The importance of ethics in business

BEFORE trying to understand how ethics can be so integral for business, it is important to appreciate what they really are.

The business dictionary defines ethics as the basic concepts and fundamental principles of decent human conduct.

Just because ethics emphasise human decency, it is therefore unsurprising that it often entails the study of universal values such as equality of all men and women, human or natural rights, obedience to the law of the land, concern for health and safety and, increasingly, also for the natural environment.

However, it is important to note that ethics are not law, but they simply describe expected human behaviour is various environments.

For example, the cultural practices of people can distinguish the way they behave.

A trait that might be considered as good in one society can be quite offensive in another.

But what cannot be disputed is the impact that human behaviour can have on both business and even the economy.

Despite purportedly professing to adhere to ethical practices, most local companies are often found foul of the law.

Corruption has become pervasive in local businesses to such an extent that if left unchecked, the cancer will mutate into a much bigger threat to the country’s moral and ethical standards.

Quite noticeably, corruption feeds off impunity. Nothing short of a robust response from Government will suffice.

Over the years, scholars have been trying to explain what ethics are and how they evolved in societies.

This is why there are ethical theories that are centred on relativism and absolutism.

On the one hand, relativism describes a situation where there are many sets of moral rules that change over time. Such rules will definitely be different in different societies.

For example, in some societies it was considered wrong for women to wear trousers but this has since changed.

Yet it is still unacceptable in some civilisations.

Absolutism is when there is one set of moral rules that never changes.

So, in essence, it is difficult to judge some actions as either good or bad.

If an auditor working on a bank whose finances are in shambles issues a clean opinion on the going concern of the same, this is considered to be unethical.

Issuing a bad report could actually create panic, resulting in a bank sinking faster than would have been expected.

Some would actually reason that it will be better for the auditor to appraise shareholders and directors about the true health of the bank and avoid unnecessarily creating panic. Could this actually be described as to be within the fiduciary expectations of the shareholders?

Imagine if the Reserve Bank Governor had decided not to announce that bond notes will be introduced?

Obviously there wouldn’t have been panic and anxiety in the market.

But was it going to be ethical if the bond notes were just introduced without prior notification? These are some of the challenges that face public office bearers.

To assist in making ethical decisions, there is a model called the American Accounting Association (AAA).

Through this model, it is imperative to answer seven questions before a decision is made.

Similarly, there is the Tucker model which provides a brief framework for considering whether or not a decision is ethical. The seven questions in the AAA model are: 1) What are the facts of the case? 2) What are the ethical issues in the case? 3) What are the norms, principles and values related to the case?

4) What are the alternative courses of action?

5) What is the best course of action that is consistent with the norms, principles and values identified in step 3?

6) What are the consequences of each possible course of action?

7) What is the decision? In the aforementioned example about the auditor, he or she is expected to give a qualified opinion about the bank.

The ethical issues relate to considering the effects the report will have on the bank and its shareholders, including depositors.

Put simply, after all the questions are answered, an ethical decision will have to be made.

The Tuckers model is then used after the AAA model to ensure that the decision is “correct”.

Tucker argues that the decision carries with it the obligation to be fair, legal, profitable, right and sustainable.

By using the AAA and the Tuckers model for the land reform programme, two different answers that are both ethically correct can be established.

Of course, some will argue that the exercise was good because it benefited a lot of people who were previously marginalised, while others will say property rights were violated. There is never the right answer when it comes to ethics.

Using Tuckers model, the land reform programme was profitable as it helped many people, it was also legal, fair and right in as far as it returned the land to its rightful owners. Arguments might differ however. This clearly shows that it can really be a challenge when it comes to making ethical decisions as different groups make different interpretations on the same situation.

However, it is important to be truthful and considerate before decisions are made.

Stealing and fraud is just bad, regardless the justification.