BUSINESS ETHICS

In this chapter, I will examine the importance and concept of business ethics. Many Danish companies use Corporate Social Responsibility as part as their business strategy, but what happens if they are not being sincere? In this chapter, I will examine the concept of business, its importance, and which consequences there may be for the corporation if the media finds out that the product was produced under unacceptable working conditions.

2.5.1 The Concept of Business Ethics

In 1968, an article called “Is Business Bluffing Ethical?” by Albert Carr was published in the Harvard Business review. In his article, Carr compares the nature of business with a game of poker.

Carr suggests, that business ethics is significantly different from the ethics of ones private life (Crane & Matten, 2010, p. 4). According to Carr, a man must play to win in order to be a winner. A businessman is just like a poker player sometimes compelled to bluff and be dishonest in order to gain a profit. He does however mention that a company will gain more success in the long run by having a good and honest reputation (Harvard Business Review, 1968, p.6).

Andrew Crane and Dirk Matten support Albert Carr´s theory to some extent. They believe that

“Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed” (Crane & Matten, 2010, p. 5). According to Crane & Matten, business ethics merely exists in order to help us evaluate why certain decisions are considered morally right or wrong. Even though, business ethics and the law are both concerned with distinguishing between “right” and “wrong”, there are still many unwritten moral factors within the field of business ethics which are not covered by the law. It is for example in some countries not considered illegal for companies to test their products on animals, make use of child labor, or even prevent their employees from joining a union. As mentioned above business ethics usually deals with issues, which are not covered by the laws. Due to the fact that these rules of ethics are not guided by the law, it is often referred to as the “grey areas”, because it sometimes can be unclear what is considered to be ethical and what is not. It is therefore very important that a Western company keep in mind that it may face some challenges when getting its products produced in a Third World

Country (Crane & Matten, 2010, pp. 5- 8). According to the secretariat director at DIEH⁶ Hanne Gürtler, it can be very difficult for a company to control the conditions under which the products are being produced. Even though the company may have good intentions, there may often occur obstacles such as limited possibilities of control, local traditions, and corruption, which make it more difficult for a company to live up to its idealistic goals. It is therefore very important for the company to be open about the challenges that it meets, what it will do in order to meet these challenges, what it has improved, and what it will do in order to improve the conditions even more.

The consumers will thereby become more aware of how difficult it is to ensure good working conditions in the third world and that it is a very long and slow process. Hanne Gürtler suggests that communication and 100 percent transparency are the keys to success and that a company will gain the consumer´s support and understanding by being open and honest (As reported in “Dårlige sager frem i lyset”,2008, 26 Nov.).

2.5.2 The Importance of Business Ethics

Ethics is not only important in business, but in all aspects of life. According to Rupal Jain, lecturer at Atharva Institute of Management Studies, a business or a society without any ethical principles will not be able to succeed in the world we are living in today (Jain, 2010).

The trade with the developing countries has increased rapidly in Denmark the last ten years. Many corporations have benefited from doing trade with the developing countries. Doing trade with the developing countries will benefit them economically, but unfortunately it will not in all cases benefit the sustainable side of the story. Dansk Industri for Etisk Handel suggests that ethical trade is requisite for a sustainable progress of the society in the developing countries (As reported in

“Hvad er etisk handel?”, 2010).

Although ethics are not the same as self- interest, companies often find it very difficult to tell these two words apart. Many companies want to make sure that it will benefit the company in the long run before investing a lot of money into a good cause. However, it is not enough for a company to be ethical just because they believe that will be able to gain a profit. As I mentioned above,

6 Dansk Institut for Etnisk Handel- en brancheorganisaton for både store og små virksomheder, NGOér, fagforbund og institutioner, der beskæftiger sig med at styrke etikken i international handel.

communication and transparency are the keys to success when dealing with business ethics. If the press or the consumers find out the company is not being sincere about its intentions it will loose its credibility and a lot of its former loyal customers and thereby loose a lot of money in the long run.

The best way for a company to promote ethical behavior is by setting a good example for its employees, customers, and suppliers (Hooker, 2003).

According to DIEH, Danish corporations will be able to gain a lot of competitive advantages by being social responsible and thereby reduce the risk of an economic loss. A corporation’s reputation can very easily be put at risk if the media finds out that the product is produced under horrible working conditions and that their product is not only a danger for the environment, but also to the factory worker´s health conditions. If this happens, the corporation will loose its credibility and the consumers, investors, clients, and employees will begin to boycott them (As reported in “Hvad er etisk handel?”, 2010).

2.5.3 Corporate Social Responsibility

Corporate Social Responsibility is a paradigm, which has expanded within the corporations in recent years. By using the concept of CSR the company indicates that its focus on other stakeholders has increased and that it is not only focusing on the stockholders as its main priority.

CSR is not a new phenomenon. Since the 1950s, the concept of CSR has been accepted as an important part of the business strategy in the western part of the world. Today, the concept has moved away from only being just an observance of the laws and regulations (Caroll & Buchholtz, 2003, pp. 31-34).

There have been many different definitions about what the concept CSR actually stands for. Terms such as corporate governance, corporate citizenship, business ethics, transparency, and sustainability are all covering the corporation’s social responsibility. According to Carroll and Buchholtz, the term “CSR” is a combination of the expectations and requirements that the Government and the society may have to a corporation:

“The social responsibility of business emcompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time” (Caroll &

Buchholtz 2003, p. 36).

Carroll and Buchholtz (2003, pp. 39-42) suggest that you can divide CSR into four main areas.⁷ The importance of the four components is not equal. According to Carroll and Buchholtz, a corporation is more likely to put more emphasis on the economic responsibilities, since its survival depends on its ability to create a profit. However, they suggest that the company look at the four components simultaneously, since they are all important and it will eventually affect the corporation if it chooses to override the ethical and philanthropic responsibilities.

In 1983, the United Nations Brundtland Commission was concerned about whether it was actually possible to combine the two terms “Progress” and “Environmental concerns”. In 1987, the Commission decided to publish a report called “Our Common Future”. The report is concerned with sustainable development, the common challenges, which we may have to deal with in society as well as in politics, and the changes that may need to be done in order to reach the goal about a more sustainable society (As reported in “1987 – Brundtland rapporten”, 2010):

“ Mankind has the ability to make the development of our society sustainable. Sustainable development is development that meets the needs of the current generation without preventing the future generations possibility in getting their needs fulfilled….A sustainable development is however not a definitive state of harmony, but rather a process of change, where the utilization of resources, the investment management, the aim towards technological development and institutional changes will be in accordance with the present as well as the future needs” (Own translation:Brundtland Kommissionen 1987, pp. 20-21).

The Brundtland Commission suggests that if we want the industrial development to be sustainable on a long-term basis, we need to do some radical changes (Brundtland Kommissionen 1987, p.

115). Most of the developing countries are dependent on their export to the western part of the world. However, the international trade does not always benefit the developing countries. The International trade system is full of injustice. The rich countries are benefiting from cheap labor and cheap resources in the developing countries, while the developing countries health, economy, and

7 See appendix: Figure 3, p. 4

environment sustains damage (Foreign Affairs 2005, p.139).The growing burden of debts and the lack of stability are making it more or less impossible for the developing countries to covert their production into an ecologically sustainable production (Brundtland Kommissionen 1987, p. 75).

The Brundtland Commission suggests that we help the developing countries escape this vicious circle by teaching them how to make their farming systems more profitable and ecologically sustainable. This will not only improve the quality of life the present generation, but also for the future generation ( Brundtland Kommissionen 1987, p. 115).

2.5.4 Chapter Summary

The world is getting more and more globalized and the majority of the clothes that we buy in the Western world have been produced in developing countries such as India. The rich countries are taking advantage of the cheap labor and cheap resources in the developing countries. However, getting your products produced in another country with other regulations can be a huge challenge for the corporations. The corporations need to keep in mind that it can be very difficult to control the working conditions in the developing countries. Some of the obstacles that may prevent the corporation from living up to its idealistic goals are the limited control, the local traditions, and corruption. In order to gain credibility, it is important that the corporation communicates to the consumer how difficult it is to control the working conditions in the developing countries and that it may take a long time before they will reach their idealistic goals. Honesty and transparency will ensure the corporation credibility and success in the long run. It could loose a lot of money if the press and the consumers found out that it was not being sincere about its intentions.