Unit 2 - Business Decision Making (20) Flashcards
John R. Boatright, in “Ethics and the Conduct of Business”- 7th edition, states that; “All business organisations face
the daunting challenge of adhering to the highest standards of ethics while, at the same time, remaining competitive and providing the products and services that the public demands.
The task of managers in organisations is to make
sound business decisions that enable a business to achieve its mission. Some of these decisions involve complex ethical issues that may be readily apparent, and success in making sound business decisions may depend on understanding these ethical issues and resolving them effectively.
Corporate activities affect
us all, and so the ethical conduct of business is a matter of concern for everyone.
Frequently, the ethically correct course of action is
clear, and people in business act accordingly. Exceptions occur, however, when there is uncertainty about ethical obligations in particular situations or when considerations of ethics come into conflict with particular demands of business.
In deciding on an ethical course of action, we can rely to some extent on
the rules of right conduct that we employ in everyday life. However, business activity also has some features that limit the applicability of our ordinary ethical views. In business settings, we encounter situations that are significantly different from those of everyday life, and business roles place their own obligations on us.
The first distinguishing feature of business from everyday life
is its economic character where we interact with each other, not as family members, friends, or neighbours, BUT as buyers and sellers, employers and employees, and the like. The ethics of business, then, is at least in part the ethics of economic (market) activity, such as the conduct of buyers and sellers and employers and employees.
The second distinguishing feature of business ethics from everyday life is
that it typically takes place in organisations which are a hierarchical system of functionally defined positions designed to achieve some goal or set of goals. Consequently, the members of a business organisation, in assuming a particular position, take on new obligations to pursue the goals of the business. Because business involves economics transactions and relationships that take place in markets and also organisations, it raises ethical issues for which the ethics of everyday life has not prepared us.
This is not to say that ethics of business is different from ethics in everyday life, but
only that business is a different context, and it presents us with new situations that require us to think through the ethical issues.
Decisions are made at several distinct levels:
the level of the individual, the level of the organisation, and the level of the business system.
Decision making at the level of the individual
Situations that confront individuals in the workplace and require them to make a decision about their own response. The question is “What do I do?”
Decision making at the level the organisation
the individual decision maker is acting on behalf of the organisation in bringing about some organisational change. Involves decisions on an organisational level rather than the individual level. The question is: “What do we as an organisation do?”
Decision making at the level of the business system
Problems that result from accepted business practices or from features of the economic system cannot be effectively addressed by any single organisation, much less a lone individual. The problem is systematic, and consequently any substantial change must be on the level of the system. Systemic problems are best solved by some form of regulation or economic reform (industry wide code of ethics). On the systemic level, the relevant question is: “What do we as a society do?”
According to Boatright, “Businesses are economic organisations that
operate within a framework of law and regulation. They are organised primarily to provide goods and services, as well as jobs, and their success depends on operating efficiently and competitively.
In a capitalist system, firms must
compete effectively in an open market by providing goods and services that customers want and by doing so at a low price, which is possible only when the desired goods and services are produced efficiently in an effort to make as much profit as possible while staying within the rule of business. The rules of business are set mainly by government through laws and regulations.
The measure and reward of success is
Profit, but it cannot be achieved without also aiming to be competitive. Moreover, it is necessary, in pursuing profits, to observe certain ethical standards, as well as laws and regulation, as a means to the end of profit making.
All three are critical to business decision making
Ethics, Economics & Law. Business is governed by more than the legal rules. In addition, a competitive business system, in which everyone pursues his or her self-interest, depends for its existence on ethical behaviour and is itself justified on ethical grounds.
According to economic theory, firms in a free market utilise
scarce resources (factors of production) in order to produce goods and services. The demand for these goods and services is determined by the preferences of individual consumers who select from among the available goods and services so as to maximise the satisfaction of their preferences, which is called “utility”.
Firms also seek to maximise their preferences or utility by
increasing their output up to the point where the amount received from the sale of goods and services equals the amount spent for the factors of production – that is, where they break even.
Under fully competitive conditions, the result is
economic efficiency, which means the production of the maximum output for the least amount of input.
Economics explains the choices of the
economic actors – whether they be the households or the firms. On this account, the sole reason for any choice, is to maximise utility. However, ethics considers many other kinds of reasons, including rights and justice and other non-economic values. To make a choice on the basis of ethics – that is, to use ethical reasons in making a decision, appears at first glance, to be incompatible with economic choice.
Rights and duties between a business, its obligations to its owner/s, employees, suppliers, customers and the other consumers are all ethical considerations.
