Destructive Effects of the lack of Business Ethics essay

Traditionally, business ethics was considered to be a very controversial notion because even nowadays some people believe that it is a cornerstone of any future more or less prospective company’s strategy while others perceive it like an oxymoron. Obviously, that business ethics have to be developed yet and, unfortunately, it is mainly the question philosophers or social critics are worried about but not those who are in the center of its attention, namely businessmen, managers, employees, etc. In actuality, the relations between all participants of a business process have to be controlled and regulated by some ethical norms because business ethics has an overwhelming influence on so many processes in a company, and these processes can have not only interior but exterior character as well. It plays a very important role for the climate within a company, shapes its public image, and the list may be continued.

It is also worthy of mention that many specialists (Kabel 2006) emphasize the growing importance of business ethics in the future because moral standards and ethical norms became more and more important in our society and this trend will only progress accompanying the social development. Unfortunately, not all of businessmen and top managers realize this fact and they do not treat the problem of the business ethics seriously. Moreover, very often there actions may be characterized as absolutely immoral and contradicting to the main principles of the business ethics.

At the same time, business ethics should be viewed as the major condition of a company’ market success since it contributes substantially to the growth of the company reputation and, thus, respectability and popularity of the company not only among its business partners but also among customers that is particularly important nowadays. In such a situation, it seems to be particularly strange to observe the lack of business ethics in leading companies that are extremely popular among customers but, in actuality, their policy is practically deprived of any elementary but basic and principal ethical norms. Among such companies may be named Wal-Mart which is severely criticized for the lack of business ethics and demonstrated practically ignorance of interests of employees, or sacrificing them for the sake of higher profits.


The current position of Wal-Mart

Before analyzing the existing problems of Wal-Mart which is often accused by its critics on the lack of business ethics, it is necessary to briefly dwell upon the current position of the company in the market that can probably help better understand its policy and causes of the ignorance of business ethics. In this respect, it is possible to say that Wal-Mart is nowadays one of the largest retailer operating worldwide. Wal-Mart is a public corporation that was founded about 45 years ago. Obviously, the rapid progress of the company from its foundation till the leading positions in the world market in a relatively short period of time is quite impressing.

It should be said that Wal-Mart holds leading positions practically in every market the company operates in. For instance, at the present moment Wal-Mart is the largest employer in the US, it is also the largest grocery retailer in the US and Mexico. The revenues of the company steadily grow, for instance, in 2004 Wal-Mart’s revenue was $2 billion higher than the previous years results, though in terms of the company it constitutes less than 1% of growth (Rosencrans 2004). Naturally, this slowing down in the growth of the company’s revenues may be perceived as the upcoming crisis within the corporation but, Wal-Mart’s administration is not going to change its strategies and policies radically, instead it still prefers using traditional methods it has being used for decades.

At the same time, in spite of the leading positions of Wal-Mart, the corporation is severely criticized for its current policies, which actually are not new, but typical policies u\applied by the company. In fact, its policies are basically criticized by numerous community groups, numerous public organizations, and what is probably even more important, by labor unions which are the most severe critics of Wal-Mart’s policies and business practices. In this respect, it should be said that, as a rule, the root of the problems and criticism Wal-Mart  is currently facing may be found in its business ethic or, to put it more precisely, the lack of it.

Basically, at the present moment, the corporation’s administration faces a dilemma whether to continue the strive for higher profitability and revenues, or probably, it is better to face the problems of their employees and attempt to solve them. At any rate, it is obvious that the decision the company will take in the nearest future will be extremely important since it will be the strategic choice of the company. To put it more precisely the company has to decide whether it does not change its policies and business practices, or, in contrast, the company listens to the criticism and develop the basic ethic principles of its functioning and business practices. Obviously the choice Wal-Mart has to make will, to a significant extent, define the future development of the company and influence its position in the market.

Wal-Mart and its problems of the lack of ethics

Speaking about the present criticism of Wal-Mart, it should be pointed out one more time that basically it is provoked by the lack of business ethic in the company’s policy and business practices. In fact, this is quite a strange situation, because at the present epoch, the role of business ethics becomes particularly important as it influences the commercial success of the any company increasing its respectability and popularity among both partners and customers. Thus, the value of the company’s brand grows that is extremely beneficial for the company.

However, Wal-Mart rather prefers to gain the customers’ respect and popularity by traditional means. To put it more precisely, Wal-Mart’s major strategy is to sell the most popular products to customers at possibly lower prices, though critics underlines that such a strategy of low prices does not outweigh the costs of the deterioration of the company’s image in the public eye, as well as in the view of its partners and, what is more, it deteriorates dramatically the position of employees, who often turn to be the victims of the low prices and it is employees who actually pays the high costs for the low prices.

Basically, the major part of the current criticism is business ethic-related. In this respect, it should be said that Wal-Mart often faces a serious opposition from the part of the local communities which argue that the company violates their cultural traditions and limits their economic rights and opportunities. To put it more precisely, as Wal-Mart realizes its strategy of the global expansion, it has to constantly open new stores which dramatically affect the life of the local communities and engenders their opposition. It is obvious that Wal-Mart opening new stores produce a profound impact on the life of the areas concerned since they are really enormous and inevitably, opening of new stores of the company create traffic problems, environmental problems, lack of public safety, and lead to ignoring of interests of the local communities. For instance, a Wal-Mart Superstore was opened in 2004 in Mexico. The store was just 1.9 miles away from the historic Teotihuacan Pyramid of the Moon and archeological excavation site (Kabel 2006). Naturally, the construction of the new store was viewed by the local community as the great threat to their cultural and historical heritage. Even though, when during the construction a 3 foot square ancient altar was uncovered 1 foot beneath the grade of the parking lot which had been planning to be built, the company, nonetheless, had not changed its decision to open the store in this site and, in such a way, probably, the great archeological artifact is totally lost. At the same time, traffic problems resulting from the opening of new stores lead to the deterioration of the ecologic situation in the area since environment gets more and more pollution.

Naturally, such business practices are absolutely unethical since the company simply ignores the needs and interests of the local communities, pays no attention to possible cultural, moral, and environmental harm to the areas where new stores are opened. No wonder local communities disagree with such approach and demand to follow at least basic ethic norms but, unfortunately, they remain unheard by the company administration. In fact, the company puts its profits more than any elementary ethical norms and principles and, what is more, Wal-Mart also causes really harmful economic effects on the local communities. For instance, the study at Iowa State University found that small towns can lose almost half of their retail trade within ten years of Wal-Mart opening (Kabel 2006). Such consequences, naturally, enforces the opposition to Wal-Mart unethical business practices.

At the same time, many critics of Wal-Mart argues that the company is widely supported by means of tax policy.

Practically it means that using government’s developmental incentives Wal-Mart manages to save costs for their own development and profit, while such support from the part of the state, as a rule, is excessive and unnecessary. This can also be the subject of ethic concerns since it is really unjust and unethical that such a large company, being the world leading retailer, actually uses government funds in its own economic interests.

However, the relations of Wal-Mart with its major competitors are even more criticized for the lack of business ethic.

It should be said that, in violation of all ethic norms, Wal-Mart has used a strategy of a so-called ”˜predatory pricing’.

This means that the company intentionally sold products below cost targeting at driving its major competitors out of the market. Naturally, in such a situation, it is hardly possible to speak about such elementary ethical principles as fair and just competition, or justified pricing of products. Moreover, often the company simply tends to monopolize market and violates anti-trust laws as it has recently occurred in Germany where the local High Court ruled that Wal-Mart’s below cost pricing strategy undermined competition in the region and violated national anti-trust laws (Kabel 2006). Obviously, the company intentionally ignores its basic ethic principles and continues its more pragmatic strategy of expansion and gaining new markets, even though the means Wal-Mart uses in relation to its competitors is absolutely unethical and unacceptable in the modern business. Nonetheless, the company keeps using these methods as long as they bring profit paying little attention to its public image and the attitude of competitors as well as business partners.

Nonetheless, all these violations of ethic norms, which practically border with the violation of legal norms, seems to be not very significant compared to Wal-Mart’s internal policy. In actuality, the company’s attitude to its employees provokes probably the most serious criticism, especially from the part of labor unions that attempt to protect the rights of employees but, as the practice, show often they fail to oppose to the powerful Wal-Mart corporation. It is extremely important that the attitude of the company to its employees cannot be identified as ethically correct.

In order to better understand the extent, to which the lack of business ethic is harmful for the employees working at Wal-Mart, it is necessary to simply point out that the company has an extremely high turnover rate. For instance, some specialists underline that almost 70% of employees of the company leave within the first year (Rosencrans 2004). It is noteworthy that among the major reasons of such a high turnover may be named the lack of recognition and low wages employees of Wal-Mart receive. Obviously, the lack of recognition as well as low wages are directly related with the problem of the lack of business ethic since the just reward for employees labor and recognition of his contribution into the company development are the basic ethic principles of functioning of any organization, though these factors can be also viewed even from a purely economic point of view as strong motivating stimuli that can encourage employees to work more productively and effectively.

Nonetheless, Wal-Mart practically ignores these ethic and business principles. Instead, specialists underline that Wal-Mart employees earn less than employees doing the same job in other stores. For instance, in 2001, the average supermarket employee earned $10.35 per hour, while the average stock clerk at Wal-Mart earned $8.23 per hour (Rosencrans 2004). Naturally, such a situation seems to be absolutely unfair and even paradoxical, especially if one takes into consideration the fact that Wal-Mart is the world’s largest retailed and the leading company in its segment of the market, while some of its employees are forced to apply for government-funded health care, food stamps, and other social programs to make ends meet somehow.

By the way, the health care policy of the company is another source of its criticism and accusations on the violation of norms of business ethic. It should be said that in actuality Wal-Mart practically ignores the problem of health care and its employees often turn to be practically unprotected and unsupported by the company in this respect. For instance, specialists underline that Wal-Mart’s health insurance covered only 44% of its employees in the US in 2005 that is an extremely low percentage, especially compared to its competitors such as Costco, which health insurance covered 96% of its workers in the US (Kabel 2006). Naturally, such the lack of support and provision of health care insurance to the company’s employees indicate to the lack of business ethic since the company simply exploits physically and morally its employees without giving them any real or substantial support and social safety.

However, the problem concerning health care insurance of Wal-Mart’s employees is just a part of the totally unjust policy of the company in relation to its employees. In this respect, it is necessary to underline that the conditions of work within the company are extremely difficult, if not to say unbearable. This is why it is hardly possible to speak about any moral or ethic responsibility of the company’s administration, which practically does not care about its employees. Among the most serious violation of ethic norms, which often may be viewed as the violation of legal norms and human rights of employees, may be named the fact that many employees are forced to work-off-the-clock, recently the full-time hours have been substantially cut from 40 to 32 per week, a new attendance policy is viewed by many employees as totally unfair and unjust. Also, such innovations as pay cap the company imposed compelling employees to be available to work any shift. In such a way, employees often work one shift one week and a totally different shift next week and local managers have nothing to do with it since shifts are assigned by computers at corporate headquarters (Kabel 2006).

Moreover, Wal-Mart policy is also marked by the absolutely immoral practices of the violation of child labor.

Specialists (Kabel 2006) underline that the cases when children are forced to work too late or too many hours a day are not rare. Obviously, nowadays, when human rights and safety of children labor and their health are considered to be among the most important human values, such a policy is absolutely unacceptable and, naturally, engenders a lot of criticism of Wal-Mart.

The case of Enron as the warning to Wal-Mart

Obviously, the systematic violation of business ethic is unacceptable and modern companies should change their policy in accordance with ethic norms and principles, otherwise, they are doomed to failure and ruin. Among one of the most notorious examples of such result of the systematic violation of ethic, especially in relation to employees, may be named the crisis and the following collapse of the Enron that had happened in recent years. Specialists (Swartz 2002) agree that it was the result of a permanent violation of ethic norms that gradually transformed into the violation of laws. Despite the fact that we shouldn’t equate these two notions, i.e. ethics, or it is better to say the lack of it, and the violation of laws, because immoral or unethical doesn’t necessarily mean illegal, it is still quite evident that the latter may be a logical consequence of the former. In other words if decisions contradicting to ethical norms are acceptable within a company or for some members of this company it wouldn’t be a great surprise for me if soon this company or any of its staff will break the law. In fact, the roots of the crime lie in the moral decay of a personality or the whole social group. Probably, that is exactly what happened to the Enron at large, and to some of its top executives in particular and that can potentially happen to Wal-Mart in the future if it does not change its current policies and business practices.

First of all, the following markers of a serious ethical conflict should be pointed out, namely it is a presence of 1) significant value conflicts of interests of different people or groups of people, 2) real alternatives that are justifiable, and, finally, 3) significant consequences on ”˜stakeholders’ in the situation (Madsen and Shafritz, 1990). Practically all of these markers may be found in the Enron situation, particularly the third one. So, what was the starting point of the disaster as it is called by many because it is one of the most serious and biggest financial scandals in history?

Now it is evident that the crisis had begun after the company reported about huge debts. Certainly, an investigation had been started and not surprisingly that very soon top executives were under suspect. It is not a secret anymore that top executives hide debts because they were trying to sustain the permanent growth of their company on the market and to increase the value of its shares in order to earn more money for them despite a very probable bankruptcy. They organized a very subtle web of transaction which helped them to hide millions of dollars of debts of the company as well as they also used for the same purposes complex financial partnerships. Moreover, the Enron executives profited from the situation and sold their shares in the nick of time just before the company failure. As for top executives they also earned millions of dollars with the help of their families, some friends and partnerships which were controlled by them.

The next question that logically arises is who exactly was guilty and what were consequences of the Enron collapse.

Among the most important and guilty is often called Andrew Fastow, a former Enron finance chief who is considered by many specialists to be a mastermind of the Enron failure but it is quite natural to presuppose that one person couldn’t organize such a complicated system of transactions without any other executive or manager knowing.

Another person responsible for the Enron crisis is a former Enron chief executive Jeff Skilling. But what seems to me the most shocking, immoral, and absolutely unethical is the fact that one more chief executive of the company Kenneth Lay was extensively informed and warned by middle-managers about the situation within the Enron. And in the meantime, hypocritically, he, in person, announced that he was a good, hardworking, and absolutely ignorant about all those transactions and frauds that took place in the company he was responsible for as a chief executive. It seems unbelievable but he is really so hypocritic. I think such cynic reaction reveals great problems that existed in the Enron and that there were no ethical norms that regulated relations between the Enron staff. It is even surprising, to some extent, that having such chief executives there still were some people who were fully aware of the danger for stockholders and tried to prevent the catastrophe. Probably, these people had those moral principles that are necessary for normal work of any company in the modern world and if they headed the Enron they could save it.

By the way, I want to say a few words about what could be done in order to save the Enron. I’m not going to analyze financial possibility to improve the position of the company on the market it is necessary to analyze ethical part of the problem because the lack of business ethics finally led to the numerous frauds and the legal crisis in the company. So, what could be done to prevent the Enron collapse? One of the possible ways to prevent it was the Ethical Code of the company. It shouldn’t be just a set of rules, principles or regulations written by one or several persons. To create an effective Ethical Code all members of the company everyday life should work on the project of such a code. Only this condition could provide that written regulations and principles would work in real life because all opinions would be taken into account. Certainly, an effective system of the control of the execution of norms of the Code would be vitally important and would prevent such situations when a chief executive being warned by middle-managers didn’t do anything to stop the terrible fraud. But none of the measures, as it has been just mentioned, were taken and, naturally, ethical decay ended in the financial collapse of a gigantic company. As a result many stockholders were ruined, thousands of people lost their jobs, and the criminals were imprisoned. Thus, a prospective company was ruined though who knows what could happen if the ethical principles were dominant in the company’s policy. Thus, Enron would have much more prospects and could hardly collapse.

Finally, it should be said that it seems to me that the main aim of those who were responsible for the Enron failure was just to make more money regardless the fact that other stockholders could lose their life savings. It is absolutely unacceptable in business because nobody can get richer and richer and, in the meantime, lead his or her own company to the collapse. On the one hand it is absolutely immoral, on the other hand it is a serious crime that will be severely punished and the sentences of the Enron executives prove it vividly. So, it is evident that a priori modern business, and leading executives of any company should care about prosperity of the company and society but not only about there own financial success. Nowadays, the most successful companies pay a lot of attention to the effective ethical education of there staff because really working ethical principles contribute not only to the public image of the company but they also provide for the company interior stability, and, consequently, make it more competitive on the market. In general, moral values must gradually transform into the common law. Anyway, moral principles of the business ethics become evident mainly in critical situations and if the company has any they usually unite all of the company’s staff and make it stronger and more survivable. This is why the example of Enron should be viewed as a warning to Wal-Mart.


Thus, taking into account all above mentioned, it is possible to conclude that modern business is growing to be more complicated that means that nowadays, it is not enough to simply focus on the larger revenues and higher profitability but, it is vitally important to concentrate on the development of effective measures that could guarantee such companies as Wal-Mart the observation of the basic ethic norms and principles. In fact, business ethic should be an essential part of the strategic development of any company, especially such giants as Wal-Mart. Obviously, ignoring business norms, the company will inevitably fail in the world market since nowadays it is impossible to face a serious public and employees resistance and criticism, which mainly refers to ethic questions, and remain the world’s leader in any industry or market. I actuality, ignoring of business ethic, the company undermines its public image and decreases the popularity of its brand that nowadays constitute an essential part of the value of any company. This is why Wal-Mart should launch strategic changes in its business ethic and business practices.

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