The Importance Of Collective Welfare For Organizations

The rapid and sustained development of the economy is leading businesses to operate in a more aggressive and competitive attitude. If organizations do not remain its competitiveness nor ready to change, the likelihood to over slip an opportunity to competitors, decrease in profitability and destined to failure is proportionately higher. Therefore, due to the highly-competitive market nature, managers might exploit unethical decision making and business practices to gain the most benefits and to obtain a high position in the market; without understanding the consequences and challenges being emerged.

This thesis will define the principles of ethical and unethical business behaviour and exhibit the reasons why it has been such a crucial managerial challenge facing organizations, supported with the example of the Enron scandal. Then, one academic ethical theory will be demonstrated that guides and counsels’ organizations to manage the challenge of unethical behaviour. A paper conducted by Trevino & Brown’s (2004) indicate that ethical practices are exhibited by moral people who follow their core values, the welfare of stakeholders, and manifest concerns for the society; especially when decisions involve of ethical considerations.

Trevino et al., (2000) further interpret that a moral manager should be a role model for members of an organization in all duties, providing suitable discipline and rewards responding to decisions made, thereby a definite message of acceptable behaviour and managerial practices are being spread in the organization or certain situation. Additionally, Waddock (2012) concludes that an organization should treat moral management as a challenge in which managers should communicate frequently about values and ethics with members.

Conversely, unethical behaviour in Navaran & Joseph’s (2003) article is described as the ‘actions that encourages illegal behaviour to replace legal behaviour and that these illegal behaviours are to purposely accomplish to fulfil ‘one’ demand’. Sims (1993) further interpreted it as the managerial and operational practices run by an organization or a person that is morally wrong, such as swindling money from stakeholders that are unacceptable. One of the most sensational example that demonstrated the challenge of handling unethical behaviour was the scandal of Enron publicized in 2001.

As discussed in Premeaux’s (2009) article, the failure of Enron was originated when members of the company exercised unethical practices, for instance, establishing falsity financial reports to the public; allowing the organization to appear more profitable than its actual status. The company was untruthful to partners and shareholders and exploited actions of fraud to deceit money from potential shareholders, meanwhile hiding the fact that the organization is under huge debts.

This ultimately had a devastating damage to the economy and affected countless stakeholders who were engaged or related with the company; for example, mentioned in Hellinga’s (2010) article, people lost their pension and the energy industry was damaged significantly. Interpretations and narratives of the scandal shown how managerial decision making is extremely important; since members can easily become distracted from the nuances of moral decision-making, damaging the society and destined to fail. Walls (1988) supported this in a figure which estimated that 30% of business failures are due to manager dishonesty.

Ethical practices are vital when dealing with stakeholders and the society (Elwira, 2012); as the organization’s actions can directly benefit or loss of the stakeholders. Therefore, conducting rules and standards of the company’s ethics is significant. Suggested from SOAS, University of London (n.d.) - the Utilitarian theory, originated by philosopher Jeremey Bentham in the eighteenth century, can be a feasible framework for managers to follow.

The principle of the framework emphasizes that organizations should look beyond individual welfare and focus on collective welfare and consider of the interests of others. In other words, when managers are making decisions they should minimize the overall harm to all stakeholders meanwhile maximize net benefits in a moral way. This theory provides a guide to what managers should aim for when making decisions and have the understanding that the outcomes of unethical actions for self-benefits will directly affect stakeholders (CAAE, 2002).

To conclude, it is crucial for organizations to prevent and manage unethical business practices; top executives should frequently communicate with members in a suitable manner, and be a role model to educate them. The Enron Scandal presents that decision making by the management is exceptionally critical for the survivability of a business; if managers made the wrong and unethical decisions it will damage the organization, carry negative impact to stakeholders and the society and potentially destined to failure. Ultimately, the utilitarian theory is a framework that allows managers to take reference from when managing unethical practices, and knowing the ultimate consequences.