{"id":251,"date":"2012-05-11T01:52:51","date_gmt":"2012-05-11T01:52:51","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=251"},"modified":"2014-02-09T05:36:53","modified_gmt":"2014-02-09T05:36:53","slug":"creation-ethical-business-the-implementation-of-virtuous-behavior-and-shared-values-and-goals-article-by-jessica-l-kuryn","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2012\/05\/creation-ethical-business-the-implementation-of-virtuous-behavior-and-shared-values-and-goals-article-by-jessica-l-kuryn\/","title":{"rendered":"Creation of an Ethical Business: The Implementation of Virtuous Behavior and Shared Values and Goals – Article by Jessica L. Kuryn"},"content":{"rendered":"
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\"The<\/div>\n<\/div>\n
Jessica L. Kuryn
\n<\/big><\/big><\/strong><\/span><\/div>\n
May 10, 2012<\/big><\/span><\/div>\n
Recommend this page<\/a>.<\/strong><\/div>\n
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IN TODAY\u2019S COMPETITIVE BUSINESS ENVIRONMENT, a growing number of firms will do almost anything to gain sales and customers, as well as to increase profits.\u00a0 For some of these firms, playing by the rules doesn\u2019t achieve the results they are after.\u00a0 Firms have the choice to act ethically or unethically.\u00a0 While misguided managers think that unethical behavior can lead the firm, and ultimately themselves, to greater profits over the long term, it is only for the short term.\u00a0 It will eventually lead to their downfall in that unethical behavior spirals out of control and can be very difficult to maintain.\u00a0 Once this occurs, a firm\u2019s reputation becomes tarnished and the company fades into non-existence.\u00a0 On the contrary, \u201cfirms that pursue ethically driven strategies realize a greater profit potential than those firms who currently use profit-driven strategies\u201d (Arjoon 159).<\/p>\n

The point is that a firm\u2019s leaders do<\/em> have a choice in how they conduct business.\u00a0 Creating an ethical business does not happen overnight.\u00a0 It takes extensive collaboration and several implementation and evaluation processes, as well as continual reinforcement of and changes to established practices and values.\u00a0 Perhaps one of the most important aspects to creating an ethical business is that it requires cooperation on multiple organizational levels and the implementation of virtuous behavior and values.<\/p>\n

Maintaining ethical practices, once implemented, is an ongoing process.\u00a0 There are many factors that can affect ethical behavior, such as competition for customers and market share, the need for increased profits, and management incentives.\u00a0 Some firms, such as BB&T have been able to implement an ethical environment that has led to firm success, while others such as Enron, have succumbed to greed and wrongdoing, and no longer are in existence.\u00a0 BB&T\u2019s story of success will be discussed later in this paper.<\/p>\n

CREATING AN ETHICALLY DRIVEN BUSINESS<\/strong><\/p>\n

Business ethics can be defined as \u201cthe applied ethics discipline that addresses the moral features of commercial activity\u201d (Marcoux).\u00a0 The question we have to ask concerning business ethics is how they can be applied to a business.\u00a0 One of the most important aspects in creating an ethical business entails the need for new and refined organizationalvalues.\u00a0 A value, as defined by Ayn Rand in Younkins\u2019s article, is \u201cthat which one acts to gain and\/or keep\u201d (Younkins 9). Antonio Argando\u00f1a suggests a business must first identify its currently existing values and from that develop what values are needed (Argando\u00f1a 22).\u00a0 In identifying these needed values, it is crucial that businesses select values that pertain to both the business\u2019s goals, as well as the employees\u2019 goals.\u00a0 Congruence between the goals of the business and its employees increase the chances that the valueswill be received well and adhered to.<\/p>\n

Once the desired values and goals have been determined, it falls in the hands of management to implement and communicate them.\u00a0 \u201cAt the top level of an organization, it takes effective communicators who are clear about what they champion and who establish the company on virtuous behavior\u201d (Younkins 21).Virtues, which are also defined by Ayn Rand in Younkin\u2019s article, are \u201cthe act[s] by which one gains and\/or keeps an objective value\u201d (Younkins 11).\u00a0 It is crucial for each employee and manager to establish virtues within themselves in order to pursue individual and organizational values, as well as keep them once they have been successfully implemented.It is the responsibility of management to ensure that these values are clearly communicated and followed, while established virtuous behavior becomes the mean by which these values flourish and exist.\u201cA culture (or climate) of virtue in a business begins with executives who exhibit virtuous leadership through their personal actions and interpersonal relationships\u201d (Younkins 21).<\/p>\n

In displaying virtuous behavior throughout an organization, managers are setting an example for employees.\u00a0\u00a0 \u201cEmployees are influenced by observing visible and legitimate role models who themselves act as virtuous agents.\u00a0 Not only should leaders openly discuss virtues and values, they should also live the virtues and values that they advocate\u201d (Younkins 21).\u00a0 I believe that this is one of the most important aspects in creating and sustaining an ethical business environment.\u00a0 As explained by Kouzes and Posner in Minkes, Small, and Chatterjee\u2019s article, \u201c\u2026leaders who could not personally adhere to a firm set of values, could not convince others of the worthiness of those values\u201d (Minkes, Small, and Chatterjee 330).\u00a0 People learn through example.\u00a0 Therefore, managers should be mindful of this and back up their words with consistent virtuous behaviors that champion the organization\u2019s values.<\/p>\n

Once organizational values have been implemented, only half of the work has been done.\u00a0 The remaining half is a continual and never ending process within the business.\u00a0 In maintaining an ethical business, ongoing promotion and reinforcement is necessary.\u00a0 Management must continue to display ethical behavior, while continuing to communicate values to employees.\u00a0 This also includes communicating what actions are and are not acceptable.\u00a0 Employee evaluations should also frequently be performed, in which employees are evaluated on values implemented by the organization\u2019s managers.\u00a0 In addition, management also needs to develop systems that reward value-oriented behaviors and reprimand value-destructive behaviors.<\/p>\n

In regards to a reward system, \u201cemployees should be objectively appraised and compensated based on their contribution toward achieving a firm\u2019s mission, values, and goals\u201d (Younkins 19).\u00a0 Employees may receive monetary or recognition awards for their display of virtuous and ethical behavior.\u00a0 In establishing such incentives, there is an encouragement that exists among employees to accept and display the organization\u2019s values and goals.\u00a0 In addition, such incentives create a pathway in which individuals can fulfill their own self-interests and goals simultaneously.\u00a0 \u201cThe good manager tries to shape employees\u2019 ideas about self-interest by instituting incentives rewarding cooperation and reinforcing the pleasure people take in collaborating with each other\u201d (Koehn 498). When employees act ethically, the business is also handsomely rewarded in that it gains a good reputation as being an ethically driven business.\u00a0 This can lead to higher profits in that consumers will be more likely to choose that particular business over competitors because of its reputation.\u00a0 \u201cMany companies are now realizing that ethically driven strategies are resulting in a sustainable competitive advantage\u201d (Arjoon 168).\u00a0 In addition, \u201ccompanies that have seriously adopted ethically driven or people-centered strategies have seen clear gains in productivity, sales and profits, customer service, retention rates, reduction in absenteeism, positive impact on employee morale, [and] increased and timely launching of products\u201d (Arjoon 169).<\/p>\n

Adversely, a disciplinary system is also necessary in order to maintain organization values and ethically driven behavior that have already been established.\u00a0 Employees should be aware of the possible repercussions of their actions in advance, and management needs to ensure disciplinary actions are followed through with when dealing with value-destructive behaviors.\u00a0 This sends a message to employees that unethical behavior will not be tolerated and it should be avoided at all costs.<\/p>\n

The acts of Enron and WorldCom have increased consumer demands for ethically driven organizations.\u00a0 Therefore, the businesses that make ethics a priority will likely obtain a sustainable competitive advantage because more consumers will choose to do business with them.\u00a0 In today\u2019s economy and business world, businesses must place a large focus on ethics in order to be successful.<\/p>\n

FACTORS THAT AFFECT ETHICAL BEHAVIOR<\/strong><\/p>\n

Implementing a form of virtue ethics and values throughout a business can be very challenging, but maintaining it can be just as difficult.\u00a0 There are many factors that can affect ethical behavior and lead a manager or employee to act unethically.\u00a0 Competition for customers and increased market share, as well as the need for more profit are common issues that can lead to unethical behavior.\u00a0 In addition, management incentives, such as bonuses, pay increases, promotions, and stock options can open the gateway for unethical behavior.<\/p>\n

With a specific focus on profit, businesses that have an urgency to increase profits are likely to engage in false reporting.\u00a0 Reporting false financial information makes a business\u2019s financial statements look more appealing to investors and gives a false pretense that the business is in better financial health than it really is.\u00a0 In addition, management may inflate earnings if they receive bonuses, pay increases, or promotions for increasing profits.\u00a0 These monetary compensations can prove beneficial for businesses in that management will be more driven to make sales and increase wealth in the business.\u00a0 Adversely, these monetary compensations can be dangerous if a manager works in his or her own interest and does not act ethically.\u00a0 It could put the business in a financial position that is difficult to correct.<\/p>\n

Stock options are another form of management compensation.\u00a0 \u201cStock options allow employees to purchase a particular number of common shares of company stock at a specified price over a specified time period\u201d (Brooks and Dunn 172).\u00a0 Stock options can be beneficial in that they serve as a motivational devise.\u00a0 When managers have an interest in the company they work for, they are more willing to strive towards an increase in stock prices.\u00a0 Shareholders, as well as the managers, enjoy higher returns when stock prices increase.\u00a0 In addition, stock options enable management to adopt the investor\u2019s perspective in that theyenable both the interests of investors and management to be aligned.<\/p>\n

One of the biggest problems with this is that unethical managers can work out of their own self-interest to falsely raise stock prices in order to earn more money.\u00a0 With the incentive to earn more money comes the high possibility for unethical behavior and false reporting.\u00a0 Managers that get used to these increasing stock prices are also the ones who will likely forego ethical standards and correct reporting procedures.\u00a0 The concept of stock options can be extremely dangerous to a firm, especially when stock prices are truly in decline and these types of managers are present.\u00a0 Reporting false income to increase these prices will eventually catch up to the firm and will result in the company\u2019s non-existence.\u00a0 Another problem with stock options is that management has the option to exercise their stock options and then sell them immediately.\u00a0 This does not align with investor interests in that managers are only maintaining a short term perspective.\u00a0 Making decisions based on the short term only hurts the long term investors.<\/p>\n

BB&T \u2013 A TRUE ETHICALLY DRIVEN BUSINESS
\n<\/strong><\/p>\n

BB&T is a fine example of a business that has been led to success through the values-driven approach adopted by one its leaders.\u00a0 John Allison, former CEO of BB&T, now serves as the chairman of the board of directors.\u00a0 During Allison\u2019s time as CEO, the company has grown from approximately $5 billion in assets to $165 billion in assets.\u00a0 This substantial growth has placed the company as the eighth largest financial institute in the United States.\u00a0 Just a few of the issues BB&T has made a bold stand on are a municipality\u2019s right to seize property by eminent domain for the purpose of economic development, and negative amortization loans.\u00a0 Allison received national attention is his decision to \u201cnot provide loans for any economic development projects in which the land for the project had been taken in this manner\u201d (Parnell and Dent 587).\u00a0 This decision was not initially favored by many mortgage producers.<\/p>\n<\/div>\n

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\u201cWhen we made the decision not to do these loans, we got beat up in the market.\u00a0 We also lost a number of mortgage producers who could make more money working for Countrywide \u2013 of course a number of these producers would now like to come back to BB&T.\u00a0 We believe that doing our best to help our clients make the right financial decisions is good for BB&T.\u00a0 I believe that while there may be short-term trade-offs by sticking to your values, you are never making a sacrifice in the long run, if your values are rational\u201d (Parnell and Dent 589).<\/p>\n<\/div>\n

\u201cAllison is known for, and attributes BB&T\u2019s success to, operating by a set of principles that are embodied in BB&T\u2019s Values Statement.\u00a0 These ten values \u2013 Reality (Fact-Based), Reason (Objectivity), Independent Thinking, Productivity, Honesty, Integrity, Justice (Fairness), Pride, Self-Esteem (Self-Motivation), and Teamwork\/Mutual (Supportiveness) \u2013 are not simply platitudes at BB&T but drive the decision-making process of the bank\u201d (Parnell and Dent 588).\u00a0 These values serve as the foundation that BB&T was built on.\u00a0 As part of the evaluation process, employees are evaluated on their performance in accordance with the 10 values.\u00a0 Those employees that perform in accordance with the values are rewarded.<\/p>\n

Allison attributes Rand\u2019s philosophy of Objectivism as the framework for these 10 values.\u00a0 The main aspect of Objectivism is that it relies on truth and blocks out all emotions in the decision making process.\u00a0 \u201cThe purpose of the process is to help you think rationally.\u00a0 It is about not letting your emotions make decisions that are bad for you.\u00a0 It is the ability to make logical decisions based on the facts and to pursue our purposes that makes us happy\u201d (Parnell and Dent 591).<\/p>\n

In addition, BB&T has also been viewed as being socially responsible.\u00a0 Milton Friedman, who is referenced to in Parnell and Dent\u2019s article, argues that there are two reasons as to why a firm should act socially responsible.\u00a0 \u201cFirst, not doing so can increase the likelihood of more costly government regulation.\u00a0 A number of regulations over business operations were enacted because some firms refused to be socially responsible\u201d (Parnell and Dent 593).\u00a0 The second reason as to why a firm should act socially responsible is that \u201cstakeholders affected by a firm\u2019s social responsibility stance \u2013 most notably customers \u2013 are also those who must choose whether to transact business with the firm\u201d (Parnell and Dent 593).\u00a0 The point here is that if consumers do not think a firm is socially responsible, they have the option to do business with another company, and they will more than likely do so.\u00a0 As discussed in Parnell and Dent\u2019s article, studies have shown that consumers will be willing to pay more for products and services that are responsibly produced.\u00a0 Simply, consumers favor ethically driven and responsible businesses, and will purchase products and services from them considering this factor.\u00a0 This is why it is crucial for businesses in today\u2019s economy and environment to be ethically driven and socially responsible.\u00a0 With the events as seen in Enron and WorldCom, it has made consumers extra sensitive to firms and what approach they take in formulating profit.\u00a0 Consumers want to be valued for their choice to do business with a particular firm, and they take enjoyment in purchasing products from these firms when they display ethically driven strategies.<\/p>\n

From a market and environmental perspective, we could argue that BB&T is doing exceptionally well.\u00a0 \u201cFrom a market perspective, BB&T has delivered strong growth and financial performance since Allison\u2019s appointment as CEO in 1989.\u00a0 From a broad environmental perspective, BB&T\u2019s business decisions defending eminent domain rights and eschewing negative amortization loans reflect support for a sustained society that respects personal property rights and responsible mortgage loan practices\u201d (Parnell and Dent 594).\u00a0 In respect to this, BB&T speaks on behalf of individuals and what they want.\u00a0 While BB&T suffered somewhat in the short term, they were able to come out on top in the long run.\u00a0 In my personal opinion, I have much more respect for companies like BB&T because they are willing to forgo potential profits and take a stand, even when it is not the popular decision.\u00a0 Companies, like BB&T, will be around for years longer than the companies that jump on the popularity bandwagon.\u00a0 They will also see considerably larger profits because they stand out among their competitors \u2013 just as BB&T has come to do<\/p>\n

CONCLUSION<\/strong><\/p>\n

In conclusion, it is easy to see how BB&T has come to be a top competitor in the financial institution sector of business.\u00a0 BB&T is a classic example of an ethically driven firm that has realized greater profits than the firms that have adopted a profit-driven strategy.\u00a0 The implementation of ethics throughout an organization is a very difficult thing to do.\u00a0 It requires substantial acceptance from employees and managers alike to be successful.\u00a0 Most importantly, managers are the driving forces in implementing such a strategy throughout an organization.\u00a0 They must be effective in communicating the values of an organization to employees, as well as lead by example.\u00a0 Management cannot expect to preach values that they do not live by themselves.\u00a0 After all, people learn through example.\u00a0 A leader that lives by the values it communicates to employees has the best shot at having an ethically driven business.<\/p>\n

In addition to the communication process, managers must provide incentives for desirable behavior.\u00a0 A rewards system based on monetary or recognition awards are great ways to encourage cooperation and motivate employees.\u00a0 This also encourages the creation of a pathway in which individuals can fulfill their self-interests.\u00a0 These same values must also be a part of the evaluation process.\u00a0 Just as there are rewards systems, management must also design a disciplinary system.\u00a0 It is important that employees are aware in advance what they could encounter by not behaving in accordance with a firm\u2019s values and policies.\u00a0 Managers must also follow through with any disciplinary action to reinforce their importance on having a values-based business.<\/p>\n

The benefits of implementing an ethically driven business strategy can be great, but it can be a difficult thing to do.\u00a0 Competition for customers and increased market share, as well as the need for more profit are common issues that can lead to unethical behavior.\u00a0 In addition, management incentives, such as bonuses, pay increases, promotions, and stock options can open the gateway for unethical behavior. However, if a firm is able to successfully implement an ethics-driven approach, these issues can be minimized and the interests of the firm and employees will be satisfied and aligned.\u00a0 When a firm is able to align individual self-interests with its own interests, happiness and flourishing are more likely to occur for both.<\/p>\n

Jessica Kuryn is a student in Wheeling Jesuit University’s Master of Science in Accountancy (MSA) program.<\/strong><\/p>\n

SOURCES<\/strong><\/p>\n

Argando\u00f1a, Antonio. (2003).\u00a0 Fostering values in organizations.\u00a0 Journal of Business Ethics<\/em> 45:<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 15-28.<\/p>\n

Arjoon, Surendra (2000).\u00a0 Virtue theory as a dynamic theory of business.\u00a0 Journal of Business<\/em><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Ethics<\/em>, no. 28:159-78.<\/p>\n

Brooks, L. J., and P. Dunn. Business & Professional Ethics for Directors, Executives &<\/p>\n

Accountants. 5. South-Western Pub, 2011. 172.<\/p>\n

Koehn, Daryl. (1998).\u00a0 Virtue ethics, the firm, and moral psychology.\u00a0 Business Ethics Quarterly<\/em><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 8 (3): 497-513.<\/p>\n

Marcoux, Alexei, “Business Ethics”, The Stanford Encyclopedia of Philosophy (Fall 2008<\/em><\/p>\n

Edition)<\/em>, Edward N. Zalta (ed.), URL<\/p>\n

<http:\/\/plato.stanford.edu\/archives\/fall2008\/entries\/ethics-business\/<\/a>>.<\/p>\n

Minkes, A.L., M.W. Small, and S.R. Chatterjee. (1999).\u00a0 Leadership and business ethics: Does it<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Matter? Implications for management.Journal of Business Ethics<\/em> 20: 327-35.<\/p>\n

Parnell, John A., and Eric B. Dent. (2009).\u00a0 Philosophy, Ethics, and Capitalism: An Interview<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 With BB&T Chairman John Allison.Academy of Management Learning & Education<\/em><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 8 (4): 587-96.<\/p>\n

Younkins, Edward W. \u201cMorality, Success, and Individual Happiness in Business: The Virtuous<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Pursuit of Values and Goals,\u201d Libertarian Papers<\/em> 3, 26 (2011).<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Jessica L. Kuryn May 10, 2012 Recommend this page. ****************************** IN TODAY\u2019S COMPETITIVE BUSINESS ENVIRONMENT, a growing number of firms will do almost anything to gain sales and customers, as well as to increase profits.\u00a0 For some of these firms, playing by the rules doesn\u2019t achieve the results they are after.\u00a0 Firms have the choice to act ethically or unethically.\u00a0 While misguided managers think that unethical behavior can lead the firm, and ultimately themselves, to greater profits over the long…<\/p>\n

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