Discuss about the Role of Culture in Developing Ethical Practices of Business.
In the organisations, culture plays an important role in defining the behaviour and attitude of employees and other stakeholders. It also helps the firms to ensure their success by providing better products and services to the customers. Along with this, the culture also impacts on the decision-making process of the firm and the ethics of employees’ actions (Guiso, Sapienza and Zingales, 2015). For this, it is essential for the firms to create and maintain an effective corporate culture with a focus on ethics. In this way, this paper critically analyses the literature for the role of culture in developing ethical practices and activities of the organisation.
Buschgens, Bausch and Balkin (2013) define the corporate culture as one of the basic elements of innovation process. It is because, through an effective corporate culture, the firms are enabled to enhance their abilities to create and commercialise new technologies. In their study, Buschgens, Bausch and Balkin (2013) also define the corporate culture as the complex set of values, beliefs and assumptions that support the organisations to conduct their business activities significantly. The basis of organisational culture is related to the shared values, which are communicated by the organisational members. Cohn, Fehr and Marechal (2014) support the above by defining that most of the organisations consider organisational culture as a tool and technique that creates the facilitating environment, which helps the companies to complete their business activities in ethical ways.
Abratt and Kleyn (2012) exhibit that corporate culture is the corporate values that the staff and management of the organisation retain in order to improve the positive organisational behaviour and to achieve the organisational objectives. In this, the corporate culture is essential for the firms to enhance their positive behaviour and attitude in the marketplace in order to achieve their targets and to achieve competitive advantages in the respective industries. According to Toussaint and Berry (2013), an effective corporate culture leads the organisation to improve the operations and services to provide satisfaction to the customers. In this, creating a lean culture is effective for the firm to make continuous improvement in the organisational environment so that employees can learn new and ethical attitude and behaviour to solve the organisational issues and problems.
On the other hand, in the study Schwartz (2013) defines the corporate culture and develops the direct relationship between corporate culture and ethical behaviour. In this, Schwartz (2013) states that in the organisations, ethical values help the management members to retain the sustainable and ethical corporate culture, which also ensures the success of the organisation at the national and international marketplace.
Ethics and Ethical Climate
In general, ethics refer to the study of principles or values that determine whether the actions are right or wrong and outcomes are good or bad. In the views of Michaelson, et al. (2014), in the organisation, ethics refer to the processes that create the alignment of individual actions and the moral codes. In this, ethics plays an important role in analysing the moral processes and describe them in order to improve the behaviour of employees and other stakeholders. But, Kuntz, et al. (2013) contrast that in the organisations, ethics and moral are two different terms, where ethics examines the principle of right and wrong. On the other hand, morale is a belief that society has about the right and wrong in the communities.
According to Chun, et al. (2013), corporate ethics can be defined as the employees’ perception related to their firms’ ethical practices, which help the firms to predict the outcomes and also improve the satisfaction and commitment level of employees. But, Wang and Hsieh (2013) oppose that ethics are effective in the ethical climate in the organisation. It is because the ethical climate helps the employees and other stakeholders to adopt the ethical practices and develop the ethical behaviour to achieve the organisational objectives. Without the ethical climate, the employees may be discouraged to perform their work and get motivated to achieve organisational objectives successfully.
Importance of Culture in Developing Ethical Behaviour and Practices of Business
Valentine et al (2011) suggest each and every company is defined by its ethical culture as it is a unique and true identity of a company. Sometimes, company’s product, strategies as well as techniques can be duplicated but, culture cannot be copied as it is related to the norms and values of an organization because culture represents the personality of the business. Gokmen and Ozturk (2012) describe that the way in which company and team interact with one another as well as with the outside world such as suppliers and partners are defined by an organizational culture. Business ethical culture is a formula, strategy to inspire, guide, and motivate employees to achieve organizational goal. Culture is basic criteria for creating happy, fun and work environment of business.
Company’s ethical work climate is significant to identify the ethical uniqueness of the work surroundings. Ardichvili and Jondle (2010) exhibit that retaining and attaining great talent for a company can be achieved by the help of good as well as positive environment within the company. A culture of a company should be taken seriously by the business to attract more partners, have an increased amount of profit, and enjoy great success. Additionally, strong culture of business helps to retain employees i.e. fewer turnover rates as compared to others. This results in saving money as well as a time of the company. Salehi, Saeidinia and Aghaei (2012) if the culture of a company is good, then it will surely contribute to the happiness of employees with happy employees with high productivity.
Schneider, Ehrhart and Macey (2013) mentions that 42% of employees think that business’s ethical integrity is significant to take working decisions at the company. Culture is most important factor for employees to determine what kind of business practices, employee treatment is considered by the company to make people work there instead of the services, quality, and price offered by the company. Eisenbein and Brodbeck (2014) state that practicing good ethics may not be easy for the business, however, culture is must have rather than good to have in an organization. Further, a business relationship can be made strong by ethical business practices in the company to have a professional image among clients, vendors, and future business partners. Demuijnck (2015) state that good business ethics of the company helps in creating very strong business relationships that result in the source of financing, lower product costs, repeated customers along with the growth of a company. This benefits business contracts as well as business for surviving long in the competitive market.
Also, strong ethical business practices can result in valuing strong company brand and business reputation in the market. As illustrated, if the company provides value in its services then customers will believe the company and also go for repeat purchase of the product or services. Guerci et al (2015) state that business ethics of a firm can help it to stay ahead of the competition along with fewer business practices. Risk of damaging business reputation can be minimized to a larger extent by building ethics into the organizational culture. For example, if a wrong action or an unethical transaction has taken place by an employee with a customer, then few seconds will take place to spread this information by the customer which will hurt company’s reputation. Hence, Garegnani, Merlotti and Russo (2015) said that the company must build ethics into performance expectations for employees to have security against this negativity. If transparency of business ethics is practiced by an organization in its culture then it will surely result in customer loyalty. Moreover, organization can share videos of how the company practices recycling the product to benefit the environment.
Along with this, Banutu-Gomez (2014) corporations should not forget to share news on volunteer programs and charities to attract more potential customers towards them. With the help of transparency, a company can increase customer trust also satisfied customer will promote company over time. The company needs to practice ethics in its culture for increasing its market image. This can be done by the help of social responsibility towards society. Organization must practice as well as operate a business according to set ethical standards for which ongoing commitment is must. Fernando and Moore (2015) training on ethical marketing must be the basic of organizational culture. This may include giving warranties on the product, return policies for customers by the side of merchandise, supporting advertising promises, and telling the truth to the customers. Health care compliance such as product free from harmful substances along with the accountable business practices and code of conduct must also be included in the organizational culture.
As illustrated, in the financial report of a company, correct figures of profitability and loss must be mention accurately. Eisenbein and Brodbeck (2014) this will result in gaining more trust of employees and shareholders as a part of practicing transparency in business. If the company's vulnerability to misconduct is decreased then it results in profitability cause of the company, management focus, and building brand image. Beside this, Trevino, Den Nieuwenboer and Kish-Gephart (2014) practicing ethics in business culture can help avoidance of fines. Because, companies and their employees need to deal with various local, national as well as international laws governing their business operation. Failure to these standards fulfillment may lead to time and resource cost, decrease brand image and customer loyalty. In addition to this, Lawton and Paez (2015) initiatives taken for strong ethics development can highly reduce the fines chance, resulting from illegal, misconduct, wrongful, and fraudulent activities conducted in the business world.
Jondle, Ardichvili and Mitchell (2014) describe that culture plays an important role in developing and implementing effective mission and vision of the organisation, which significantly lead the firms to adopt ethical behaviour and practices to achieve these mission and vision. It is because mission and vision statements provide the directions to deliver the products and services to the customers in ethical ways. Nesbit and Lam (2014) support the above arguments by exhibiting that corporate culture helps the firms to identify the ways for developing the mission and vision in ethical ways and link them with the shared values. Due to this, the firms enable to improve the employees’ behaviour and attitude to meet this vision and mission statements at the end of the particular period.
Treviño, et al. (2014) argues that the positive organisational culture creates the conditions where the behaviour is openly accessed, challenged, developed and rewarded. Due to this, the firms also enable to promote the ethical practices among the employees and other stakeholders, which lead the firms to achieve competitive advantages and to gain their objectives in the markets. On the other hand, Henderson, et al. (2014) define that in the organisation, culture is influenced by the several factors such as delegation of authority, assignment of responsibilities and the process of accountability. In this, proper communication of corporate culture such as code of conduct and job description helps the firms to promote the ethical behaviour and practices throughout the operational areas.
Guiso, Sapienza and Zingales (2015) support the above and describe that corporate culture and compliance rules provide the incentives and opportunities to the ethical individuals to maintain their honesty and integrity at the higher level. Along with this, due to this, the ethical individuals effectively monitor, punish and correct the unethical individuals or behaviour within the firm.
From the above literature analysis, it can be concluded that the culture plays an important role in shaping the ethical practices and developing these practices to provide ultimate benefits to the organisation. The development and implementation of effective and positive corporate culture help the firms to improve the behaviour of employees and provide them guidance to conduct their practices in ethical ways. Due to this, the firms enable to enhance their brand reputation, recognition as well as provide better services to the customers to maintain relationship with them.
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