Is business ethics the missing link in a financial crisis?

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The financial and economic experts of the last decade believe that the start of the October 2008 financial crisis in the US represents the most serious shake-up of international finances ever since the Great Depression of 1929-1933 – could the lack of business ethics have played a part in it?

The effects of the crisis are still being felt beyond the financial sectors, affecting the recovery of the overall global economy, impacting the economic growth and labour market, and generating a series of other associated effects which have a current or medium to long term impact with regard to the structure of the global financial system and its interface with the real economy.

The old business style is no longer applicable in a constant and fast tracked global economy: today, the multi-national companies (MNC) are faced with internal factors that are solely driven by the increased power and influence that their customers/clients have with regard to developing and shaping business decisions.

The pulling forces surrounding the external environment of the MNCs are mainly concerned with the impacts of globalisation, labour markets and patterns of employment which focus on the sector and gender division of their internal organisational structure and the legal issues such as labour rights and equality of opportunities.

Among the major causes of 2008 global financial crisis and failures of the market economy, we could also name the inadequacy and weakness of business ethics.

Today, unlike pre-2008 financial crisis, international and national economic decision makers, academics and politicians, are vocal with regard to supporting a fundamental revision of the economic and financial issues of modern business.

They seek to stimulate new rules and behaviours to rebalance the ratio between the market forces and the regulators’ decisions, and to provide businesses with more social, ethical and moral responsibility.

Although it may seem strange, economists should consider business ethics as the main driver of a healthy economy, one which would be able to directly reflect the ability of the market relations to stimulate a healthy competition, to mitigate – as much as possible – the corruption, monopoly and refusal to co-operate with other interested parties – so that these can no longer influence the uptake of business networking within the national and international value chains.

There are still MNCs which display a certain degree of reserve when it comes to having a dedicated Code of Ethics while doing business internationally. This reserve persists quite strongly given a largely accepted preconception called “realism”.

In the interpretation proposed by Donaldson of “realism”, this doubts the possibility of formulating and applying universal moral norms which are to have the same significance and authority across the globe.

Naturally, the cultural values play an immense part in the way in which individuals from various parts of the world understand to do business and expect from business.

The most important axiological differences appear between the individualistic (such as the American or West European) and the collectivistic cultures (Japanese, South-American, Indian or African) or, more often, between the task driven societies – such as the British, for example – and the relationship driven societies, such as the French.

Even when talking about universal values, the way these are perceived or applied is specific to each culture.  Dr Hofstede compares one’s culture with a software of the mind, i.e. the social programme that determines the way we act, think and perceive the good and the bad, thus shaping one’s self image in relation to another person.

If we are to perceive the culture as per Hofstede’s description, then the culture is not innate but acquired, hence ethics in business becomes taught not inherited.

Business ethics is dictated by a series of often unsustainable factors like organisational headquarters, main country/countries of operation and organisational ethos/values. These factors are often insurmountable because the more the businesses become outward looking and interested in expanding on foreign markets, there are specific “dos” and “don’ts” associated with their successful operation in the said market.

That is why, in an international business context, Dr Hofstede’s postulate according to which organisational culture never trumps national culture is more prevalent now than ever before.

However, notwithstanding the above, the general principles of business ethics and conduct can be easily globally applied as long as a certain degree of flexibility is allowed for.

Such flexibility need not and should not include, for example, readiness to engage in illegal or corrupt activities, but readiness to understand that, for example, an organisation will never agree to certain business terms in an office-type setting but in an informal setting.

And further examples of the same can be easily found in the literature pertaining to high power-distance cultures where business etiquette and protocol play a much higher role than the potential business gain does.

Perhaps, the most debatable aspect surrounding multi-national companies’ business ethics is that related to the direct reaction and action of its senior leaders, those who have a clear mandate of protecting and enhancing the company’s reputation and good standing with its shareholders and stakeholders.

Whilst internal policies, procedures, systems and guidelines are in place to be strictly abided by, flexibility in business conduct and ethics is necessary as long as it never infringes the organisation’s rules and regulations, it doesn’t lead to illegal acts and it doesn’t negatively affect the business’ reputation.

The current market globalisation poses more dilemmas than clarifications and there are instances where, unfortunately, the matters related to ethics are not clearly defined – many sit dangerously on the “grey line”. This when competent, knowledgeable and ethical Public Relations practitioners should step in and advise.

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