The Importance of Ethics and Social Responsibility in Organizations

A pair of “Air Jordans” cost Nike about $16 dollars to produce, which gives Nike a gross profit of $164 per pair, about 90%, before marketing expenses. Nike’s athletic shoes used to be manufactured in Massachusetts. However, now they’re all made overseas, largely from Indonesia, where workers earn $4 per day, barely enough to pay transportation, shelter, health care, and a decent meal, and they can only dream of buying a pair of Nikes for themselves.

In this situation, is Nike being unethical? The answer for that question would probably be yes. Nowadays, being ethical in your organization is very important as it is a crucial factor for the organization’s success. Companies with strong ethics program tend to have a better reputation, can reduce potential costly fines, provide better access to capital, enhance customer loyalty, and most importantly, positively affect their employees’ performance and commitment to work.

What is ethics? And what does it mean to be ethical? Ethics is the code of moral principles, values, and beliefs that set standards for what is “wrong” and what is “right”, and being ethical means behaving in a way that is accepted as good and right in the context of the governing moral code. And in business the term “ethical behavior” refers to how an organization ensures that all its actions, decisions, and stakeholders interactions conform to its moral code.

Organizations establish ethics policies in order to identify expectations of workers and to offer guidance on handling common ethical problems such as employee theft, conflicts of interest, quality control issues, discrimination, misuse of company assets, environmental pollution, and many more. Many factors determine whether an organization’s certain behavior is ethical or unethical. In today’s business environment, pressure and stress to accomplish higher goals in a tighter time frame can cause companies to slip into unethical decisions and behaviors.

According to a global survey commissioned by the American Management Association – which included over 1,000 managers and human resource experts, the number one factor that is likely to cause unethical corporate behavior is business objectives and deadlines (Schwartz, 2006). Other factors such as furthering one’s career and protecting one’s livelihood rank second and third, respectively in creating an atmosphere where unethical behavior can occur (Schwartz, 2006). Some additional factors that lead to unethical behavior is having to work in an environment with cynical people or an atmosphere of diminished morale; mproper training; and no consequences when caught. These factors are followed by the need to follow orders, peer pressure, desire to steal from or harm the organization, and paradoxically, wanting to help the organization survive (Schwartz, 2006) The employment of ethical business practices can enhance overall corporate health in three important areas. The first area is productivity. The employees of a corporation are stakeholders who are affected by management practices. When management considers ethics in its actions toward stakeholders, employees can be positively affected.

For example, a corporation may decide that business ethics requires a special effort to ensure the health and welfare of employees. Many corporations have established employee advisory programs (EAPs), to help employees with family, work, financial, or legal problems, or with mental illness or chemical dependency. These programs can be a source of enhanced productivity for a corporation. A second area in which ethical management practices can enhance corporate health is by positively affecting “outside” stakeholders, such as suppliers and customers.

A positive public image can attract customers. For example, a manufacturer of baby products carefully guards its public image as a company that puts customer health and well-being ahead of corporate profits, as exemplified in its code of ethics. The third area in which ethical management practices can enhance corporate health is in minimizing regulation from government agencies. Where companies are believed to be acting unethically, the public is more likely to put pressure on legislators and other government officials to regulate those businesses or to enforce existing regulations.

For example, in 1990 hearings were held on the rise in gasoline and home heating oil prices following Iraq’s invasion of Kuwait, in part due to the public perception that oil companies were not behaving ethically. What about social responsibility? The term social responsibility means different things to different people. Generally, corporate social responsibility is the obligation to take action that protects and improves the welfare of society as a whole as well as organizational interest. According to the concept of corporate social responsibility, a manager must strive to achieve both organizational and societal goals.