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Importance of Ethical Behavior to a Company
Ethical behavior in the corporate environment and management is the practice of acting in the acceptable ways that are consistent with the best values of the society. The values of the society and the expectations of the environment towards business organizations create a need for a company to act ethically. Embracing ethical behavior is therefore a necessity in the balancing of a corporate image in the society (Ferrell et al, 2014). While the business cannot separate itself from the outside environment, practicing ethical behavior is the best way is to remain in line with the expectations of the society. The discussion on this topic will present the reasons why it is important for a company to practice ethical behavior.
One of the reasons why a company should practice ethical behavior is to gain the trust of the internal environment players. For the internal environment, a firm should gain the trust of the management, employees and shareholders. By practicing ethical behavior, a firm creates trust among its employees. The result of this trust is the development of a strong sense of commitment by employees towards the company. According to Ferrell et al (2014), this leads to the development of loyalty towards the company, and adherence to the organizational goals. At the same time, the company gains the trust of the shareholders, who feel confident that their investment is being utilized ethically, and for the best reasons. This leads to the achievement of the organizational goals through the concerted efforts of the players of the internal environment such as employees and the management.
In addition, a company should practice ethical behavior to create and retain a good corporate image. A good corporate image is created through the summation of how a firm interacts with the society and the external environment (Tricker & Tricker, 2012). Specifically, a company creates a good corporate image through the interaction with customers, suppliers, the government and the general public. By acting ethically in its dealings, the company gets known by the players in the external environment as a good company, and an ethical organization (Ferrell et al, 2014). For example, if a computer company respects suppliers by making honest payments, the suppliers will promote the firm’s image to other players such as other suppliers of electronics the firm sells.
Another important reason why a company should practice ethical behavior is the creation of an ethical culture that guides the firm. The management of an organization largely depends on the practices of the management and the employees. According to Jones and Parker (2005), a good culture of honest, loyal and performance-driven organization is generated through a practice of ethical behavior. For example, if a manager exits a firm and a new one is employed, the new manager will take the practices that are formed in the culture of an organization. If the organization practices ethical behavior, the new manager will definitely merge with the culture. The creation of ethical culture gives a strong reason why a company should practice ethical behavior at all times.
Profits and generation of income is another important reason why a company should practice ethical behavior. This is because ethical behavior guides the company to practice things that matter towards the company’s financial performance (Ferrell et al, 2014). For example, ethical behavior will guide the management to make decisions of the best employee to employ and the best product to produce. As a result, the unethical subjective decisions are eliminated, thereby keeping the company to its planned profitability guidelines.
In addition, practicing ethical behavior is important because it saves a company financial consequences of unethical acts. Ethical behavior saves a company from financial losses that may come from unethical practices by its employees or management (Tricker & Tricker, 2012). In most cases, the consequences of unethical practices lead to financial losses due to lawsuits and settlement of damages. For example, if Volkswagen had practiced ethical behavior, they would not have got the financial consequence of recalling the vehicles.
More importantly, practicing ethical behavior creates the confidence and trust of the investors (Ferrell et al, 2014). This happens when a company acts in the right ways, despite having opportunities of acting otherwise. As a result, the past, the current and the potential investors gain have confidence in the company’s operations, management and plans. This leads to the development of loyalty among investors towards the company. The confidence of investors is very important because they provide funding of the company’s products, projects and expansion plans.
The Volkswagen Case Discussion
The recent crisis at Volkswagen illustrates the importance of ethical practice and the consequences of unethical practice. In brief, Volkswagen violated the ethical expectations and the Clean Air Act guidelines of manufacturing cars environmentally friendly cars (DW, 2015). Volkswagen acted unethically by improperly installing Engine Control Unit (ECU) software that violated the Clean Air Act (DW, 2015). What was more unethical is allowing the sale of such cars since 2008 without informing the buyers and portraying the engines as environmentally efficient.
In my opinion, this was very unethical of the company, despite having led in the environmentally friendly manufacture of cars. However, their action of recalling cars is a show of good reaction and inspires the confidence of the users in the company. Recalling of cars to correct possible defects makes the company a responsible firm that is ready to be accountable for its mistakes. According to Jones and Parker (2005), a company should be accountable for its actions, despite them being unethical or hurting its previous image.
If I was the manager, the first thing to do is to admit the existence of the unethical practice in the manufacture of the cars. It is because of this assertion that I feel that the former CEO of the company acted in the right way. Admitting the mistakes creates a sense of accountability and responsibility for the actions of the company. While this is an admission of an unethical behavior, it is still a courageous act of showing that the firm still believes in the ideals of ethical behavior.
In the coming days and months, I would organize organizational trainings for employees and engineers about ethical standards and global expectations of the cars produced. This will take care of the internal environment. To impress the external environment, I would organize events and forums that portray the company’s commitment to ethical behavior. The current messages of messages to people advising them about the status of the Volkswagen diesel information is also good and would continue (Volkswagen Diesel Information, 2015). However, this will benefit the company by showing the resentment to the previous organizational mistakes.
Conclusion
Ethical behavior is an important aspect of the corporate culture and management practice in organizations. A company should practice ethical behavior because it promotes trust and confidence of employee, investors and shareholders as well as the general public. In addition, practicing ethical behavior is important to create a good corporate image, creates a good culture, reducing losses and therefore promoting profits. The case of Volkswagen presents an illustration of the importance of ethical behavior by showing the consequences of unethical practice. To correct the mistakes of the company, responsibility and accountability through honest actions that inspires the confidence of all people. These reasons and the review of the case show why a company should practice ethical behavior.
References
DW, 2015, Auto expert: ‘A conscious breach of US law’, Retrieved From, <http://www.dw.com/en/auto-expert-a-conscious-breach-of-us-law/a-18728394> 01 November, 2015
Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2014). Business Ethics: Ethical Decision Making & Cases. Stamford, CT: Cengage Learning
Jones, C., & Parker, M. (2005). For Business Ethics: A Critical Text. London: Routledge
Tricker, B., & Tricker R. I. (2012). Corporate Governance: Principles, Policies and Practices. Oxford: Oxford University Press
Volkswagen Diesel Information, 2015, Volkswagen Diesel Information, Retrieved From, <https://www.vwdieselinfo.com> 01 November, 2015