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

Enforced Ethics


1. Why does Mills make the argument that it is critical for society to have a sociological imagination?

He argues that the sociological imagination is crucial not only for individuals, but also for groups, to use when making decisions.  Throughout the article, he explains that if people act with this kind of consideration, they will be able to operate in a more understanding manner. By doing this, it not only makes society better, but it would create a cohesiveness of decision making for both one’s personal and business life. Mills continues that society needs the sociological imagination in order to think carefully – using the information to act in a way that is significant or sometimes insignificant to them.  Mills suggests that motives of one’s behavior wouldn’t be questioned since the thought process could by the society that used this method of thinking.

2. What did Standard and Poor and Moody do to contribute to the financial crisis of 2008?

Listed above are the two largest rating companies that helped contribute to the recession. Their purpose was to rate the riskiness of securities, and especially mortgages. Although the questions asks, “what did” they do, the question should be asked in terms of “what didn’t they do?”

The businesses continued rating mortgages on the highest possible levels, which in fact in some cases, have been disqualified. The problems were that the companies did not foresee a decline in the housing market, and therefore failed in their responsibilities. The system in which they were giving these ratings was thoroughly defective.  The companies were giving high ratings, not because the people deserved them, but in order to be hired by the agencies that were giving these ratings. This in turn ensured more happy customers, and therefore created a higher paycheck for Standard and Poor and Moody. By failing to give appropriate ratings, high-risk investments were made because of a falsely high rating.

3. Should large businesses leaders be obligated to make sure that their company is run in an ethical manner?

“Ethical” is a loose term, for the definition can vary depending on who is answering the question. If we reflect on the sociological imagination that Mills discusses, there is an explanation of ethical reasoning outlined that business leaders should use. By utilizing the imagination, there will always be a simplistic or creative solution that is likely to end with a positive outcome – not only for oneself, but also for the community involved. Although events cannot be changed, it is the reaction and adaptation to these occurrences that define the nature and ethical practices of a business.

The company Barclays was involved in a scandal in which they were being accused of rigging interest rates. After months of a quiet lull, Anthony Jenkins came out publically to publically uphold the five values most cherished by the company: respect, integrity, service, excellence and stewardship. He also states that he doesn’t “want to do it for public relations…it is simply how [he] will run Barclays. Yes, this announcement was made after a scandal, but it simply amplifies the point that leaders should make sure that the company is run in an ethical way. Not only will they have to out and apologize to the public, but will have to take the time to restructure the way the company runs; meaning time wasted. Leaders do have the obligation to enforce ethical practices, for it is the only way to ensure self-preservation from a shaming community.

http://online.wsj.com/article/SB10001424127887323468604578247461697635932.html?KEYWORDS=ethics

 

Social Issues and Creative Solutions


  1. Are we merely avoiding social issues by making them into personal troubles?

More and more people are starting to place society’s issues on individuals. Many great public issues are becoming ignored and  dealt with wrongly because people neglect to connect both individual and public connections. Mills describes trouble as a private matter or when a value cherished by an individual becomes threatened. On the other hand, an issue is a public matter or when a value cherished by the public is felt to be threatened. However, people neglect to recognize that an issue is the aggregation of personal troubles.

For example, look at the education debate in America. Many people place the blame on students or teachers not trying hard or caring. These people ignore both the personal limitations and boundaries of the education system.  They merely place the blame on the INDIVIDUAL. Rather than thinking critically and gathering all the information, they avoid problems of modern society. They neglect to ask “Why are teachers not trying hard?”, “Why are students not caring about education”, “Why do teenagers work rather than go to class?” If they were to ask these questions, they would notice both personal and public restrictions like public school’s limited funding, students forced to help their parents with finances, student’s unhealthy family life, peer pressure, drugs, racism, and many other topics.

Overall, instead of placing the blame on individuals, people need to recognize that public issues are not caused by one simple explanation. But, rather they need to seek more in-depth explanations for the issue by looking at both the issue and the troubles to obtain a valuable solution.

  1. How much did the Mortgage industry really change?

Reading Managing Business Ethics: Straight Talk about How to Do it Right by Linda Trevino and Katherine Nelson, I had an intuition to talk my father for the first time about his 15 year experience in the mortgage industry.  When I asked to talk to him about the 2008 crash, he immediately laughed and said “it was a shit show.” Starting in 1994, he said it started to dramatically change in the late 1990’s. Every year there was a complete change in both State and National regulations.  For example, in 1997 Texas permitted home equity loans that allowed a person to barrow up to $80,000 on the house.

One of the biggest changes was that receiving a mortgage became easier and easier. Before, it was practically impossible to obtain a 100% loan even if you had great credit. However, when banks and mortgagors started to make more money, mortgages restrictions decreased. My father explained one of the biggest changes was that usually people had to make a 20% down payment and if you had bad credit, you simply were denied a loan. But by the late 1990’s, banks were  handing out 100% mortgages to people with bad credit merely because the more loans they approved, the more money they  receive.

My father then explained how this was all based on greed with in the industry. Luckily, owning his own company allowed him to maintain his moral standards. However, he still constantly competed with the big banks and companies that ignored ethics. For example, many clients would claim that the other banks offer them a better mortgage and my dad would have to explain that they were offering an “improper loan.” This means that the mortgagor was leaving out valuable information or actually lying about the loan. One of the most common ways mortgagors tricked clients was by neglecting to inform them of the variable rates. This allows them to qualify for a low down payment, but after a year the rate would double or triple and the person would be forced to pay.

All of this is out of the name of greed. Banks and mortgagors were only concerned with making money through giving out as many loans as they could; as a result, they gave loans to people who cannot afford to pay them back. My dad was fortunate to never have one bad complaint about his business ethics and loans. He exemplifies how not all businesses choose to act unethically. Overall, ever since the late 1990’s, the increasing lack of registration in the mortgage industry no doubtable contributed started the financial crisis in 2008.

3. How does social imagination apply to businesses?

Mills explains that social imagination is the ability to adapt and develop reason to not only understand the world around you, but also understand what is happening within themselves. By utilizing his imagination, a person can gauge his own fate rather than be controlled by outside circumstances. For this reason, I believe that there is a creative solution to almost anything.  Many people blame the event or outside factors for problems in their lives; however, it all comes down to creating the solution. Since most of the time you cannot change the event, you have to create a solution to obtain your desired outcome.

Just like individuals, businesses too have to discover creative solutions that help them achieve their goals. For example, Whole Foods created a solution to sell sustainable fish without impacting their sales negatively. Another example of a social imagination used in a business environment is Chipotle.  Chipotle founder, Steve Ells, started his restaurant with the intention to change the fast food industry. His goal was to show the world that sustainable farming is possible on a large-scale. Through creative marketing and business strategies, Chipotle has become a unique leader in the fast food industry that illustrates sustainable farming methods. When everyone thought they would not be able to offer organic fast food at their expensive price, they found a way to control their own fate and succeed. They show that businesses can use social imagination to control their fate and reach their goals as well.

The root of the problem


1.  How did the rating agencies Standard and Poor’s and Moody’s contribute to the financial crisis of 2008?

The largest rating agencies involved in the 2008 financial crisis were Standard and Poor’s and Moody’s, which were responsible for rating the riskiness of securities, such as mortgages.  Starting in around 2004, many credit rating companies were giving the highest possible ratings to products that were incredibly risky and should have been ranked accordingly.  At the time, many wall street companies were peddling collateralized debt obligations (CDO’s) that were given incredibly high ratings.

The root of the problem lies within the system of rating products.  The rating agencies that are hired by many firms are selected by the companies whose products they rate.  As a result, the rating agencies would be slightly biased and give the products higher ratings in order to be hired.  This was incredibly misleading, because people thought that they were getting the best possible deal and it turned out they were very misinformed.  The Dodd-Frank act in response to the act does grant the SEC more authority over agencies, but it did not eradicate the underlying issue that raters are still hired by the companies whose products they are supposed to rate.

2.  Why, in W.C. Wright Mills opinion, is it important that individuals realize their own biography within their time in history?

Mills stresses that the link between an individual and their position in history is the key to understanding sociological imagination.  It is important that people are able to deal with their own dilemmas in the scheme of what is happening during a specific time period.  Mills uses the example of unemployment, by explaining that a person may feel depressed if they are fired, but if many people are being laid off then the issue is not personal but public.  Issues such as these are rooted in economic and political issues, and therefore should be treated in this manner.

Mills further explains this phenomenon by distinguishing the key differences between a personal trouble and an issue.  Troubles are considered to be individual; they are due to the experiences of a person and not considered to be a public matter.  However, an issue is something that a population is facing, and therefore the person feeling the “troubles” should not think of himself as alone, but instead a part of a whole that is experiencing similar predicaments.  Once society is able to look beyond the personal milieu and able to embrace changes, then everyone can be interconnected and not feel isolated within a larger issue.

3.   Are there any similar examples of countries that have experienced similar financial crisis such as the US financial crisis in 2008?

Around the time the United States realized they were knee deep in a financial crisis, Spain’s similar growing expansion rapidly came to an end, as their own property bubble burst and the their public debt skyrocketed to whole new levels.  Their crisis definitely mirrors our own, in that they are now facing huge unemployment, high interest rates, and massive amounts of debt.  Spain had previously had been enjoying their new boom after joining the Eurozone, which granted them the highest ratings in housing.  Now, since the property market has collapsed, Spain can no longer afford to pay its debt and it has become one the biggest worries in the European Union.

Ever since 2010 when it was clear that Spain was problematic within the Eurozone, the country has been enacting many austerity measures to lessen their debt.  However, these measures were not significant enough, and Spain sunk further into their recession.  In September, the European Central Bank had pledged to buy bonds to lower the interest rates that had skyrocketed, but Spain refused due to the strings that would be attached if they accepted such a deal.  This situation is paralleled to the situation in the US, when the Federal Reserve injected capital into the United States to help regulate the inflation rates.

In October, the country reached a new low, when unemployment rates reached an astounding rate of 25%.  This, and their further increasing debt, led to the European Commission approving a payment of 37 billion euros to Spain with many conditions attached.   Ever since, The European Central Bank has continued to grant payments, in addition to lowering interest rates and providing cheap loans to increase the flow of money in Spain.  However, their current Prime Minister Rajoy, is skeptical about receiving any support from Europe, and many economists worry that the ongoing delay will make the situation increasingly worse.

Unanswered Questions of Business Ethics


1. Is the sociological imagination still relevant today?

It has been roughly fifty years since C. Wright Mills wrote The Sociological Imagination, which begs the question, is the sociological imagination still relevant today? In my mind, the answer to this question is clearly yes. The sociological imagination shows how big social issues are connected to personal issues of both biography and history. Mills makes the argument that in order for people to think on a critical level, they have to connect what is happening to them to larger universal forces. In other words, they must combine the individual with the surrounding society. Mills defines the sociological imagination as “the vivid awareness of the relationship between experience and the wider society.” In order for you to have a sociological imagination, you must be able to separate yourself from the current situation and think from a different point of view. This can be applied to any behavior. For example, take the common activity of attending a concert with friends. If we try to think like Mills, he would probably argue that attending the concert is not just about listening to a musical performance, but rather, has symbolic value as a social ritual. It is an important occasion for social interaction among peers and friends. Although Mills’ perspective is much more complex than the example I just described, I think it is a situation to which we can all relate.

2. Did poor ethical behavior give way to the financial disaster of 2008?

When reading the first chapter of Treviño and Nelson’s, Managing Business Ethics, I wondered, did poor ethical behavior give way to the financial disaster of 2008? I had thought about this before in passing, but never in great detail. After reading this chapter it became clear to me that although many of the activities that took place were not against the law, they were completely unethical. It was some of these activities that laid the foundation for the financial crisis. Out of all of the things mentioned, the one that impacted me the most can be seen under the subheading “Those Who Were Supposed to Protect Us Didn’t”. Rating agencies, the actions of AIG, bank CEOs/executives, and regulatory agencies and legislators are all partially to blame. One of the major mistakes made during this time was that banks made the unethical decision to loosen credit restrictions. In result, borrowers that had no proof of employment or income were given loans. This is a prime example of the crucial role that ethics play in the world of business.

3. Are business leaders motivated to act ethically for selfish reasons? 

The motives behind human behaviors are complex. There are two ideas that I have deduced to be the main reasons business leaders act ethically. The first being that they do what is right because they want to better society, and the second is that they do what is right because they expect it to benefit themselves in the long run. It is my conjecture that most business leaders are motivated by a combination of the two. For instance, let’s think about the various reasons more and more companies are deciding to jump on the environmental bandwagon and “go green”. Yes, “going green” is great for the environment. But is that the ONLY reason that companies are turning over a new lead toward greener technologies? My answer to this question would be a definite no. When a company invests in these new technologies and devotes new efforts in becoming environmentally friendly, they are given grants, loans, tax incentives, and hope to gain thousands of new customers. For these reasons I think that some business leaders act ethically in order to put themselves and their companies in better financial positions.

http://smallbusiness.chron.com/reasons-businesses-green-93.html

Ethical Line and Social Issues


Question One:

Should the social business still be trustworthy even though their ethical bottom lines swing back and forth?

Yes. Every coin has its two sides, not to mention social media might enlarge the negative sides. According to the reading “Managing Business Ethics”, even though the author pointed out the financial crisis caused by unethical market at the beginning, most of companies are trying hard to balance between ethics and profits. Most of the managers are well educated and keeping learning in business school as working in management level in order to cope with complicated situations and make ethical decisions. The unethical business issues reported by media influence the portrait of social business. Also, there are various factors to determine the different ethical bottom lines, for examples, types of industry, competition, labor force and social rules.

Question Two:

Does social imagination means to step back and get a bigger picture of society?

I think social imagination is a broader view of social issues combine with the self-consciousness. I really like the statements of trouble and issue in “ The Sociological Imagination”. Troubles occur among individuals directly and reveal the straight relationship. Issues should be viewed from a broad angle and explained with many connections. As the examples given in the article, if the percentage is one out of one hundred thousand, it is a trouble. However, if the percentage is fifty percent, the thing should be an issue, which is needed to be studied and figure the inside connections. Nothing is what it seems. An unethical business or a social violence may reveal social issues, like Apple’s Chinese factory, Foxconn. The suicide, violence, overwhelming working hours and child labors exhibit the unethical and illegal facts of Foxconn and Apple superficially. However, if we review the Foxconn event from social imagination side, it reveals a lot of serious social problems in China.

Question Three:

Should Apple, Inc is responsible for series of violence events in its Chinese factory, Foxconn?

Foxconn is the largest phone producer in the world. It responsible for many well-known brand’s cell phone, like Sony, Apple, and Nokia. The following link reported the changes are going to take by Foxconn in 2013. Social media reported Foxconn about hiring child labors, suicides, excessive working hours and toxic working environment for years. Apple had talked with top executives of Foxconn about working conditions in the future. Foxconn decided to increase the employees’ salaries, decrease working hours and try to prevent suicide events. Although Apple is independent with its Chinese factory, it is still unethical to use such a manufacture. It is Apple’s response to have a talk with executives in Foxconn and make changes.

http://www.forbes.com/sites/timworstall/2012/12/27/apples-foxconn-factories-are-getting-better/