Essay on Business Ethics and Corruption

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Business Ethics Essay

Corruption in business and politics has become an international problem. Today, such factors as business ethics, the fight against corruption, and corporate governance influence the decisions that ultimately determine the competitive benefits and financial success. In the past, these questions were considered minor, unrelated to the financial well-being of the company, but nowadays, companies of all sectors and scope of activities believe that these topics are prerequisites for success. The fact that non-financial became the principal can be considered one of the main achievements of the last two decades.

This change and its practical implications are of great importance for the future of global economic integration, the development of national markets, and the fight against poverty. Today, businessmen have a wide range of recommendations and tools for transitioning to conventional methods of business ethics. The more the business world learns and strives toward business ethics, the better the general idea of what exactly comprises the standards, values, rules, and mechanisms of the emerging practice of such management is produced worldwide.

Business Ethics and Corruption

It is crucial to determine what corruption is to analyze its interrelation with business ethics. Corruption can be defined briefly and exhaustively as “…abuse of power for personal gain” (“Engaging the Private Sector in the Fight against Corruption”). This simple definition includes several important aspects. Firstly, it applies equally to all three sectors of management: private, public, and civil society sectors. Secondly, it refers both to systematic and scattered abuses of individual cases of dishonesty and to illegal and criminal activities. Thirdly, it includes both financial and non-financial benefits. Additionally, it emphasizes the important role of management in the control and regulation of authority.

Finally, it indicates that corruption leads to wasteful spending, diverting resources from their intended use. Systemic corruption causes the greatest damage, as it is the hardest to analyze and, therefore, eradicate. Its effects are well documented, but in the modern world, it is sometimes difficult to isolate all the factors that violate proprietary rights, weaken the rule of law, inhibit the growth of the private enterprise, scare investors, weaken the institutions of society, and slow down economic and political development of the countries.

The price of corruption is rather high. Corruption requires resources that could be used more productively. Time and money are spent on strengthening ties with corrupt officials and bribing them. In turn, corrupt officials enter into transactions with the bribers, contrary to the public interest, and the burden falls on taxpayers. The unpredictable expenses deter investors, both foreign and domestic. A high level of corruption means that the rule of law in the country and, consequently, the right of ownership, are too weak; therefore, capital investment in the country is risky.

Thus, the lower the capital investments are, the weaker is the economic growth. Companies that resort to bribery receive an unfair advantage in the market without engaging in fair competition, while new companies that try to enter the market face many obstacles. As a result, consumers suffer from reduced proposals, rising prices, and deteriorating quality of goods and services. In a corrupt society, power is used for the benefit of those who give bribes, and not society as a whole. Procrastination is profitable for bureaucrats, who do not hold any responsibility, as a way of extortion.

The companies do not develop and hire new workers, because corruption reduces employment while displacing businesses in the shadow economy, creating barriers to entry, and increasing the cost of doing business. Small businesses are especially affected by this process. Corruption does not allow low-income citizens to find their place in the business; therefore, it reduces the possibility of earning. Due to corruption, low-income citizens have limited access to basic things like health and education.

As can be seen from the above, it is quite easy to identify the direct and indirect costs of corruption. Yet, it is more difficult to calculate exactly how much it costs society. There are very few such assessments, especially on the international level. In 2004, according to World Bank estimates, based on data produced in 2001-2002, when the volume of the global economy was $ 30 trillion, the cost of bribery worldwide accounted for $ 1 trillion annually (Johnson 274). This amount, which represents only a small part of the costs, reflects not only the enormous damage from corruption but also the significant benefits expected from the use of anti-corruption measures.

Sources of Corruption in Business

Entrepreneurs are often considered a source of corruption, but it is surprising that they are rarely seen as victims of corruption, and even more rarely as the force that can fight against this phenomenon. Thus, it is proposed to strengthen the control to curb corruption in a commercial environment by introducing additional laws - some effective, others less so. Such measures indeed force companies to adhere to the principles of transparency and fair competition.

However, it is not enough for a successful fight against corruption. Business ethics is required for a successful struggle. The very fact of its existence proves that the desire to act correctly is inherent in human nature. In a sense, business ethics is another way to ensure that everyone in the company complies with the laws and principles that underlie the market economy and democratic governance.

Today, under the pressure of new factors, companies are forced to develop business ethics that define the behavior of the board members, administration, and staff. Moreover, international companies have to establish ethical standards for their overseas suppliers, in some cases even more stringent than required by the legislation of the countries concerned. In developing business ethics, companies should consider many factors, so that such a code can become an integral part of the company’s corporate governance. In this sense, the internal corporate code of business ethics is an attempt to set the standard by which every employee knows what is ethically expected of him/her.

At the same time, it is also an attempt to encourage ordinary employees, management, and board members to think and make decisions based on the general system of values for all employees. One of these sources is the legislation of the country in which the company operates. However, the companies are guided not only by national legislation. They also have to take into account international agreements, such as the OECD Convention on Combating Bribery (Klitgaard 115).

Therefore, many countries are striving to bring their legislation into line with international norms. The OECD’s Principles of Corporate Governance represent an international instrument for corporate governance. In many countries, the internal corporate governance codes, which take this international instrument as a basis, are already a prerequisite for obtaining a license for commercial activities. Simultaneously, the state expands the powers of voluntary organizations which introduce ethical standards that go beyond the minimum requirements of the law.

Another incentive to move to corporate governance and internal codes of business ethics is the concept of corporate, social, and civil liability, or, in other words, the concept of sustainable development. Sustainable development requires the adoption of such commercial decisions, which would take into account not only the commercial objectives of the organization but their consequences for others - employees, investors, and society. Thus, when developing business ethics, the difference between standards and values should be taken into account. Such a distinction has appeared recently. Standards are a set of specific rules that are mandatory for the company and its employees (Rose-Ackerman 1892).

For instance, these rules can be based on the OECD Convention on Combating Bribery, which can serve as a basis for national legislation in the fight against bribery. Even though the standards are very specific and should not cause difficulties, most companies have to supervise their implementation. For instance, the Sarbanes-Oxley Act defines standards for reporting cash and asset management (Neild 76).

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The Legislative and Regulatory Framework

The legislative and regulatory framework establishes standards of acceptable behavior in the economy. Thus, it reflects the perceptions of society about the honesty and integrity of companies of any size and type of activity. Legal requirements represent the initial reference point to the question of what is good and what is bad for business. The administration and the board of directors that supervise management decisions lean on the set of internal guidelines, rules, and control mechanisms to fulfill their obligations under the law.

However, they do not confine themselves to the minimum that is required by the law but strive toward a higher level of business ethics. The differences in ethical standards, which can be seen in various companies, are sufficiently large. They vary from the simple fulfillment of the requirements of the law to the introduction of new standards for responsible behavior in the market.

The British Institute and the magazine Ethisphere annually publish a list of the most ethical companies in the world. The list includes companies in which high ethical standards are one of the methods to increase revenue. In 2007, the list included 91 of the 5,000 companies, the activities of which were carefully studied by drafters (“World’s Most Ethical Companies”). The analysis was based on ten criteria of the practical application of ethics in business.

These criteria included corporate civil liability, governance, public image and reputation, compliance with laws and regulations, internal codes of business ethics, the activity of top managers, a leading position in the industry, innovative activity, and transparency. These criteria reflect the key aspects on which the forward-thinking leaders build the company’s business ethics. One may not agree with the methodology of the Ethisphere, but the offered advanced experience of the best companies can serve as a benchmark for their opponents that are seeking to catch up with and surpass today's leaders.

The best way to maintain high ethical standards in the work of the company is to actively promote, practice, learn and improve them. The leaders should transform these standards into an apparent reality for all stakeholders inside and outside the company. In other words, ethical culture develops only through the inclusion of business ethics in the company's strategy and its ongoing use in daily practice. In turn, this process is carried out by implementing a comprehensive ethics program.

The company’s administration, the board of directors, and the staff at all levels should demonstrate in their behavior and business decisions the values and standards set out in such a program. They should behave impeccably even in daily life, at an ordinary level. Senior managers have primary responsibility for ensuring that business ethics has become part and parcel of the company’s culture. The ethical behavior of senior management lends weight and prestige to the anti-corruption program and forms the company's image. In such a company, ethical behavior is not just compliance with the law but elementary honesty and integrity in business. Practically, it means that the company is ready to lose a more profitable order than to renounce its ethical principles. If the code of ethics is harmonized with the strategy of the company, the latter can rely on institutional mechanisms assisting to make the right decision in difficult cases. Corporate governance and ethical standards are reliable assistants in fighting corporate corruption.

Principles of Business Ethics

As for the general principles of business ethics, there are several fundamental documents, the ideas of which are often borrowed from corporate codes of business ethics. One of the most prominent was written by Bishop Leon Sullivan in the years of struggle against apartheid in South Africa (Ciulla 124). Today, this document is recognized as a set of universal ethical principles that are applicable in any country and at any time. The revised and extended form of the Sullivan Principles formed the basis of the Ten Principles of the UN Global Compact. Global Compact is an unprecedented attempt to unite the business community around common principles and to contribute to global development through universal standards of business and management. Ten Principles of the UN Global Compact go far beyond standards and already belong to the sphere of values.

Another similar set of principles has been proposed by the Caux Round Table. It is an organization created by business leaders from different countries to develop common ethical principles of entrepreneurship (Mauro 42). The Organization for Economic Cooperation and Development created another set of rules. It is the OECD guide for international companies. This document goes even further. It offers and, in some cases, dictates business ethics in various areas ranging from environmental protection to social responsibility and has a leading role in the development of the countries, where companies are located (Mauro 43). These and other principles go far beyond the standards. In this manner, they bring the companies back to the concept of ethical principles as values that determine acceptable behavior, guide decisions in the right direction and, eventually, lead to sustainable development.

Conclusion

In conclusion, attitude towards corruption has changed drastically in recent years. Corruption is not considered a taboo subject. It is subjected to open and universal condemnation for its devastating impact on the economy, business, government activities in different countries, and the living standard of individuals. Moreover, the idea of the private sector's role in the spread of corruption changes. Private companies are no longer considered the sole source of corruption. On the contrary, they are increasingly seen as the victims of corrupt tyranny, and forces that are capable of resisting corruption.

At the same time, anti-corruption measures are considered an integral part of corporate governance. Thus, business ethics lies at the heart of corporate governance. Despite widespread skepticism, the ethical behavior of individuals, in particular, corporate executives and decision-makers, determines how corporate governance and the fight against corruption are organized in the company. From this point of view, business ethics should be considered as a set of rules and principles that define the company’s basic purpose and activities, including those of the Board of Directors, administration, and staff at all levels.

Therefore, only a personal example of leaders and the voluntary consent of all employees will be able to lead to the fact that the declared ethical values will be applied in practice based on all decisions and activities of the company. At the same time, all attempts to impose strict hierarchical rules will have no real impact on daily work. The private sector should continue to strengthen cooperation with the government and NGOs to solve complex problems and reform corporate institutions. Only joint efforts of the private sector, civil society, and the state can bring solutions that will serve the benefit of the whole society.

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