people to start borrowing and pumping money into the economy.  These low interests rates are even around today, and you can see companies looking to capitalize by buying back old debt and issuing new debt.  CVS Caremark, for example, just did it themselves so they can be able to take advantage of the currently low rates.  With people having the ability to borrow so easily, they wanted a place to invest their money at the time, and real estate was the big winner.  Real estate was viewed as a rather safe and lucrative investment, and the public at the time was enthusiastic about it.  People were able to borrow equity on their homes, and use the extra cash to purchase more real estate or other expensive investments.  When the value of houses plummeted and people began to have to make the large payments, these people suffered to pay off the new refinanced mortgage they just borrowed.  Furthering the problem, mortgage lenders became way more lax on the rules of borrowing, and began letting people borrow money that really had no right to.  They made the rules and requirements for borrowing money too lenient, and they also let people borrow up to 100% of a home’s value.  With so many people getting mortgages, the banks decided to sell these mortgages to larger banks, which bundled them up and sold them to investors as an investment vehicle.  The public seemed to blindly trust these investment vehicles, and took little time to truly understand the possible outcomes of such an investment.  The crash was very unexpected, and left to a lot of people being affected.  Many of the big players in the US were taking part in these securitized loans and CDS’s, and as a result, the American taxpayer’s money had to be used to bail out a lot of these institutions.

 

3) Is business ethics really an important factor towards business?

 

Some people may ask the question whether or not business ethics really helps companies achieve better business.  We have all been in the position where doing the “right” thing does not seem to match up with doing the thing that will benefit you most.  Companies often face the same dilemma, and it is at these crossroads that management needs to make a decision – focus on achieving sound business ethics or do whatever they feel will make the company more money.  Some people may argue that ethics are overrated and unnecessary in forming a successful business, but many would feel otherwise.  In an article by Katherine Bradshaw, a member of the Institute of Business Ethics, she goes on to explain some of the logical benefits of good business ethics, while referencing works that prove her stance on the issue.  She refers to a piece done by the IBE that researched if better ethics actually lead to better business.  The findings in the work titled Does Business Ethics Pay? (IBE 2004/2007), show companies with an ethics code are more admired by their peers, and those companies that actively train their employees on ethics financially outperform their peers who do not.  Trevino and Nelson also agree that better ethics leads to better business, saying “good ethics is absolutely essential for effective business practice.“ (3)

I agree that teaching good ethics in a business has a better chance of that business becoming both successful and sustainable.  Ethical companies appear to be much more approved by the general public, and people who have good thoughts towards a company are more likely to purchase a product or service from those companies.  I am not saying “unethical” companies do not get business, just they the ethical ones give themselves a better chance to get business because there is less negative press around them.  Ethical companies aren’t just looking at the customers; they also have to remain ethical with the suppliers, partners, shareholders, stakeholders, and employees amongst other things.  If a company can stay within good standing with each of these, they will be successful.  In order to stay in good standing, they need to act appropriately and in a way that doesn’t upset the apple cart.  Balancing all of these groups at once can be difficult, and sometimes interests of several parties contradict, and a decision must be made.  Often, shareholders and stakeholders have diametrically opposite desires from a company, but that company needs to choose the best approach for the situation.  Sometimes profits may take a short term hit, but in the long run, operating a company that is completely ethical has a better chance of survival.

http://www.isbe.org.uk/Doingbusinessethicallly

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9 thoughts on “Does better ethics lead to better business?

  1. Interesting points in your response to Question 3. I took Eric Martin’s Sustainable Development class a couple of semesters ago and he said to achieve sustainability, a company/organization must do good and do well. Doing good means making ethical decisions and forming ethical relationships and doing well means making profits. In today world, it seems like doing good and doing well are musts for having a successful business.

    • I have to agree here, in that unethical companies do not last very long in business. Unethical decisions will undoubtedly catch up with companies and punished by consumers, the media, or their suppliers and partners. Companies that follow a strong ethical code can focus on productivity and performance rather than needing to put energy and resources into covering up and rectifying unethical decisions.

  2. I really like what you wrote about how the companies not only have to remain ethically responsible to not only their customers, but the suppliers, partners, shareholders, stakeholders, and employees as well. Proper organization throughout the entire company’s structure is essential to promoting strong and positive awareness about a company. A company who abuses their suppliers will likely lose them in the future. A company who treats their employees poorly will be subject to frequent strikes. So why don’t all companies just have a better moral code? You said it yourself, profits, and profits alone drive many companies to do unethical things. Companies need to do what you say and be in it for the long haul.

    • Based on your response to question three it seems as though you take the side that companies tend to act ethically in business, but I don’t really agree. Maybe it just the way we think nowadays – as we discussed in class – most business students think that they will have to act somewhat unethically to succeed in the cut-throat business world. But on top of that it seems to be obvious in the press that many of top companies act unethically. Based on readings both Nike and Apple act very unethically – two of my favorite companies. Another great example is a website most of use everyday – Facebook. In the movie – The Social Network – Mark Zuckerberg completely screws his initial investor, best friend, and partner Eduardo Saverin. There are arguments about who was right but it’s pretty obvious Mark was fairly unethical and he ultimately had to settle in his case with Eduardo. This make me think the business world isn’t all that ethical – that is if you want to be successful.

  3. I completely agree with your answer to question 3 about the relationship between good business and ethics. The thing that your response made me think about is judgement of ethics themselves. Can decisions be more or less ethical than one another, yet both still be ethical? I think there is an important distinction between the two that is vital for the management of a firm to evaluate. While one decision may be more ethical than another, is it really going to be the best for the shareholders in the long run. It is good to remember that when evaluating ethics things are not always black and white.

  4. I definitely agree with your points made in question 3. There is no way ethics would be such a big topic business if they weren’t really that important. The main goal of a company is often to increase shareholder value and what better way is there to do that than good ethics? Ethics clearly look good in the public’s eyes and it is also clear that from the article you mentioned above that good ethical companies outperform others even financially. Therefore, it seems clear that the ethical road is the one to take.

  5. The only real question is whether or not you think companies are being ethical because they actually believe in it or just in order to gain a higher market position?

  6. I entirely agree with your answer to question three. In addition, I feel that good ethics leads to good business relations between companies. Companies are less likely to cooperate with another company that is seen throughout the market as “unethical”. Businesses are quite privy of each others reputation when it comes to ethical business dealings cross-company. A commencement speech was given last year at USC, I believe, (tried to find the link but I couldn’t) by a film studio executive. He referenced the fact that most people nowadays think that to get ahead you need to be the stereotypical slimeball “Ari Gold”, which he felt was entirely off base. The speaker said that if you act in a way that is unethical within the industry, you may be successful but not for long. Ethics is as important within your industry as it is to the people who consume from your industry.

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