Should Businesses be Evaluated on Ethical Grounds?

Business Appraisal and Its Controversies

Business appraisal is a contentious subject that has sparked several arguments among academics, company leaders, and economists. Some academics and economists argue that corporations should be judged on their financial operations and performance (Painter-Morland and Rene 26). Others, however, believe that company appraisal is a multifaceted and complex subject that should be based on a number of factors such as finances, corporate social responsibility, and ethical grounds (Painter-Morland and Rene 19). The concept of assessing a firm on ethical grounds has recently gained popularity. Nevertheless, the question on whether businesses should be evaluated on ethical compliance is still debatable among scholars. This essay, therefore, analyzes whether businesses should be evaluated on ethical ground, whom are they obligated to and who should be held accountable for the business’ practices.

Business Evaluation on Ethical Grounds

Today, it is imperative that stakeholders, such as suppliers, employees, and investors, evaluate a business on ethical grounds. Even though it is not the popular evaluation approach, ethical evaluation of a business is an essential component of the analysis because businesses need to maintain a positive image to enhance its financial performance in the market. Business evaluation on ethical basis is also obligatory because it ensures organizations nurture a specific culture among the staff members. Modern businesses are required to maintain an ethically upright culture, which holds employees to specific operation standards. Therefore, ethical compliance may be used as a substitute for personal responsibility (Hugh 80). Employees acting on the prescribed code of ethics are absolved of any issues or problems that may arise in the course of doing business. This can be attributed to the fact that, once an organization establishes the ethical code of conduct, employees can operate confidently without fear of repercussions since the company has already established its ethical purpose (Hugh 82-88). The ability of the code of ethics to absolve employees, who adhere to it, of wrongdoing, ensures improved morale because it marginalizes the ability of humans to interpret business activities in their own diverse frames (Hugh 88).

Importance of Ethical Evaluation for Stakeholders

A business should be evaluated on ethical grounds because it allows external stakeholders such as customers, lenders, and suppliers to determine how well they can interact with the organization. The communication of core values and ethical code of conduct in a business allows a company to build the confidence of the stakeholders. The code of ethics and values statement usually provides the stakeholders with some reassurance that they will receive what they bargained for (Hugh 61). The code of ethics and the values statement have gained widespread popularity in the modern era to the extent that their absence in a business is a source of concern to the stakeholders. The absence of a code of ethics may imply that an organization is not reputable or unreliable (Hugh 61). For this reason, it is important that business entities be evaluated on ethical grounds. Evidently, ethical evaluation not only improves stakeholders’ confidence in a business but also enhances the reputation of the business.

Financial Success and Corporate Social Responsibility

The main aim of most businesses is to be financially profitable. However, in the contemporary society financial success is not enough if a business does not fulfill its corporate social responsibility (CSR). Modern businesses are required to cater for the needs of the society in addition to making a profit. CSR is a moral obligation, which is driven by ethical decision-making. However, businesses ethics operates on the moral theory of utilitarianism. This implies that the correct course of action in a business is determined by whatever maximizes the utility of the business (Painter-Morland 118). Based on this, most businesses consciously set their ethical standards to ensure that they fulfill CSR, while at the same time achieving their aim of financial success. This remains the best way that businesses can maximize their utility. Therefore, business evaluation cannot be based on ethical grounds alone. Instead, it should be based on both financial and ethical grounds. Modern organizations have proven that such evaluation is effective, as long as the ethics and the financial ambitions of the business are aligned to meet the same objective.

Persons Owed Ethical Obligation

Businesses owe an ethical obligation to different stakeholders. According to Hugh, organizations have a moral obligation to stakeholders such as suppliers, customers, insurers, government, and investors. It is the duty of a business organization to be accountable, honest, and accurate when presenting financial information to the government, insurers, as well as the investors. Strict adherence to the code of ethics often ensures that business organizations can fulfill their duties of proper reporting of financial information, thus strengthening the organization's position in the market. A lack of ethical adherence in financial reporting may be detrimental to an organization, as observed in the case of Enron where the company’s stock weakened due to poor financial reporting (Hugh 67).

Businesses also have an ethical obligation to their customers because they are the key contributors of revenue. A business owes its customers honesty, openness, respect, and sincerity. These ethical attributes show that the business values its customers’ contribution. Employees of the company are also owed ethical obligation because they ensure the smooth operation of the business. A business has to follow the ethical principles for its employees by being accountable and loyal. Hugh asserted that many employees are often influenced by devotions to corporate membership (73). Hence, when a company shows loyalty to its employees they tend to perform well and trust the direction that the company is heading.

Corporate Responsibility and Moral Responsibility

Hugh asserted that the business is responsible for the moral decisions that the individuals/employees make. Every business develops its code of ethics, which guide employees in their duties. The company executives, including managers, are often responsible for overseeing ethical behaviors among employees (Hugh 80). The introduction of an organization’s code of ethics to the employees would require them to surrender their personal ethics and follow the company-prescribed code. This may mean that the employees abandon their culture and subculture while working within the organization. Therefore, when moral or ethical-related issues arise, the company should be held responsible, as long as the employee was following the prescribed ethics. Hugh stated that complying with a company’s code of ethics takes the place of personal responsibility (80). Hence, employees and managers pay very little attention to their individual moral and ethical conduct because they are already bound by the company’s code.

Conclusion

Ethical evaluation of a business is a contentious issue among scholars. While some scholars believe that organizations should be evaluated on ethical grounds, others are of the opinion that ethical evaluation is insufficient. Despite the divisions in opinion, ethical evaluation of the business is important because it allows stakeholders, such as suppliers, investors, and the government, to determine how they will interact with an entity. In addition, ethical evaluation is essential because it provides guidance and allows employees to act in the best interest of the company without fear of repercussions. Despite these reasons for ethical evaluation, it is imperative to note that ethical evaluation is not sufficient on its own to analyze a business because the aim of most businesses is financial success. Therefore, scholars suggest that ethical evaluation should be used in conjunction with financial and CSR analysis to be effective.

Works Cited

Hugh, Willmott. Business Ethics and Continental Philosophy. Organizational Culture. Edited by Painter-Morland. New York: Cambridge University Press, 2011, pp. 61-96. Print.

Painter-Morland, Mollie and Bos ten Rene. Business Ethics and Continental Philosophy. Introduction: critical crossing. New York: Cambridge University Press, 2011, pp. 1-15. Print.

Painter-Morland, Mollie. Business Ethics and Continental Philosophy. Moral decision-making. New York: Cambridge University Press, 2011, pp. 117-140. Print.