Importance of Good Business Ethics

Importance of Good Business Ethics in Business Introduction There's been a crisis of confidence in corporate ethics in the last ten years, and as a result, legislation continues to be used as the mechanism to bring trust back into business. Many argue that Sarbanes-Oxley (2002) legislation has actually taken the price of doing business significantly up, enriching Indian Business Process Outsourcing (BPO) companies by 30% revenue growth, in the process (Economist, 2006). The issue of corporate responsibility, the extent of its existence and what ideally corporate ethical responsibility should be are examined in this paper. Simply put, the lack of business ethics has introduced compliance-based initiatives at the national and global level of legislate confidence and trust back into business. The high costs of Sarbanes-Oxley Compliance (SOX) could have been averted, in addition to the billions of investors' dollars lost from the Enron, Tyco, and MCI scandals to just name a few. Defining Ethics There are as many definitions of ethics as there are of academicians, researchers, and scholars studying the topic. To align ethics with a specific religion is erroneous; there are many religions in the world that embrace honesty and truthfulness, yet do not provide the impetus for followers to willingly select these ethical approaches to interacting with others. One scholar, Josephson (2001), suggests that ethics involve first the ability to discern right and wrong, and second, the commitment to do what is good and aligning with what ethical conduct is. Ethics then requires action to be undertaken; to be ethical is to act in a consistently transparent and honest way. Josephson (2001) is specifically referring to the values a person has as shaped by their cultural, economic, religious, spiritual and social interactions accumulated over their lives. Ethical choices, according to Josephson (2001), place an equal weight of the values of an individual and their choice of behaving ethically or not. In a study conducted at the Institute for Global Ethics (1996), 272 individuals were asked to identify the 5 values from a list of 15 that were most important to them. Researchers found that the value of truth was by far the most frequent choice. What also emerged were the top three values of truth, compassion, and responsibility. When individuals were asked to pick the most important value, compassion was far and away the greater one chosen. The research went on to show that this small set of core values that is cross-cultural and universal. Lichtman (1998) has done parallel research specifically in this area, providing the suggestion that the eight core ethical values that guide behavior need to include loyalty, honesty, fairness, caring, respect, tolerance, duty, and moral courage. When comparing this list to the Institute for Global Ethics (1996) analysis and then applying them to the series of corporate scandals of which Enron was the largest, it is clear that a lack of ethics continues to force many corporations to drastically cut back their existing operations plans or in the case of major ethical lapses, discontinue operations altogether. Being ethical is good business, and the body of research correlating ethical decision making to increased job performance is an area that this paper will next address. Finding the Connection of Ethics and Performance One of the most fascinating areas where scholars are looking at the influence of ethics on performance is in the sales profession. Research findings support the hypothesis of sales people who act in an ethical manner and behave consistently to ethical standards of performance outperform those that do not, according to Schwepker and Ingram (1996). The researchers found that the more quantified and measurable the objective, including objective components focused on achieving higher levels of sales quality interactions with customers, the higher the levels of ethical performance. Salespeople found it more expedient to be honest, transparent, and truthful with clients rather than create any impressions of either product or company performance that could not be substantiated. In the case of these researchers' studies, the value of ethics as a sales qualifying strategy delivered results. In another study Behrman and Perreault (1982) measured four dimensions of performance, which were defined as follows. The first was the relative levels of success in achieving quantity and quality sales objectives. The second was the development and use of technical knowledge/sales presentations to expedite prospects through a sales cycle. The third and fourth dimensions were providing information and controlling unnecessary expenses. What the research found was that when there were clear and attainable objectives for the salespersons and their support staffs, there was a correspondingly higher level of ethical behavior as measured by 360 degree feedback from managers, prospects, and customers. In addition, the researchers found that on three of the four dimensions, the salespeople were ethical in their conduct, including the use of moral reasoning in the service of both prospects and customers. The only dimension to not test statistically significant was the information dimension, as many of the sales people in the study did not routinely file reports with their managers. This is fascinating analysis as it has been pointed out in many of these studies that given the geographic isolation of sales representatives the tendency to treat unethical behavior as an alternative and an accelerator for goal performance. The research presented however shows that salespeople, when given clear objectives that require a high level of activity, see ethics as the most efficient means of qualifying, initially selling to, and growing customers. Ethics in the context of selling is an excellent business strategy based on the research presented; it immediately qualifies or disqualifies prospects as customers and gives the sales person, often working alone, an avenue to preserve their most important asset, which is their reputation and credibility. In another study focusing on the performance of real estate agents and the correlation of their ethical intelligence as measured in a self- administered questionnaire, Izzo (2000) found a statistically significant relationship between real estate agents' income, repeat business and job status and the agents' ethical intelligence. Further, the analysis also showed that the higher the level of professional licensures, the greater the level of ethical behavior as self-reported and also observed in staff meetings. Real estate agents who then aspire to become the trusted advisors of their clients and seek a long-term relationship and not merely getting the next house sold are by far more effective and earn higher levels of income relative to their counterparts. While outside the scope of this study, the role of trust is a very critical one in the performance of both individual sales people and emanating up through an organization, all the way to the senior managers and C-level executives running the company. Trust is the outgrowth of ethical behavior over an extended period of time, and this is the most difficult corporate of all to attain yet the most valuable to have. Alleviating Ethical Meltdowns What is also clear from the accumulated research on ethics, is that the lower the level of ownership in setting sales and performance objectives, the greater the tendency to resort to unethical behavior. The less a member of an organization sees consequences for a lack of ethical behavior to attain objectives, the more the tendency to resort to unethical behavior. Illustrative of this point, a Sales and Marketing Management survey of 200 managers found nearly half lied on sales calls when their did not have a direct voice in the defining and measuring of those objectives (Marchetti, 1997). Summary Assigning clear accountability and allowing salespeople to have a voice in their own objectives makes a major difference in their choice of ethical behavior. This dynamic applies to both individual contributors to senior executives in corporations. The core values defined at the beginning of this paper need to be brought to the forefront of management techniques to ensure that there is a higher level of visibility and transparency into organizational activity. Only when this level of transparency and ownership of objectives will ethical behavior change in many organizations.