Ethics in business is taking a leading stage in the twenty first century because of the high number of globally publicized scandals, public outrage due to fraud, deception and distrust in business (Fraedrich, & Ferrell, 1990). This has lead to an on going debate over whether businesses need to be ethical in the first place or should simply remain profit-oriented.
While many economists are of the view that businesses can either make profit or be ethical, they cannot do both (Ajit, & Rajiv, 2015), other scholars are of the view that the sole responsibility of businesses is to generate as much money to their shareholders as possible while adhering to the society’s basic rules, and ethical concerns (Friedman,1970). Friedman lays emphasis on the fact that only individuals can be ethical and not businesses. He argued further that businesses can best fulfill their social responsibilities to society by focusing on increased profits. And any emphasis on only makes government irresponsible and inefficient since businesses pay fine when they break the laws (Drucker, 1981).
On the other hand, another school of thought argues that businesses must not be concerned with making profit alone. Rather, they must be concerned with the welfare of the community where they do business. This view rejects the attempt by businesses to be concerned with the profit motive alone stressing that ethical behavior is imperative to building trust, maintaining customer relationships and increasing profitability (Peter, 2014). John Mackey, the CEO/founder of Whole Foods Market, is of the view that a business’s social responsibility goes beyond maximizing profits arguing that the company has obligation towards each of its stakeholders i.e customers (honesty, reasonable, service, and price); employees or colleagues, (honesty, recognition, and reward); shareholders (profits, return on capital, and psychic income); the environment (stewardship); suppliers (loyalty, honesty, stable business relationship and a fair financial reward) and the communities (5% of its profits for community development or causes). Mackey bases his argument on Adam Smith’s notion of moral sentiments which arises from mutual sympathy. These sentiments exist for self-interest, personal justice and generosity. According to Mackey, tapping into the above instincts can be used as a powerful tool for creating and enhancing loyalty in employees, suppliers, customers and other stakeholders. And although a business entity can have higher running costs and lower profitability by using its income for socially responsible projects, consumers will perceive the company as a responsible corporate citizen, and will thus be more willing to buy from them thereby increasing their profitability.
Ethics in business is imperative in determining the success or failure of an organization. They affect the reputation of a business and assist define the company’s overall business model. Despite the ever-increasing public pressure, many businesses still turn a blind eye to ethics and make short term gains. Such disregard can undermine the company’s profitability and the wider economy in the long term. For example, Shell Petroleum Company has been exploiting the oil resources in South Western Nigeria since the 1950’s. However, the company shows little or no responsibility to the community wherein it operates despite . the production volume of over 2.5 million barrels a day and US $600 billion in oil revenues. Although, it will be expected that the region will be amongst the most developed in Nigeria, the reverse has always been the case (Chima, 2009). Due to social unrests, kidnapping of company officials and oil theft, the company has been losing billions of US Dollars in ransom, legal proceedings, and destruction of lives and properties. This could have been avoided if Shell adopts a high moral ground, and has integrated ethics into its overall business strategy.
Although, some organisations fail to take ethical factors into consideration as in the case of Shell Petroleum, others like GTBank Plc, a leading African bank well known for its compliance with the laws, but prudent spending on Corporate Social Responsibility has achieved a very high ranking both locally and internationally due to its high ethical standards. The high commercial rating has assisted the bank attract more customers and enhance its profitability (Olajide, 2014). However, strong ethical values that extend beyond the adhering to the laws can add greater value to the brand. On the other hand, lack of ethics can cause adverse social, economic and environmental damage and also undermine the long term goals of the business. (CIMA, 2010). To this end, GTBank recently, introduced Corporate Social Responsibility termed “Touching Lives Project” across its over 200 branches and at every level of its service offering.
Many companies have gained a competitive edge as in the case of Toyota, the world largest car manufacturer and its introduction of the hybrid model, Prius; Coca-Cola giving a tenth of its profitability when it took a minority stake in the fruit drink company, Innocent and McDonald’s investment in environmental sustainability awareness. These gestures have assisted these companies re-establish themselves as global leaders, boosted their ratings and re-build their brand perception after decades of negative publicity. (CIMA,2010)
In conclusion, we can establish that there is a strong correlation between ethics and business success. While companies are advised on the need to align their corporate interests to the broader concerns of the society, integrate ethics into their core strategic objectives, societies must join hands to ensure that organizations do not continue not make the excessive returns they have been making to the detriment of the society. (CIMA,2010)