Question

In: Operations Management

2. What ethical considerations do you have when in a contractual relationship? (Hint: There are two...

2. What ethical considerations do you have when in a contractual relationship? (Hint: There are two factors in making business decisions. Law. Statutes and Court decisions, and ethics. Discuss how ethics should be a consideration in making business decisions.).

Solutions

Expert Solution

Ethics should be a consideration in all business decisions and relationships, however in contractual relationships they need to follow the terms and conditions pre-decided in the contract as well. A contract is a an agreement between two parties that creates its own obligations to be followed - buyer to seller, service provider to service receiver. It will set out the terms and conditions that must be met by both parties in order to achieve a mutually-beneficial outcome and both parties are bound by law to complete their end of the deal. An ethical obligation might be inserted into a contract as a way of ensuring quality (e.g.used car must be in good condition) and could have an explicit penalty pre-decided (e.g. any key issues with the used car in the first 3 months must be fixed by seller). These are protected by laws and legal statutes. However, there can arise ethical considerations that are not included in a contract but are a morally defined set of standards that all parties must adhere to. Following the law, following a contract and following ethical standards therefore can have a significant overlap in execution. Legally, a used car salesman can sell a car as long as he does not misrepresent the details of the purchase. Contractually, the car needs to be in a running condition and have all the required paperwork and equipment in working condition. Ethically, the seller should ensure that the product is in the best possible condition before selling.

Ethics should also be a consideration in business decision-making by impacting words and deeds in the process. All organisations define a set of guiding core values that they wish to embody in the course of conducting business. These core values should define the focus and direction of decisions taken, as well as the criteria used for decision-making. Companies can include ethical standards over and above the industry/technology/legal standards as a way to improve decision-making.

- Safety and compliance : While legal and regulatory aspects will drive the compliance of industry standards, a firm should also ensure ethical standards are included in designing and implementing strategies to create a better working environment. Industry standards seek usually to avoid damage and to ensure safety of processes and people, businesses should however include ethical standards in their decision-making to help enhance the same aspects to turn them into great places to work (e.g. offer work from home options, flexible work hours).

- Responsibility and integrity : While these aspects are not measurable, they do positively impact a brand's name and image in the market. Being socially and environmentally responsible help a company achieve and retain a good name in the industry and marketplace by showing how they value their ethical obligations as much as their business considerations. Similarly, integrity in disclosing pertinent information to customers is also appreciated by them and can help to create an image of an honest firm. While making key strategies and decisions surrounding products, long-term planning, usage etc. businesses should include ethical considerations such as giving back to the community/vendors/employees/planet (e.g. social/environmental initiatives), ensuring marketing is clear and honest (e.g. no incorrect messages just to achieve higher sales), honest accounting/reporting (e.g. no accounting malfeasance such as worldcom or enron). Incorporating these ethical considerations into their business decisions can go a long way to building and retaining a good reputation in the marketplace.

- Respect and trust : These attributes are hard to achieve in today world of information leaks. Businesses can build these by ensuring their workers are treated fairly and equitably (e.g. equal pay for women and men) and by ensuring that employees' rights are not impinged upon (e.g. overly high bonuses to senior management even in times of crisis as in BP). Employees that trust their employers are likely to stay with the firm for longer periods reducing attrition and retaining crucial intellectual property.

(Design innovation, 2020)

Reference :

Decision Innovation. (2020) Addressing Ethics in Decision Making


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