The Importance of Ethics in Business
Discuss about the Ethics for Ethical Decision Making & Cases.
Ethics play a crucial role in the business. Corporate ethics is a branch of ethics which describes the ethical principles to be applied in ethical problems that emerge in the routine life of business. It is applicable to all the aspects of business and can be implemented upon the behavior of individuals and the whole organization (Sroka and L?rinczy, 2015).
Ethics emerge from the interaction amongst the individuals, organizational and legal systems. Theses ethical and unethical practices, norms and values guide the business. They assist the business to maintain a better relation with the stakeholders. Business ethics comprise of organizational standards, a framework of norms and values and principles which guide the actions and behaviors of the individuals in the organization. It has two aspects namely descriptive business ethics and normative business ethics (Trang, 2015).
The Volkswagen Group has wished a ‘tough luck to the drivers of Australia’ as its emission regulating software has not complied by the Australian Law (Farnsworth and Armitage, 2018).
According to Volkswagen (2018) the company was formulated in 1957 in Australia by the name of Volkswagen Australia Ltd. Its parent company was originated in Germany by the name of Volkswagen AG. It was sold to Nissan in the year 1976. Its headquarters are located at Wolfsburg, Germany.
It was alleged in the year 2015 that Volkswagen and its sister concerns Skoda and Audi are involved in deceptive and dishonest behavior in Australia. It was revealed that the cars which were sold in the US were fixed with software designed to avoid emissions. As a result the company had to recompense its consumers in US and Canada but in Australia it refused to respond to the case (SBS News, n.d.).
It has been three years since it was discovered that the vehicles were installed with devices which could trace the test conditions and decrease the diesel discharges accordingly to improve the results. However the company denied answering the case in Australia as it claimed that the approval for the vehicles was acquired in Europe prior to their export to Australia. The motorists of Australia had sued the company for the financial loss they have suffered due to the scandal (Financial Review, 2018).
The company had argued that there is no case of cheat devices in Australia and thus refused to offer any compensation to the drivers of Australia. Surprisingly, despite of paying heavy amount of compensation and pleaded guilty of criminal charges in US and Canada, the company never admitted that the installed software were intended to outperform the emission tests. It did not even call the witnesses in the case when the court decides to make the proceedings complicated. It was claimed that Volkswagen group had declared in 2015 that the installed software was unlawful, moral disaster and manipulative it breached the faith of the consumers (Packham, 2018).
Case Study: Volkswagen Group in Australia
It was affirmed that around 100000 owners of VW, Audi and Skoda cars had underwent a financial loss. It was claimed that the company had sold affected diesel vehicles by declaring them as environmentally friendly cars though it knew that the devices were deliberately installed to alter the emission test results. In fact, EA 189 1.6 or 2.0 liter diesel engines which were installed in the vehicles were not registered in Australia.
The cases are being filed in Australia by the Australian Competition and Consumer Commission and will concentrate on the points such as the reasons for using the defeat devices and if the devices affected the performance of the vehicles. The company earlier paid $24 Billion of compensation to the motorists of US who were influenced by the diesel emission scandal along with reimbursing damages amounting to $2.4 Billion in Canada.
However, the company continues to claim that it did not breach the consumer laws of Australia. The case is under investigation and the defendant continuously claims that its vehicles satisfy the emission standards of Europe and Australia and the engine control software are being updated from time to time. It further stated that the software of almost 42000 vehicles or 53% of the cars were updated complimentarily as compensation. The company is also alleged for misleading the consumers through its publication which said that the cars were ecofriendly (Limaye and Pande, 2015).
The company has certainly breached the trust of its consumers and they should be entitled to compensation in a manner they wish. If they want the refund for their purchased vehicles they should be compensated back. If they want to get an appropriate legitimate solution for the losses they have suffered, they must be able to receive it from the company. Proper laws should be framed for such wrongful acts of the companies and they must be punished for such crimes.
The main aims of the company should be increase its worth for its stakeholders. Prosperous companies must perform within the norms of the society and maintain its worth and reliability. Through corporate governance, the organizations manage and regulate their transactions in such a manner that the interests of the stakeholders are safeguarded and they are protected from any frauds (Chadegani and Jari, 2016).
This responsibility can be undertaken by the board voluntarily or it can be an obligatory process directed by law or a combination of both the methods. It is mandatory for the organizations to take the responsibility for the impact they create on the society and the stakeholders.
Ethical Theories Relevant to the Case
The ethical theories relevant to this context are Non –Consequentialist, Agent Centered Theories and Consequentialist. The Consequentialist theory lays stress upon the ethical results of the organizational activity whereas the Non- Consequentialist theory explains that the purpose of the personnel involved in the process related to decision making process , is important than the result of the act. The Agent theories are more directed towards the overall virtual status of the personnel (Kaptein, 2017).
The Consequentialist theory has several approaches. Utilitarianism is amongst them. It defines that the degree of happiness and discomfort created by the organizational activity decides how good or bad the activity is. Therefore, the ethical action is the one which creates the maximum amount of happiness and minimum joy.
The Common Good approach states that the pure intention of the personnel assists in creating the best society. As a result, it would generate good for the people residing in that society. It emphasizes on the respecting and helping others especially the weak and downtrodden section of the society.
The Non – Consequentialist theory describes the ideology which is based on duty or actions being performed by the organizations. It is better known by the term Deontological ethics and it states the importance of the intention and desire of the personnel involved in the decision making process. It was proposed by Kant. According to him, the righteous actions depend upon the purpose of the person performing the activity. The ethical action emerges from the desire of the person to accomplish the act.
The right approach is another ideology of the non- consequentialist approach. It describes that the greatest good safeguards the rights of the stakeholders affected by the act. The approach that humans have the right to live a respectful life form the basis of this ideology. The fairness and justice approach describes that the human beings must be considered in an equitable manner. It explains the procedure for performance of good deeds but does not mention about its consequences.
The divine command approach is the last ideology of the non- consequentialist approach. It explains that good activities performed by the managerial personnel are guided by God and the standards governing the ethics are formulated according to His will. So if a person follows His instructions for performing a particular activity, he is following the ethical standards.
The Agent centered theories include virtue ethics. They suggest that human virtues are associated with the ethical actions. The person who has attained ethical values is a person with good character. They remain associated with the individual throughout his life and he has to be trained to attain the values within himself (Ferrell, and Fraedrich, 2016).
Duty-based Approach and Common Good Approach
Deontological or duty based approach and the Common Good approach are applicable to the above mentioned case study. Using the deontological or duty based approach, the employees of Volkswagen can justify themselves by satisfying the needs of the consumers and safeguarding their interests by manufacturing the vehicles which complied with the Australian norms and regulations (Davidson and Forsythe, 2016).
This philosophy focuses on the act and not its results. It is the moral obligation of the employees to perform their activities in such a manner that the consumers are not cheated. It believes that the highest virtue is result of ethical acts of the personnel of the company. So, the management should compensate the consumer for the losses incurred and take a resolution that it would manufacture vehicles which could genuinely pass the emission tests and not mislead the consumers. It suggests that what matter is doing the duty honestly and not deceiving the consumers which can have negative impact on the goodwill of the company and hence its sales can lower down (Ogbari et al., 2016).
While explaining the ethical dilemma, the Common Good approach can be helpful to resolve the issue. It regards all the individuals as a part of the larger society. For a society to flourish, the management is required to safeguard the interests of its consumers for the good of all the members of the society specially the weakest ones. Some of the things that develop a healthy society are fair trade and commerce, just legal systems, accessible technological environment and well maintained infrastructure. So, the company should compensate its consumers for the losses done to them. It should take a resolution in future that the activities performed by the company will safeguard the interest of its stakeholders.
The importance of the issue can be determined by the fact that around 100000 motorists had signed an appeal related to the financial harm caused to them by the car manufacturer Volkswagen and its sister concerns Audi and Skoda by installing such software in the cars which could trace the test conditions and cut its pollution levels to improve the results.
The company has misled the consumers in order to increase the sales and outperform the competition in the Australian car market. If the ethical theories of common good approach and duty based approach are implemented in the company, it would enhance the goodwill of the company and safeguard the interests of the stakeholders. According to Ryan (2016) the common good approach ensures that the policies and procedures of the organization are aligned with obeyance of the laws of the nation.
Conclusion
The business has some duties and obligations for the stakeholders according to the deontological approach. If this theory is implemented in Volkswagen, then it would endeavor to safeguard the interests of its stakeholders (Rhodes, 2016).
If the theories are not implemented in the organization then it may face legal problems and loads of monetary penalties. The penalties can be severe including the legal fees and sanctions by the governmental agencies. Unethical acts also result in consumer dissatisfaction which may reduce the goodwill of the company. The company may also lose its valuable employees as nobody wants to be associated with an unethical brand (Morrison, 2015).
Conclusion
Hence to conclude, it can be said that business ethics are surrounded by interpersonal relationships of the company. These relationships exist amongst the business and its customers on various levels. So, business ethics describe the relationship of the individuals and the business and extend its scope to its employees and different areas of government and the society.
The ethical theories help in safeguarding the interests of the stakeholders thereby promoting sustainable business practices. With the enhanced expectations and rights of the consumers, the scope of business ethics is increasing in the commercial fraternity. Developing proper ethical infrastructures will assist in the ways of conducting business in a better way in the 21st century.
References
Chadegani, A.A. and Jari, A. (2016) Corporate Ethical Culture: Review of Literature and Introducing PP Model. Procedia Economics and Finance. 36 (2016), pp. 51 – 61.
Davidson, D.V. and Forsythe, L.M.(2016) Business in the Contemporary Legal Environment. Wolters Kluwer Law & Business.
Farnsworth, S. and Armitage, R. (2018) VW emissions scandal: Carmaker says ‘tough luck’ to Australian drivers, ACCC tells court. ABC Net News [online] Available from: https://www.abc.net.au/news/2018-03-05/vw-emissions-scandal-australian-car-owners-get-day-in-court/9502952 [Accessed 11th May, 2018].
Ferrell, O.C. and Fraedrich, J. (2016) Business Ethics: Ethical Decision Making & Cases. Cengage Learning.
Financial Review (2018) Australian consumers are not fools’: Volkswagen emissions scandal hits the court [online] Available from: https://www.afr.com/technology/australian-consumers-are-not-fools-volkswagen-emissions-scandal-hits-the-court-20180304-h0wznp [Accessed 11th May, 2018].
Kaptein, M. (2017) The Battle for Business Ethics: A Struggle Theory. Journal of Business Ethics .2017(144), pp.343–361.
Limaye,S. and Pande, M.(2015) Advertising and Ethical Theories – A Comparative Study of Select Campaigns. International Journal of scientific research and management. 3(11), pp. 3701-3709.
Morrison, J. (2015) Business Ethics: New Challenges in a Globalized World. Macmillan International Higher Education.
Ogbari, M.E., Oke, A.O., Ibukunoluwa, A.A., Ajagbe, M.A. and Ologbo, A.C.(2016) Entrepreneurship and Business Ethics: Implications on Corporate Performance. International Journal of Economics and Financial Issues. 6(S3), pp. 50-58.
Packham, B. (2018) Australian tests expose VW ‘fix’ on fuel, emissions. The Australian [online] Available from: https://www.theaustralian.com.au/national-affairs/australian-tests-expose-vw-fix-on-fuel-emissions/news-story/efce4694723aaa6e8c13be5ea95143f5 [Accessed 11th May, 2018].
Rhodes , C. (2016) Democratic Business Ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies. 37(10), pp. 1501-1518.
Ryan , M.(2016) Teaching the Common Good in Business Ethics: A Case Study Approach. R eligious Studies Faculty Publications.
SBS News (n.d.) Australia’s class action against Volkswagen begins over emissions scandal [online] Available from: https://www.sbs.com.au/news/australia-s-class-action-against-volkswagen-begins-over-emissions-scandal [Accessed 11th May, 2018].
Sroka, W. and L?rinczy, M.(2015) The perception of ethics in business: analysis of research results. Procedia Economics and Finance . 34 ( 2015 ),pp. 156 – 163.
Trang, P.Q.(2015) The Role of Ethics in Business Operations [online] Available from: https://www.theseus.fi/bitstream/handle/10024/110561/The+Role+of+Ethics+in+Business+Operations+PDF.pdf;jsessionid=E2A7035854ABAB5DC428C0E4ADC42717?sequence=1 [Accessed 11th May, 2018].
Volkswagen (2018) About Volkswagen [online] Available from: https://www.volkswagen.com.au/en/about-volkswagen.html [Accessed 11th May, 2018].
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