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Question:

Discuss about the Ethics, Leaderdhip and Decision Making ?
 
 

Answer :

Introduction

Nowadays, changes in the business environment have resulted in the occurrence of different situations in the organization that poses ethical dilemma. The company faces different types of ethical dilemmas such as dilemmas related to technology, health and safety of employees, transparency of different business operations and existence of fair working conditions. There is an occurrence of many accounting scandals by the companies as they do not disclose the material information to its stakeholders. It is requisite for the companies to provide accurate and complete reporting of the financial information in the accounting reports (Collins, 2009).

It is essential for the businesses to communicate the information in a transparent manner without misrepresenting the information. Avoidance of the full representation of the information has a negative impact on the business operations of the company (Johnson, 2015). This report emphasizes on the accounting scandal of Valeant Pharmaceuticals International. Besides this, it also emphasizes on the ethical theories relevant to the scandal of Valeant Pharmaceuticals. In addition to this, it also provides information related to the existence of the relationship between ethics and leadership. It also emphasizes on the measures that can be adopted by the organization to overcome the situation of ethical dilemma.

Ethical Dilemma in Valeant Pharmaceuticals

The company has appointed a new leader Michael Pearson in the year 2008 in order to implement a new strategy for the purpose of accelerating the growth of the company. For this purpose, the company has made aggressive acquisitions of different companies which resulted in an increase in the debt of the company (Law 360, 2016). Besides this, the company has also increase the prices of the drugs offered by it for the purpose of increasing its revenue in order to improve its financial performance and position in the market. It has been done by the company in order to reduce the cost incurred in the research and development programs that are used by the pharmaceutical companies in the past (Trevino & Nelson, 2010). This is the reason that the company is facing various investigations carried out by different governmental authorities such as US Attorney’s Office, the SEC and Congress. In the year 2016, the company has recorded incorrect revenue of $58 million due to its relationship with Philidor Pharmaceuticals which is not disclosed by the company (Law 360, 2016).

It had recorded the revenue prior to the sale has to be done by the Philidor pharmaceuticals. In addition to this, in earlier years the company has omitted the record of integration cost and other basic expenses incurred in acquiring the companies such as Bausch and Lomb.  The other ethical issue faced by the company is that the company has recorded sales from controlled and related companies of Valeant . For the purpose of representing increase in the purchases, the company has shown providing large discounts to wholesalers and customers which is regarded as channel stuffing (Champoux, 2010).

The company has shown an increase in the prices of two drugs which are used to treat heart ailments namely Nitropress and Isuprel of 525% and 212% in a respective manner (Law 360, 2016).  By performing such activities the company is considered failed in terms of corporate governance practices. The accounting staff and the CEO of the company has omitted various accounting requirements for the purpose of increasing the revenues and profitability through its acquisitions which results in increasing in the value of debt for the company. The company has not considered different ways that can lead it up to attain sustainable growth. For the purpose of increasing the revenues and profitability of the company, the CEO of the company has find rapid solutions to difficult issues by the way of omission of the events that has taken place and has a significant impact on the financial performance and position of the company (Daft & Marcic, 2006).

 

Ethical Theories

Ethical theories are the basic need to attain solutions to difficult problems and situations faced by people in their life. There are different ethical theories which help in getting solutions to the problems faced by the people such as Kantianism, contract theory, utilitarianism and virtue ethics. In context to Valeant Pharmaceuticals, utilitarianism theory is applicable. This theory gives emphasis on the delivering happiness and suffering to people through the actions of a person. There is a need to act in an appropriate manner for the purpose of maximizing the amount of happiness and minimizing the suffering caused to an individual or a group. For the purpose of attainment of maximization of the amount of happiness and minimizing the amount of sufferings, there can be a possibility that the individual or a group break the traditional method of performing different actions (LaFollette & Persson,2013).

As per this theory, an action of an individual is considered right in a moral terms if it results in providing happiness to large number of people in the society. In addition to this, the outcomes and actions are dependent on the circumstances. There is no moral principle which is considered right and necessary under this theory. This theory proposes that an action of an individual is carried out in such a way that it would result in producing good results for the large number of people. Besides this, this theory bases the right and wrong of the actions on the outcomes of making a choice between the action and policy over other actions and policies (Robinson & Moulton, 2005).

This theory postulates that the action is considered right if it results in the production of the benefits for the people that have a stake in it. If the people achieve benefits from the actions pursued by a group or individual then the theory does not consider the actions performed by the individual as wrong in case of lies, coercion and manipulation. This type of moral reasoning is used in day to day life in which the benefits from the performance of the actions is provided by the individual along with the prevention of the harms by carrying out such type of action.  All the people such as business analysts, scientists and legislators analyze the benefits and harms of policies for the purpose of taking appropriate decisions (Broad, 2014).

In context to Valeant Pharmaceuticals, this theory is suitable as the professionals of the company have made fraudulent accounting errors for the purpose of increasing the profits of the company. Besides this, the CEO of the company has increased the prices of drugs for the purpose of increasing the revenues of the company. This helps in increasing the profits of the company which is beneficial for the company as well as for its stakeholders. This is because; increase in the sales and profits of the company results in increasing the return on the investments by the company. Along with this, employees also get benefit from such actions in the form of increase in their pay (Landau, 2012).

The principle of  least harm which postulates that the decision maker make a choice of those actions which results in producing least harm for the people. This principle stated that the decision maker make a choice of those actions, which provide harm to few people which is beneficial for large group of people. The decision maker should not perform those tasks which provide harm to the concerned people. Under this principle, the different choices of actions do not appear beneficial wherein the decision maker choose those actions which provide least harm to few people. In context to Valeant Pharmaceuticals, the CEO of the company has made a choice of increasing the revenues of the company by increasing the prices of the drugs which provide harm to least people such as customers. In addition to this, the company has also made errors in the accounting process for the purpose of improving its financial position (Copp, 2005).

The other theory is virtue ethics which stated that the judgment is done by the character of the person rather than by their actions that is different from his normal behavior. When a person is performing unusual and unethical behavior, the consideration is given to the morals, motivation and reputation. In context to Valeant Pharmaceuticals, the CEO has a good reputation and is highly motivated but the actions of the CEO results in providing harm to the stakeholders of the company. It has come into notice due to sudden change from morel to immoral behavior and results in the occurrence of significant amount of evidence against him (Birsch, 2013).

 

Interrelationship between ethics, leadership and decision making

Application of ethical principles in the organization results in broadening of the priorities of corporate and individual ahead of profit and shareholder enrichment. It is essential for the leaders to have the responsibility to perform ethical behavior for the purpose of making sound decisions. Adoption and implementation of the ethical behavior by the employees and leaders results in aligning of the behavior with the personal values and values of the business (Zimmerli, Richter & Holzinger,2007).

Effective implementation of the ethical behavior in the organization results in an increase in the productivity and well coordinated teamwork among the employees. In addition tro this, it is essential for the leaders to specify the acceptable behavior from the employees during their recruitment and selection. There is a requirement of high level of dedication towards different jobs by the employees of the organization. A leader is considered ethical if they consider positive and negative views of all the people involved in the activity. In addition to this, it also takes into consideration that the decisions made by the leader is ethical and the members included in the decision making are accountable (Bennis,  Goleman & O'Toole, 2010).

The occurrence of the ethical actions by the people results in enhancing the integrity and credibility of the leader and helps in creating trust among the employees in the organization. This helps in improving the performance and productivity of the employees of the organization. Employees of the organization are able to create faith among them regarding their leaders due to the performance of activities by the leader in an ethical manner. This helps in improving the overall productivity of the organization. Employees consider the actions of the leaders as ethical when a leader shows kind, courteous and respectful behavior towards others. The ethical behavior of the leader is characterized by their attitudes and behaviors towards the employees and other people in the organization. An ethical leader respond to the queries of all the people associated with it in order to provide an opportunity to different employees to take decisions in a quick manner (LaFollette & Persson, 2013). 

In addition to this, an ethical leader helps in developing the skills and abilities among the employees in a proper manner which results in increasing the operational efficiency of the organization. It is essential for the leaders to communicate relevant an important information among the employees for the purpose of taking effective and efficient decisions. This helps in creation of the learning organization as it helps in developing a communication platform in the organization through which different employees to share their experiences with other employees which helps in making effective decisions by them. If the leader admit their mistakes in front of employees then the employees are free to make mistakes and ask questions from the leader which results in providing safe working environment to the employees (Barbera, 2014).

This also helps in improving the performance of the employees in the organization. The ethical leader helps in bringing all the employees together in order to build cohesion and coordination between them so that they can achieve the common goal of the business in an effective manner. It is required by the company to perform different business operations in an ethical manner such as selection of talented people, promoting the qualified people to a next level in terms of expertise in technology, culture of commitment and so on. This results in bringing transparency in the operations of the organization. This in turn results in attracting more number of employees in the organization. This is because implementation of ethical leadership in the organization helps in increasing the commitment level of the employees in the organization. It is requisite for the ethical leader to provide reasonable and justifiable pay to its employees which helps in increasing the performance level of the employees (Day, 2014).

It is required by the leader to take into consideration the personal needs of the employees which helps in increasing the loyalty of the employees towards the organization. If the employees are paid justified pay as per their knowledge and expertise then there is a possibility that employees provide best possible work as per their capabilities which helps in increasing their productivity in the organization.  It is essential for the leader to provide freedom to its employees and encourage them to develop their knowledge and skills to perform different tasks in the organization in an effective and efficient manner. It is requisite for the employees to consult with other employees before taking further actions that has a significant impact on the reputation of the business in a marketplace. In today’s world, the leaders adheres with the ethics which help them to make ethical decision making (Lawton, Rayner & Lasthuizen, 2013).

Ethics is defined as the integration of different components such as principles, virtues values and morals that provide guidance to the people to perform the task. It is essential for the employees to understand the value system of the organization which facilitates in understanding of the different operations carried out in the business which has a significant impact on the overall performance of the organization. Leaders are required to provide full information regarding different procedures, policies and programs carried out in the organization for the purpose of attainment of the common goal of the business (Ferrell & Ferrell, 2009). 

In addition to this, the leaders who adhere with the strong corporate codes of ethics may achieve sustainable growth in the future. The main reason behind it is that it shows the dedication of the company towards its employees, customers and society. It also results in improving the reputation of the company in the market.  In the presence of highly competitive environment, there is a pressure on the leaders to become profitable and provide high returns to the shareholders of the company by exhibiting ethical behavior in the organization. There is a requirement of adoption of the ethical decision making process in the organization as it helps in increasing the productivity of the company and help in achieving sustainable competitive advantage in the market (Nevarez & Wood,2010).

 

Measures taken by Valeant Pharmaceuticals to make ethical decisions

It is recommended that the CEO of the company should communicate relevant information related to different business operations to its stakeholders in order to bring transparency into the business operations. This helps the decision makers such as investors and other stakeholders to make appropriate decisions.  It is essential for the company to prepare code of ethics and circulate it in the organization in order to spread information regarding the values, policies and procedures to be carried out in the organization in an ethical manner. It is requisite for the company to monitor the performance of the organization in a regular manner in order to check whether the information is not omitted by the company as it has a significant impact on the decision making process of the company (Kiel, 2015).

Besides this, the company should adhere with rules and regulations established by different regulatory authorities in the country in order to sell its products in the market. The company should make proper investment in the research and development and provide innovative products to the customers for which it can charge high prices from the customers. The CEO of the company should engage the employees and other stakeholders in the decision making process by considering their view points and make effective decisions which are beneficial for the company as well as the society. In addition to this, there is also a need for the company to reduce the cost of the products by increasing the operational efficiency of the company (Condrey, 2005).

It is necessary for the company to provide training to the employees to upgrade their skills in order to increase their productivity. This helps in reducing the overall cost of the company and creation of the value for the customers. The company should organize different meetings to discuss the issues faced by the employees of the organization in order to provide them solutions which helps in increasing their commitment level towards the organization. There is a requirement of establishing a common communication platform where employees can share their experiences with other employees and make effective and quick decisions (Cremer, 2009).

This helps in improving the overall productivity of the employees in the organization. It is required by the CEO of the company to delegate the authority and responsibility to the employees so that employees can make effective decisions by regularly supervising the actions taken by other employees for the purpose of achieving the common goal of the business. Besides this, it also helps in reducing the wastage of the resources done by the company. This facilitates in reducing the cost of the products and creates value for the customers (Daft, & Marcic, 2006).

 

Conclusion

It can be concluded that there is an occurrence of the ethical scandal in Valeant Pharmaceuticals where the CEO of the company has increased the prices of two drugs which are used in heart ailments. Besides this, the company has also omitted some of the information from the book of accounts in order to increase its revenues and profits. Besides this, it can also be concluded that there are two theories of ethics which are suitable for the company such as utilitarianism and virtue ethics. In addition to this, the company should establish common communication platform where employees can share their views and opinions with each other and make effective decisions which results in improving their performance in the organization.  

 

References

Barbera, K.M. (2014). The Oxford Handbook of Organizational Climate and Culture. Oxford University Press.

Bennis, W.,  Goleman, D. & O'Toole, J. (2010). Transparency: How Leaders Create a Culture of Candor. John Wiley & Sons.

Birsch, D. (2013). Introduction to Ethical Theories: A Procedural Approach. Waveland Press.

Broad, C.D. (2014). Five Types of Ethical Theory. Routledge.

Champoux, J.E. (2010). Organizational Behavior: Integrating Individuals, Groups, and Organizations. Routledge.

Collins, D. (2009). Essentials of Business Ethics: Creating an Organization of High Integrity and Superior Performance. John Wiley & Sons.

Condrey, S.E. (2005). Handbook of Human Resources Management in Government. John Wiley & Sons.

Copp, D. (2005). The Oxford Handbook of Ethical Theory. Oxford University Press.

Cremer, D.D. (2009). Psychological Perspectives on Ethical Behavior and Decision Making.  IAP.

Daft, R.L. & Marcic, D. (2006). Understanding Management. Cengage Learning.

Day, D. (2014). The Oxford Handbook of Leadership and Organizations. Oxford University Press.

Ferrell, O.C. & Ferrell, J.F. (2009). Business Ethics 2009 Update: Ethical Decision Making and Cases. Cengage Learning.

Johnson, C.E. (2015). Organizational Ethics: A Practical Approach.  SAGE Publications.

Kerns, C.D. (2005). Value-centered Ethics: A Proactive System to Shape Ethical Behavior. Human Resource Development.

Kiel, F. (2015). Return on Character: The Real Reason Leaders and Their Companies Win. Harvard Business Review Press.

LaFollette, H. & Persson, I. (2013). The Blackwell Guide to Ethical Theory. John Wiley & Sons.

Landau, R.S. (2012). Ethical Theory: An Anthology. John Wiley & Sons.

Law 360. 2016. Valeant — A Case Study In Rotten Culture And Business Ethics. Retrieved 23 January 2017, from https://www.law360.com/articles/785665/valeant-a-case-study-in-rotten-culture-and-business-ethics

Lawton, A., Rayner, J. & Lasthuizen, K. (2013). Ethics and Management in the Public Sector. Routledge.

Nevarez, C. & Wood, J.L. (2010). Community College Leadership and Administration: Theory, Practice, and Change. Peter Lang.

Robinson, G.M. & Moulton, J. (2005). Ethical Problems in Higher Education. IUniverse.

Trevino, L.K. & Nelson, K.A. (2010). Managing Business Ethics. John Wiley & Sons.

Zerbe, W.J. et al. (2008). Emotions, Ethics and Decision-making. Emerald Group Publishing.

Zimmerli, W.C., Richter, K. & Holzinger, M. (2007). Corporate Ethics and Corporate Governance. Springer Science & Business Media.

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