Moral obligation of business toward the environment

 

By: JOANNA GRACIA D. TUGAS

Divine Word College of Laoag

“Earth provides enough to satisfy every man’s need, but not every man’s greed.”

- Mahatma Gandhi

Abstract:

Humans have been exploiting nature for a long time now. This is most true for business industries. Environmental problems are created from their operations. How they value the environment influences how they make their decisions regarding it. However, our Creator wants and expects us to protect nature as it was also created a part of our world, that humans and nature are interconnected. No one could survive without the other. It is the moral obligation of businesses to protect, restore, or at least refrain from damaging the natural environment, especially because resources for business operations come from nature.

 Keywords: Moral obligation, environment, value system

 Introduction:

We, humans, consider ourselves to be the most superior beings for we are capable of thinking and reason. We are the main constituents of the environment. And because of our greed, we exploit nature. It is a fact that all life forms on Earth have the right to live. They have the right to getting a fair share of the resources and lead a safe life. By destroying the environment, we are denying this right to the other co-inhabitants.

All businesses use resources from nature. For a business venture to exist and grow, it has to continually consume these resources. However, business is not just for profit but for service to humanity. A business entity should have an environmentally conscious mindset to recognize the value of the environment and view it as something they are obligated to respect and safeguard. They have to be aware of the effects of their activities, and decisions should always consider the consequence to the environment and the community wherein it operates.

 Is it necessary for entrepreneurs to recognize such responsibility toward the environment? What are the moral obligations of a business toward it?

 Environmental Value System

There are environmental issues that business owners deal with, issues like the consumption of natural resources, destruction of forests, environmental pollution, and harm to animals. How they would think and feel about these environmental issues and how to deal with them are based largely on Environmental Value Systems. An Environmental Value System is a standard that shapes the way an individual or group of people, perceives and evaluates environmental issues.

Values are relatively stable principles that help us make decisions when our preferences conflict and thus convey some sense in what we consider good (Dietz, Fitzgerald & Shwom 2005)

How a person puts value on the environment determines what he thinks is his moral duty to it. Knowing the value system of a decision-maker for a business makes us understand how it influences his choices concerning the environment.

Different Views of Environmentalism:

1.      Ecocentric – This perspective focuses on Nature and Ecology. They believe that all organisms have the right to live. Emphasis is put on self-restraint in human behavior and less materialism. An ecocentric approach assigns intrinsic value to all organisms, including but not limited to humans. In this framework, the intrinsic worth is reflected more than humans caring about non-humans and includes the recognition that non-humans have the value that is independent of any human caring or satisfactions humans might receive from them. A person with this kind of viewpoint would probably suggest that we should use less electricity and not travel by plane.

2.      Anthropocentric– This viewpoint states that humans can manage environmental issues. It gives preferences to human beings above all other considerations. Emphasis is put on humans. Anthropocentrism assumes that only human beings have intrinsic value and that the value of everything else is instrumental to human goals. The value of other organisms stems from their usefulness to humans. They would advise that the government should raise taxes on fuel to discourage people to use it and create laws to encourage the use of "clean" fuel and energy. The emphasis is on taking action so that it doesn't harm humans in the future.

3.      Theocentric Viewpoint - Hoffman & Sandelands (2005) argues that neither of the first two views adequately reconciles us to nature. They offered an alternative, theocentric view of our relationship to nature, founded upon Catholic Christianity that reconciles in God our value for resources and nature, and establishes a divine order of man and nature apart from human egoism and intentions. They state that Man and nature are related to God. Sharing the same Father, they relate as siblings in love and mutual respect. There are no grounds to suppose one includes or dominates the other. Man does not lord over nature, and nature does not lord over man. God lords over both.

The theocentric view of man and nature in God puts our conduct in and toward the environment in a new light. It means that everything we do in this world, every action we take toward others and toward nature, finds its meaning and value in God. Just as we are called to be ever mindful, ever considerate, and ever charitable towards others, we are called to be likewise to nature. Human needs must be redefined beyond the utility satisfaction of simply self-interested desires. They must be seen instead in the light of God's intentions, intentions that include respect for the nature He created for our benefit.

Man’s spiritual challenge today is to apply both faith and reason to find ways to live in harmony with nature. If contemporary environmental problems are to be solved, then moral teaching must be a part of the effort to end environmentally destructive behavior. There is the challenge to turn our minds, hearts, and actions toward nature and respect the value God created in it. It is a challenge we shall forever repeat. Given man’s ability to alter the environment in globally catastrophic ways, we must protect nature for a reason greater than our own- namely, that God wants and expects us to do so (Hoffman and Sandelands 2005).

 Impact of Environmental Issues on Business

Our planet is overwhelmed by environmental issues that are exhausting our natural resources and putting a vast strain on our livelihoods. If left unchecked, many of these issues will impact businesses directly and indirectly. In many instances, they are already doing so. (Fuentes 2019)

Business Impact

Pollution is one of the world’s major environmental issues. The business impact due to pollution expanses far and wide, with just one example pointing to how pollution affects the health of people which then impacts medical costs and loss of productivity. Heavily polluted areas have a difficult time hiring and retaining workers. Waste disposal is another issue, with improper disposal resulting in foul smells, leaking into water supplies, and air pollution.

Climate Change Will Affect Everyone

Climate change is a worldwide issue with serious effects including environmental, social, economic, and political. Factors like coastal flooding can have a major impact on businesses, leading to operational disruption and losses for organizations. Climate change can also create a higher demand for energy as the temperatures get warmer and there is a higher demand for air conditioning use. This means higher costs to businesses. Higher energy demand also interprets into increased use of natural resources like water and fossil fuels, which can then turn into a lack of resources for companies to turn into products.

Climate change also has negative effects on the agricultural sector, which directly impacts the population in regards to food availability and safety. The impact of environmental issues on water supplies can result in a decrease in productivity in agriculture, and higher costs.

Mitigating Risk

Environmental issues that we face today make it clear that solving as many of these complex issues as we can best serve all sectors. It will also entail the cooperation of all sectors. Environmental issues affect every individual, community, organization, and country. We must all become environmental agents to keep the economy moving and thriving.

Environmental Crisis

The environmental factors that are affecting business will continue to affect production and the economy. Such issues as major storms, loss of resources, inflation, and scarcity of food and water – are creating serious damages. However, solving these issues requires the cooperation of individual sectors. It is apparent that the environmental crisis we are facing calls on all business leaders to consider the environmental impact that their companies have and also calls on business leaders to take action to ensure that they meet all compliance needs and regulations.

Opportunity

Though the situation is difficult, environmental issues also present an opportunity for businesses to step up and show their employees and markets where they stand and what they are willing to do to mitigate the risks. Employees, for example, perform better when they are healthy. Businesses, however, should remain aware of current events and how they may affect their employees. An example is if the employees of a company are working outside and there are extremely high temperatures.

Environmental Action is Marketable

The demands of consumers are another area that presents an opportunity concerning businesses and environmental issues. Consumers are increasingly opting to align themselves with companies that have a strong positive environmental mission. Business leaders taking action to mitigate risks involved with environmental issues and promoting sustainable practices will benefit the company. Marketing campaigns are being used as a platform to inform the public of the efforts companies are making to address environmental issues.

Environmental Action is Good for All, Especially Businesses

The sole objective of business owners was to build a company that would produce income and continuously increases profits. As environmental issues, their impact on business and the world, and the risks to the future of all life have become more prevalent across the globe. The effects are being seen and the need for immediate action is now. Business owners have to examine how those choices affect the environment and to make reforms where necessary, as all modifications contribute to the greater good of our planet.

 Benefits of Corporate Environmental Responsibility

Just because business is a highly competitive field does not mean that a company has to be amoral. A company can still make money while observing an ethical code of business operations. With social media forming an increasingly vital role in shaping the reputation of a business, any a company that plans its course with a moral compass will boost its reputation, building a loyal customer base in tune with its good objectives thereby improving sales and profits.

Whole Foods' website states, "We believe that companies, like individuals, must assume their share of responsibility as tenants of Planet Earth. We actively support organic farming, the best method for promoting sustainable agriculture and protecting farmworkers and the environment. We also aim to protect the environment by supporting alternative sources of energy and by recycling or composting our waste. We are actively involved in our communities by supporting food banks, sponsoring neighborhood events, and contributing at least 5% of total net profits to not-for-profit organizations.” Suchecki. (2020)

 

Running an environmentally conscious business helps you diminish your impact on the environment and conserves natural resources. Your business can help the environment in simple ways (Queensland Government 2020).

·         use products that lessen your dependence on natural resources (e.g. rainwater tanks, solar hot water systems)

·         use products that are made from recycled material (e.g. office supplies made from recycled plastic, furniture made from recycled rubber)

·         look at all your business activities to see if you can do anything differently (e.g. reducing air travel by holding conference calls instead of the interstate meetings).

Making your business eco-friendly not only benefits the environment but can also save your money.

1.      Recycling reduces your costs

Simple changes to how you deal with paper can involve your staff in environmentally friendly processes while saving you money:

a.       avoid using materials needlessly

b.      lessen your paper needs by asking staff to print double-sided

c.       reuse by encouraging staff to use scrap paper for message-taking instead of purchasing message pads

d.      recycle by shredding excess paper - you could recycle this commercially or invite staff to take it home for their compost

2.      Good practice can attract new customers

Promoting your environmentally friendly methods can set your business apart from your competitors and attract new customers who want to buy products and services from an environmentally friendly business. Focusing more on your environmental impacts can also help to attract and retain staff.

3.IImproves sustainability

Reducing the environmental impact of your business will improve the sustainability of your business. If you are less dependent on natural resources than your competitors and have ways to deal with rising costs due to climate change, your business will have a greater chance of long-term success.

 

Conclusion

We only have one planet, our heart, and home. Businesses may contribute a lot for our convenience, but their moral duties to the environment and community subsist. Without the natural resources from the environment, nothing could be produced by these businesses and they stop operating. Simple ways could be followed to realize these responsibilities. The best viewpoint for businesses to advocate is The ecocentrism. This way, they’ll see God’s intentions that we respect the natural environment that He created for our benefit and respect the value He created in it. Only then could we live in harmony with it. It is what God wants and expects of us.

References:

Hoffman, A.J.& Sandelands, L. E. (2005). Getting Right with Nature: Anthropocentrism, Ecocentrism, and Theocentrism. Retrieved from https://www.researchgate.net/publication/251378575_Getting_Right_with_Nature_Anthropocentrism_Ecocentrism_and_Theocentrism

Brennan, A. & Yeuk-Sze, L. (2020).  Environmental Ethics. The Stanford Encyclopedia of Philosophy (Summer 2020 Edition) Retrieved from https://plato.stanford.edu/archives/sum2020/entries/ethics-environmental

Dietz, Th., Fitzgerald, A., & Shwom, R.  (2005). Environmental Values. Retrieved from https://www.researchgate.net/publication/228624754_Environmental_Values

 

Fuentes, M. (2019). Environmental Issues, Their Impact on Business, and How to Mitigate to Turn Crisis into Opportunity. Retrieved from

https://www.unitedworldtelecom.com/news/environmental-issues-their-impact-on-business/

 

Suchecki, P. M.J. (2020). Retrieved from https://smallbusiness.chron.com/influence-morality-business-operations-66947.html

 

Small Business.ng. (2020). What Are Business Ethics and Why Are They Important?. Retrieved from

https://smallbusiness.ng/what-are-business-ethics-and-why-are-they-important/

 

Charter College (n.d). Why Are Good Ethics So Important to Businesses? 2020. Retrieved from https://www.chartercollege.edu/news-hub/why-are-good-ethics-so-important-businesses

 

Queensland Government. (2020). The benefits of an environmentally friendly business. Retrieved from https://www.business.qld.gov.au/running-business/environment/environment-business/benefits

 

Optimy Wiki. (2019). Corporate Environmental Responsibility. Retrieved from https://wiki.optimy.com/corporate-environmental-responsibility/

 

 

The Dangers of Making Profit

By: Joceline Cristie Gasmen-Mangapit

Abstract

          Businesses and multinational companies aim to maximize profit in order to expand their industries. However, a number of businesses are making profit unethically. A firm comes into existence with different goals. These goals may either be profit maximization or welfare maximization. A profit-oriented firm will adopt measures that are consistent with their aim and the same will happen to the welfare-maximizing firms who will adopt measures that will maximize the welfare for individuals. Some of the profit-oriented firms tend to make large profits in the short-term unethically without thinking its long-term negative impact to the organization. These organization and/or individuals who reap maximum benefits and profits in the short-term, practices unethical behavior in the organization. The following are the unethical profit maximization practices: manipulation and exploitation of employees; unfair competitive practices; bending the company rules; lack of transparency; unethical treatments to suppliers and customers; deceptive sales practices; and harming the environment.

            Moreover, the consequences of those bad ethical practices in profit-making are: misappropriation of assets; civil and criminal penalties; loss of reputation; and loss of human capital. These consequences may result to foreclosure or bankruptcy of the business if not well-managed and addressed. In order for the organization to be able to manage the risk of possible unethical practices in profit-making of their businesses, they should consider the following: customer loyalty; employee relations; avoid negative legal consequences; favorable publicity; and access to capital.

            In addition, businesses will do everything possible to ensure there is proper market capitalization, and the available resources are being utilized in the desired manner in order to gain more profit. In financial management, profit maximization is the primary goal of manager in order to fulfill short-term needs but we need also to consider long-term impacts and possibilities. Thus, there is a need for us to strengthen the ethical decisions we make in order to gain profit without making bad ethical practices like other successful companies have done.

Keywords: Profit, ethics, profit maximization

 

Introduction

The main objective, and indeed, the primary motivation of a business come from the need to make profits. This is true, of course, unless one is running a non-profit organization. In which case, the company must still make some profit, and it could be in terms of the social health of the society they are serving. This means no matter what, every business must have a goal, which upon achieving, the organization can count a profit.

A profit calculated as what remains after expenses and cost of production has been deducted from the overall income. Expenses, in this case, include taxes. For the case of a non-profit organization, they don’t pay taxes, and they don’t make monetary profits, but their success is seen through the results of their input. If, for instance, an organization is created to feed a starving community, they profit when the community receives all the necessary items for survival. Their focus is not on gaining monetary value but in creating a more conducive environment for human existence.

Whatever the case, the organization has to reap maximum benefits. And many factors determine how a company reaches these objectives. For a start, it will depend on the size of the company, the industry, the profit margin, and the volume of sales, factors that vary from business to business. Business owners and managers, regardless of their individual situations, share the desire to utilize the available resources with optimum efficiency. They all strive to improve their business’ performance. And for this to happen, there are two important competing methods: profit maximization and revenue maximization.

Profit maximizers include strategies that companies following to build more net income as much as possible utilizing the resources and market share currently available. In other words, the company will use every weapon in their arsenal to reap as many profits as possible from an investment. To many, it is the goal of every company to make profits. It is logical. However, if a company focuses only on profit maximization, chances are they will lose on the opportunities that don’t offer and immediate financial gain. They may, for instance, fail to establish a good relationship with consumers, which is critical for long-term benefits.

According to Horton (2014), there are number of factors that play a part in making a business profitable, including expert management teams, dedicated and productive employees, consistent consumer demand, and a careful watch over the bottom line. In addition to these well-known business practices, companies that implement a management philosophy that relies heavily on business ethics are proven to be more successful than those that operate in an unethical manner. Although it may not be the first variable considered in analyzing the profits of a company, ethics in profit-making is an equally important catalyst to the success of a company.

The company's ultimate goal to increase profits may lead some businesses to profit-motivation conflicts. While many companies grow profits ethically, others maximize profits unethically via deceptive marketing, slashing employee expenses, lowering product quality or impacting the environment negatively. Unethical business practices can lead to smeared public relations and a loss of trust and respect on the part of the consumer (Chron.com, 2020).

This paper will give a stringent analysis of the various unethical practices in making profit and the effects that they have on the organization and society. The paper will bring in ideas, information, and examples of unethical business practices in major organizations.

 

Profit defined

Profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Any profits earned funnel back to business owners, who choose to either pocket the cash or reinvest it back into the business. Profit is calculated as total revenue less total expenses.

Profit is the money a business pulls in after accounting for all expenses. Whether it's a lemonade stand or a publicly-traded multinational company, the primary goal of any business is to earn money, therefore a business performance is based on profitability, in its various forms.

Some analysts are interested in top-line profitability, whereas others are interested in profitability before taxes and other expenses. Still others are only concerned with profitability after all expenses have been paid.

The three major types of profit are gross profit, operating profit, and net profit--all of which can be found on the income statement. Each profit type gives analysts more information about a company's performance, especially when it's compared to other competitors and time periods (Kenton, 2020).

Profit Maximization Defined

In economics, every company, small or large, seeks to make a profit. They will do everything possible to ensure there is proper market capitalization, and the available resources are being utilized in the desired manner. In this case, profit maximization can be defined in terms of short-run or long-run processes through which a firm sets its price, input, and output levels that bring in the highest profits. And mainstream view normal theorizes the firm as profit maximization.

Understanding profit maximization may not be as straightforward as we may have imagined. It is a subject that takes different forms with a number of perspectives. And this is why there are many approaches that one can use to determine this issue. For instance, considering that profit is equal to revenue less cost, the business can draw a graph, where revenue and cost variable stand as the extent of output than produces a maximum difference. 

Or, taking that there are known specific functional forms for the output of revenue and cost, one can apply calculus to bring out maximum profits based on how far the output goes. The third approach includes using equations of marginal revenue and marginal cost; in which case, the first order for maximization is equal to the two variables, if marginal revenue and minimal costs are available as functions where output is involved.

Furthermore, Another method would include the firm having input cost functions to determine the price of getting any amount of outputs, as opposed to a function allocation production for each possible output level. In this case, the function works hand in hand with production functions, and the reveal the output results are a combination of the output process. Here, a person can maximize profit in relation to input using calculus. The input cost and production functions are used to determine the outcome.

We have already seen how profit maximizers differ from revenue maximizers in the previous section. If a firm operates in a greatly competitive market, its revenue will be equal to its market price multiplied by the number of products made and sold. But in the case of a monopolist market, the level of output is calculated simultaneously with the selling price. In this case, the revenue function considers that high output levels demand reduced prices for consumers to get the products.

Limitations of Profit Maximization

Long-Term Sustainable Goals. Profit maximization might be one of the top goals of financial management but this type of practice doesn’t imply that short-term profit increases will help produce long-term sustainable goals for the company. While profit maximization in financial management has the potential to bring in extra money in the short-term, long-term earning could be drastically diminished.

On the Other hand, lowering production quality for the sake of increased profits will hurt your brand, upset customers, and allow competitors to steal your business. For instance, if your organization decides to unload all available inventory to a demanding client, you’re only alienating loyal clients who would have spent more over time. When it comes to profit maximization in financial management, it’s important to understand if your short-term profit maximization efforts will lead to long-term sustainable goals.

Product Quality. Another limitation of profit maximization in financial management is the potential to decrease product quality. Earning higher profits might be one of the goals of financial management but cutting corners, using lower quality materials, and sacrificing company values to earn a higher profit will affect the reputation of the company and potentially lose customers.

Furthermore, it’s easy to force our employees to work harder without any pay raises or use environmentally damaging products to cut corners and maximize profits but cutting corners is the best way to ruin your brand reputation and cause the company to fail. While profit maximization is a major goal of financial management, it’s best to not cut corners or compromise company values to earn a few extra bucks that could cost you your customers and business.

Employee Training. A great way to reach profit maximization in financial management is to cut employee training or the research and development budget. While this will reduce operating expenses, and maximize short-term profits, it will not help the company reach any long-term sustainable goals and could even potentially cause employees harm. Employee training is essential for any company looking to maintain long-term profits while creating happy employees. Without a satisfied workforce, your company will fail and any corners you cut to maximize profits will not have been worth it.

In addition, there are many goals of financial management with profit maximization being a top priority. It’s important to understand, though, that only focusing on maximizing profits will create business turmoil and could do drastic harm to employees, customers, and the business as a whole. The best way to successfully reach profit maximization in financial management is to focus more on company integrity and long-term, sustainable goals. Short-term goals are a great way to meet long-term goals, but only if they have the company’s future in mind (Hamilton, 2018).

Unethical Practices in Making Profit

 

Manipulation and Exploitation of Employees. Employees are very essential stakeholders in any company because they determine the level of productivity of the company. However, some managers take advantage of defenseless employees to exploit them in one way or another. The vulnerable employees have no choice but to be submissive.

Some unethical practices that harm the employers include low wages and unsafe working environment. Some employers have made it a routine to have their private cloakrooms while the other employees use unsanitary cloakrooms. Essentially, any practices that make the employees uncomfortable in the work place are unethical, as they do not comply with the federal working standards.

Unfair Competitive Practices. All business people aim at gaining a competitive advantage over their competitors to win the trust of many customers. Companies would spend millions of dollars to employ strategies that would enable them to enhance their sales. However, there are those business people who opt to employ unfair and unethical business practices that result into unfair competitive practices.

 

Bending the Company Rules. In many companies, employees are obliged to submit to their supervisors and managers. They have to obey the authority and perform all their commands. In fact, junior employees have a tendency of alleging to their supervisors in every aspect. Therefore, regardless of how wrong an instruction is, the junior employees are sometimes obliged to abide by the rules of their supervisors and managers.

It is noteworthy that performing unethical practices in the work environment is wrong regardless of where the orders came from. Some junior employees are obliged to withhold information regarding the unethical practices of their bosses for the fear of intimidation, which that is also unethical.

Lack of Transparency. Companies are always obliged to portray transparency in all their activities. However, cases have occurred where company executives hide some controversial information from the most important stakeholders of the company. Some companies will present false statements to the investors to clarify why they cannot afford to pay the dividends.

Whenever the investors resolve to have the company investigated, the company managers and other executives resist the investigations. The executives of some companies have taken advantage of humble investors to mishandle their propriety. Some executives are even sued for creating false financial statements to deceive the investors.

Moreover, company executives evade form paying the taxes using the false statements. Cases have occurred where auditors are bribed to certify false financial statements so that powerful companies can evade from paying the rightful amounts of taxes to the government.

Unethical Treatments to Suppliers and Customers. Every business must have suppliers of raw materials and customers who purchase their finished products. Essentially, the relationship between the company, its suppliers, and its customers ought to have mutual benefits. However, some businesses are too greedy to allow the other parties to enjoy some good profits.

Some companies pay their suppliers so low, such that the suppliers lack the value of the efforts that they input in their work. As if that is not enough, some companies go ahead to produce low quality or unsafe products.

In case the company faces strict regulations in the country of production, the unsafe products are shipped into third world nations. This very sad incidence affects innocent individuals who purchase such products unknowingly. Some companies are used to offering the intermediaries with kickbacks so that they can continue purchasing their products.

Deceptive Sales Practices. Companies’ sales managers are obligated to try all possible ways of making massive sales. However, that does not mean that the companies should involve themselves in deceptive sales practices. In the GlaxoSmithKline case, the company promoted its unapproved antidepressants for human consumption (Thomas & Schmidt, 2012).

The unethical business practice clearly indicated that the executives of the company were extremely selfish. No amount of fine can compensate for the unethical practice of selling unapproved drugs to humans. Further, the company distorted the data of a diabetic drug that recorded very high sales, and it marketed other drugs improperly.

Once consumers know that a company employs unethical business practice in their operations, the effects are inerasable. A company like GlaxoSmithKline that has had some good reputation for many years can have its brand name torn down because of a single unethical incident. Therefore, companies that are practicing deceptive and unethical sales practices should know that their practices would tore the company down in a matter of seconds.

Harming the Environment. All companies ought to adhere to the pollution norms set by the government. Moreover, the companies should adhere to the corporate social responsibility policy that obliges companies to honor the surrounding environment and the people in it. However, cases have occurred where companies are involved in unethical behaviors that harm the environment.

Some companies release chemical pollutants into the air or into water bodies. Such companies do not care about the repercussions of their ill deeds. The companies release toxics that harm the lives of the living things around their locality.

They evade the expenses that are associated with the treatment of toxics before they are released into the environment. This sad incidence clearly indicates that the greedy executives of such companies care less about those individuals and other living things that are affected in one way or another (Ivy.Panda, 2019).

 

Consequences of Bad Ethical Practices in Profit-Making

According to Freedman (2018), Unethical practices in profit-making motivated by bonus incentives, pressure to obtain financing or a desire to appear successful are not always illegal, but they almost always have an adverse effect on your business. The common theme of these practices is that they sacrifice the short-term gain of apparent financial viability for long-term negative consequences.

Misappropriation of Assets. A business owner might think he's only using his own assets when he takes business goods for personal use, such as a ream of copy paper or a pizza at the end of the night, but an employee might see things differently. The employee may see the use or appropriation of business goods for personal needs as a benefit of being an employee. Before long, the employee who witnessed the owner's borrowing has become a borrower himself and others are seeing this employee's behavior as acceptable.

Civil and Criminal Penalties. If company management is unethical to the point of financial fraud, the company could be subject to civil and criminal penalties. For publicly traded companies, the Sarbanes-Oxley Act prescribes fines and prison time for knowingly falsifying financial information. Further, investors of the company may be able to successfully sue the company and its owners for civil damages to cover their losses. Small-business owners should exercise caution, as not understanding accounting practices and standards is not a defense for fraudulent reporting. If a reasonable person believes a manger should have known about fraud in the business, this may be enough to allow the jury to side with the plaintiff.

Loss of Reputation. If you operate your small business in an unethical manner, word will eventually get out. This is especially true for small businesses in tight-knit communities. In general, customers would rather shop at businesses that operate ethically, take care of their employees and support their communities. If your company does not operate ethically, this can affect the willingness of customers and suppliers to conduct business with you. Over time, this may destroy your business.

Loss of Human Capital. Many good employees do not want to work for a company that is unethical. Accounting professional standards require that accounting work is performed ethically and with integrity. If you pressure company accountants to behave unethically, these accountants can't uphold the standards of their profession, and they might risk loss of their license or credentials. Reputable accountants will not work for an employer who expects unethical behavior.

 

Ethical Considerations in Making Profit

According to Hill (2020) society sets standards for what is considered right versus wrong behavior -- referred to as ethics. Ethical considerations by business people sometimes involve a conflict between doing the right thing and making a choice that results in more sales. Small business owners find that building a reputation for consistently ethical behavior can have positive long-run effects on the company’s performance.

Customer Loyalty. Treating customers fairly and delivering on promises made by sales and customer service people increase the probability that customers will do business with the company in the future. Customer loyalty has a positive effect on profitability, because there is no incremental marketing cost to doing business with a customer you already have. Finding new customers and convincing them to buy from you does require marketing expenditures. Companies with high customer satisfaction benefit from word-of-mouth marketing. Existing customers share their positive experience with friends, family and colleagues. These endorsements for the organization can result in new customers - help the organization make money.

Employee Relations. Employees expect that the business owner will treat them in an ethical manner. They might be promised, for example, that additional staff will be hired to relieve them of a workload that is too high. If the owner doesn’t follow through on the promise, the employees will lose respect for the owner and may conclude they were deliberately misled. Morale and eventually productivity can decline. One demoralizing ethical lapse is a supervisor taking credit for an employee’s superb idea that helps the company generate revenues or cut costs. The employee may not bother to contribute his ideas in the future. The company’s financial success depends on retaining the brightest, most talented people and keeping them motivated. If an employee concludes the owner or other members of the management team do not behave ethically, she may elect to leave. Recruiting new employees requires an expenditure of time and often money.

Avoid Negative Legal Consequences. Serious ethical lapses include behavior such as selling a product the business owner knows to be unsafe, or knowingly polluting the water or air in violation of government regulations. Companies that get caught doing these things can suffer negative financial consequences, such as being subject to litigation or fines. The company’s image may be damaged to an extent that it loses customers who seek out more ethical companies from which to buy.

Favorable Publicity. Ethical lapses that result in litigation will cause bad publicity for the company, but presenting an image to the marketplace of adhering to the highest ethical standards can result in the company receiving good press coverage. This can bring in new customers and is in effect free advertising. Receiving accolades, such as being named one of the best places to work or one of the most ethical companies, can help recruit the top talent to join your organization.

Access to Capital. When making decisions about whether to put money into a company, venture capitalists and angel investors evaluate the integrity and honesty of the management team. Investors may go so far as screening companies based on ethical principles, and the social and environmental responsibility they exhibit. Investors don’t want to deal with situations where the business owner lied to them about the company’s prospects for growth or hid potential problems from them. The owner’s high ethical standards make it easier for him to obtain financing.

 

The Essence of Goodwill in Making Profit

The positive feeling stakeholders have for any particular company is called goodwill, which is an important component of almost any business entity, even though it is not directly attributable to the company’s assets and liabilities. Among other intangible assets, goodwill might include the worth of a business’s reputation, the value of its brand name, the intellectual capital and attitude of its workforce, and the loyalty of its established customer base. Even being socially responsible generates goodwill. The ethical behavior of managers will have a positive influence on the value of each of those components. Goodwill cannot be earned or created in a short time, but it can be the key to success and profitability.

A company’s name, its corporate logo, and its trademark will necessarily increase in value as stakeholders view that company in a more favorable light. A good reputation is essential for success in the modern business world, and with information about the company and its actions readily available via mass media and the Internet (e.g., on public rating sites such as Yelp), management’s values are always subject to scrutiny and open debate. These values affect the environment outside and inside the company. The corporate culture, for instance, consists of shared beliefs, values, and behaviors that create the internal or organizational context within which managers and employees interact. Practicing ethical behavior at all levels—from CEO to upper and middle management to general employees—helps cultivate an ethical corporate Positive goodwill generated by ethical business practices, in turn, generates long-term business success. As recent studies have shown, the most ethical and enlightened companies in the United States consistently outperform their competitors (Byars & Stanberry, 2018).

 

 

Conclusion

Indeed, unethical business practices harm a series of people, whereas; only a few greedy incumbents enjoy the fruits of their ill deeds. Essentially, if the global economy is to be on the safe side, companies must adopt ethical business practices. Business executives must ensure that their businesses spend their investors’ monies in worthwhile projects.

Moreover, they should ensure that the investors obtain their dividends in time. As discussed, some vulnerable employees suffer in silence, and it is upon the business managers to ensure that they treat all their employees equally. The managers have a responsibility of offering a favorable working environment for all their employees.

Furthermore, they have to ensure that the employees’ salaries are disbursed at the right time. In the case of customers, the involved stakeholders of the company must ensure that the customers obtain quality products and services. Business managers should never take advantage of their might to disadvantage their competitors. In addition, company managers should understand that the government depends on taxes to develop the nations.

Therefore, company executives are obliged to ensure that the company pays taxes exclusively. Finally, companies are requested to have a corporate social responsibility. Polluting the environment should be outdated, as companies ought to employ practices that are environmentally friendly.

Implementing a sound ethical policy at a company ensures a positive impact on all stakeholders, from investors to employees to consumers. Companies that lay the framework for business ethics in all facets of operations are more likely to become and remain profitable than those that conduct business in an unethical manner.

Thus, viewed from the proper long-term perspective, conducting profit-making ethically is a wise business decision that generates goodwill for the company among stakeholders, contributes to a positive corporate culture, and ultimately supports profitability.

References

Byars, S., & Stanberry, K. (2018). Business Ethics. Houston, USA: Openstax. Retrieved from https://opentextbc.ca/businessethicsopenstax/chapter/ethics-and-profitability/

Chron.com. (2020, October). smallbusiness.chron.com. Retrieved from https://smallbusiness.chron.com/ethical-issues-maximizing-profit-34328.html

Freedman, J. (2018, April 20). Consequences of Bad Ethical Practices in Accounting. Retrieved from https://yourbusiness.azcentral.com/consequences-bad-ethical-accounting-practices-7750.html

Hamilton, J. (2018, March 25). Profit Maximization Strategies for Managers. New York, USA: Essay.Biz. Retrieved from https://essay.biz/article/profit-maximization-strategies-for-managers

Hill, B. (2020, May 26). Ethical Behavior and Making Money. Retrieved from https://yourbusiness.azcentral.com/consequences-bad-ethical-accounting-practices-7750.html

Horton, M. (2014, June). Are Business Ethics Important for Profitability? Los Angeles, California, USA. Retrieved from https://www.investopedia.com/ask/answers/040715/how-important-are-business-ethics-running-profitable-business.asp

Hubbard, K. (2016, July). Can Businesses Pursue both Ethics and Profits. Manchester, USA: Saint Anselm College. Retrieved from https://www.anselm.edu/ethics-governance/blog/can-businesses-pursue-both-ethics-and-profits

Ivy.Panda. (2019, August 27). Unethical Business Practices and Their Effects. Retrieved from https://ivypanda.com/essays/unethical-business-practices-and-their-effects-term-paper/

Kenton, W. (2020, July 21). Investopedia.com. Retrieved from https://www.investopedia.com/terms/p/profit.asp

Pribanic, E. (2020, January 6). Three Limitations of Profit Maximization in Financial Management. Techfunnel.com. Retrieved from https://www.techfunnel.com/fintech/3-limitations-of-profit-maximization-in-financial-management/

Thomas, K., & Schmidt, M. (2012, July 2). Glaxo Agrees to Pay $3 Billion in Fraud Settlement. Retrieved from https://www.nytimes.com/2012/07/03/business/glaxosmithkline-agrees-to-pay-3-billion-in-fraud-settlement.html