Lyazzat Dikhanbayeva (Lisa)

What is your philosophy of proper leadership ethics in your industry or

career path?

In nowadays life most companies try to succeed by increasing profit of company and

sometimes by going even over the ethical norms, which affect various aspects of life. The

highly important for organizations do not ignore stakeholder’s needs, because in the long-

run they will not get some benefit from that type of approach. Success could be measured

from different ways, including benefits for community, trusting relationship with

shareholders and suppliers, and best conditions for employees, along with high profits.

Stakeholders are groups impacted by business, and also can make an impact to

business back. Stakeholder approach is determined by actions taken by organization to

address issues aroused among stakeholders, fulfilling their expectations, and ensuring

good relationship with them in the future. This approach consists of two-way relationship

(1). Being Stakeholder-oriented means views and demands of all stakeholders of

business (not only owners) are taken into account. This may increase interest of

stakeholders in overall well-being of business. For instance, some actions of this

approach may look like this:

· by providing customers with safe product and friendly service, company

may expect them to return in the future

· by providing community with sports facilities may enhance relationship

with people which can lead to increased sales;

· by supporting community with benefit, such as with books and supplies

for schools may attract more customers

· by providing employees with a good salary may motivate and encourage

them to work more effectively (2).

“Dr. Larissa Grunig et al. (2002) concluded that an effective organization is the

one that strategically chooses goals that are most valued by its constituencies and further

successfully designs programs to achieve those goals. Being effective requires an

organization to not only reconcile organizational decisions with the interests and concerns

of diverse constituencies but also cultivate quality, long-term stakeholder relationships,

which increase stakeholders’ willingness to work with the organization” (3). Moreover

stakeholder orientation gives broader view on company’s potential risks and

opportunities.

Stakeholders can be divided by two – primary and secondary. However roles of

stakeholders may vary depend on particular situation. Most common primary

stakeholders are employees, consumers, investors, community and environment (1).

Heart of any company is its workforce. Employees are - key drivers of any

business and success of a company and their satisfaction are interdependent. Rights and

well-being of workforce must be one of the top priorities to concern about. Majority of

unethical practices appear within organization and among employees. There are many

factors to consider, such as elimination of discrimination, diversity of cultures, ages and

genders, safety of the workplace and compensation and benefit (1). For instance, let’s

take Nike Company, which faced numbers of lawsuits related to unacceptable conditions

of working. Nike is one of the largest manufacturers of sport goods in the world. Most of

Nike’s factories are located in Asia, where labor work is cheaper. After replacing
Japanese suppliers with Korean and Taiwanese, costs increased, which forced Nike

employees to move to the third-world countries. Several NGOs monitored these factories

and found out many cases of human right abuse, discrimination, unsafe working

conditions and extremely low salary. After these issues were revealed and brought to

public, people began their protest against Nike. They cancelled deals with Nike, and

picketed stores. Eventually Nike’s stock and revenue fell down by 50 %, and company

had to lay off 1600 employees (1). This was a great example of consequences of

workforce neglection. Stakeholder approach ensures full satisfaction of employees, and

avoidance of expensive lawsuit, and loss of reputation in front of public. In my opinion,

such multinational corporations must pay a lot more attention to its subsidiaries and carry

out frequent monitoring, by the help of different NGO’s, because size invites scrutiny.

Thus they will be able to prevent such human right abuses from happening. Also, it is

important to set up common code of ethics and communicate it through all the existing

branches. In addition, practicing high human rights compliance can be profitable. “Most

consumers care enough about the environment and the community that they consider

these concerns when making purchase decisions — including taking into account whether

a company treats its employees fairly or is deemed environmentally friendly by an

organization like Greenpeace” (4). For instance, in the article of Wall street journal Remi

Trudel and June Cotton describe researches they conduced lately. “They showed

consumers the same products -- coffee and T-shirts -- but told one group the items had

been made using high ethical standards and another group that low standards had been

used. A control group got no information. In all of our tests, consumers were willing to

pay a slight premium for the ethically made goods. But they went much further in the
other direction: They would buy unethically made products only at a steep discount.”(5)

Most of studies show that business that ethics in a workplace pays off significantly in the

future. Also, workplace environment must remain favorable, and should be maintained.

As an example of bad organizational culture, we can take Enron. Their method of yank

and rank showed itself as most negative in treating employees. They put a biggest

pressure and a sense of continuous competition on workforce, which was a sure way to

destroy its culture. As a result, staff was not willing to report any bad news to managers,

and they in turn concealed the actual situation and condition of a company. Since

employees felt that speaking out negative news would put them under a risk of being laid

off, they decided to deceive in order to stay employed (1). In this dog-eat dog world, this

way of operating within a company and such environment worsens current situation,

which after all can be ruinous in the future.

Second type of primary stakeholders is consumers. All the business are directed to

produce whether goods or services to consumers, and operate from this interactions.

Thus, customers’ demands and concerns must be highly valued and addressed.

Organization’s main aim must be around safety of the products. Many unethical issues

arose among pharmaceutical companies, like Merck & Co., Inc. concerning their

concealment of the life-threatening side effect of its drug named Vioxx. Side effects

included heart attacks, blood clots, severe intestinal damage, ulcerations and bleeding,

and kidney damage. As a result of numerous lawsuits Merck & Co agreed to pay $4.85

billion (6). Another case took place in Belgium, when approximately 30 children became

ill after drinking Coca-Cola, which led to recall of all the production in Belgium,

Luxemburg and Netherlands, and ruined company’s reputation (1). If company wants to
stay in business as long as possible, it must pay enormous attention to prevention of such

risks. Also, company should concentrate on improving quality rather than decreasing a

cost. Products consumed by people directly have to be highly monitored. Customer’s

satisfaction must be priority. When company has gained favorable reputation among

public, it makes launching new products much easier. Plus, as previously mentioned,

ethical companies get higher profit from acting ethically. While products are one aspect

towards consumer’s satisfaction, another aspect is service provided to them. Employees

should be interested in satisfying customers, which is a job of managers. Furthermore,

nowadays, wider amount of public become concerned with their health. This brought up

new boom for companies. They now try to switch to organic and healthy products. For

instance six of the biggest fast-food chains have pledged to serve more salad and cut the

levels of fat and salt in their products. Burger King, KFC, McDonald's, Nando's, Subway

and Wimpy agreed to make their menus more healthy as part of the Food Standards

Agency's anti-obesity drive (7).

Investors and shareholders do also play significant role in a life of any

organization. Most of the unethical issues that happen are linked to fraudulent activities.

For instance, Arthur Andersen accounting firm had been involved in many scandals

around such companies like Sunbeam, Baptist Foundation of Arizona and Enron. Enron

Company was one of the biggest Andersen’s clients. After careful investigation

performed over the 5 years worth financial statements of Enron, it was revealed that $586

million were signed off (1). This led Enron to bankruptcy. Thus, many investors and

shareholders were bilked by Andersen, and in fact lost significant amount of money. So

formerly “Big Five” became “Big Four”, when Arthur Andersen had to disappear from
business field forever. In order to prevent such problems, Congress had established

Sarbanes-Oxley act, which provides federal monitoring of the accounting practices (1).

This enhances investor’s safety and confidence. However organizations should plat part

in building this trust and accountability. First and the best way of achieving it is

communicating honestly. Managers have to report to executives, and executives, in turn,

must ensure that all the information is well-processed and delivered to Board of directors

and investors. For the reason, if shareholders are aware of company’s condition risk of

being mislead and failure extremely decreases. I think, people investing money for the

sake of the company deserve to get up-to date information, and to participate.

Giving back to community is integral part of social responsibility of the

organization. It can come in a form of philanthropy, volunteering, social marketing and

etc. Philanthropy can be performed in many different ways. According to statistics 41%

of all companies (65% of large companies) have formal or active partnerships established

with charitable institutions (8). Most of them decide to concentrate supporting education,

health care and environment. Coca-cola in this sphere showed itself as a great community

supporter by designing and offering educational grants and scholarships to more than 170

colleges, and still planning to increase this number within next 4years. Since 1986 Coca-

Cola Company has donated about $22 million for education (1). As McKinsey Quarterly

survey on corporate philanthropy in 2007 showed that Philanthropy helps business to:

· Enhance reputation/brand of a company,

· Build employee and/or leadership capabilities & skills

· Improve employee recruitment/retention

· Differentiate itself from competitors

· Build knowledge about potential new markets or products

· Inform areas of innovation for existing products/services (9).

To support that philanthropy is extremely beneficial, let’s take a look at another

research. Research of Walker Information, INC. was also conducted to measure value of

philanthropic activities to a business. Findings showed that:

1) Improves employee relations (e.g., improves employee recruitment,

retention, morale, loyalty, motivation and productivity)

2) Improves customer relationships (e.g., increases customer loyalty, acts as a

tiebreaker for consumer purchasing, enhances brand image)

3) Improves business performance (e.g., positively impacts bottom-line

return, increases competitive advantage, encourages cross functional integration)

4) Enhances a company’s marketing efforts (e.g., helps create a positive

company image, helps a company manage its reputation, supports higher prestige prices,

enhances government affairs activities) (10).

Thus, it is clearly can be seen that both survey and research came to almost

similar results. I believe that companies, especially large ones, should hold on to

utilitarian philosophy by generating high returns to investors and contributing to a

broader community good at the same time. Another way of giving back to community is

called Social Marketing. “Social marketing is - the planning and implementation of

programs designed to bring social change using concepts from commercial marketing”

(10). Some companies use social marketing in communities which they belong to by

application and promotion of marketing along with a message for social benefit. It assists
in increasing public awareness around some crucial issues. For instance, we can see anti-

smoking ads, or appeals to keep environment clean.

The last but not least is environment. It is an integral part of a business. As a

result of performance of many companies environment became a main sufferer

nowadays. Problems such as ozone depletion, deforestation, air and water pollution and

many more arise one after another. Organizations should take responsibility of impact for

their activities on environment. United Nations developed a program called Agenda 21,

with blueprint of actions to be taken globally, nationally and locally by organizations of

the UN, governments, and major groups in every area in which human’s impact on the

environment. It was adopted by more than 178 countries. One of its objectives looks like

this: “To strengthen institutional structures to allow the full integration of environmental

and developmental issues, at all levels of decision-making” (11). Exxon Valdez oil spill

in 1989 is almost one of the greatest environmental disasters caused by people. In spite

of the extensive cleaning, oil remained in a shoreline. It caused death of thousands of

animals and birds. Local fishery industry also suffered from it for years. Even though

they paid for damages, this sort of risks could have been prevented (12). This issue

became a lesson for the whole world. Environment is a nature in with we live and which

surrounds us everywhere, and must be careful in treating it, or it will affect us. “Going

green” became popular among organizations, and they started reducing footprints

emission, switching to paperless business and recycling wastes. Dell Company can serve

as a good example of eco-friendly business. They provide no-charge recycling of any

brand of used computer or printer with the purchase of a new Dell computer or printer.

Equipment is to be recycled in an environmentally-responsible manner by global

organizations (13). Furthermore, some countries have strict rules towards protection of

environment. For example, Kyoto Protocol is one of them. “The Kyoto Protocol is an

international agreement linked to the United Nations Framework Convention on Climate

Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37

industrialized countries and the European community for reducing greenhouse gas

(GHG) emissions .These amount to an average of five per cent against 1990 levels over

the five-year period 2008-2012.” (14). They set certain limits for emissions, and

companies operate within them. However if some organizations cannot fit in, they have to

buy permission for excess carbon dioxide emission. This is called “emission trading”.

To sum up, according to Freeman, stakeholders are: groups and individuals who

benefit from or are harmed by, and whose rights are violated or respected by, corporate

actions. Just as stockholders have a right to demand certain actions by management, so do

other stakeholders have a right to make claims (15). In contrary to stockholder approach

“that place the interests of profit-seeking owners above all else, stakeholder theorists

argue that corporate executives have moral and ethical obligations to consider equally the

interests of a wide range of stakeholders affected by the actions of a corporation.” (16).

Sticking to a goal of increasing shareholders wealth somewhat can stretch boundaries of

unethical issues. In my point of view, since this single goal of a company is expected to

be accomplished, employees will probably “do whatever it takes” to fulfill it, thus

crossing the ethical line when needed. Focusing on only one objective is not reasonable

any more. That is why business should take into account all its possible constituents.

Stakeholder approach is unquestionably important framework in running a business and

term, however Stakeholder orientation ensures profit growth, company’s name

recognition, appreciation by investors, employees, public and media, which can lead to

prosperity in a long run. Company concerned with stakeholder’s demand get essential

support from them two, and altogether they cam accomplish goals that they would not be

able to achieve alone. As a result of proper usage of stakeholder orientation wider

amount of people will benefit. For employees it gives advantages such as better working

conditions, assurance of justice (free from discrimination), and motivation. Customers

benefit from it in a form of better quality products, safety and satisfactory service.

Investors can be confident about honest communication and transparency of organization.

Community benefits most by receiving support in a form of philanthropy and voluntary

help. Environment will not be taken for granted, and companies’ actions will be directed

to conserve natural resources and eliminate overall destructive impact on it. Also,

environmental protection is a requirement by government. Stakeholder approach must be

adopted by all, and especially large organizations, for the reason that any business affects

them, and o far they are able to affect business back. It only depend if this impact is

positive or negative. If company gains a good reputation for it’s deeds among

stakeholder, they will be ready to stand for it no matter what, and support it. On the other

hand, if organization neglected its primary stakes, this would influence to its

performance. The most important thing is to make an analysis and define primary ones,

and then start acting to addresses issues raised by them. There should be no gap left.

Helpful tool in accomplishing it is Code of Ethics. Studies showed that companies which

developed code of ethics and stuck to it for at least five years outperformed those who
had not (17). It should give insight of company’s real values and beliefs, and represent

the structure in which company tries to benefit all the possible stakeholders. For the

multinational companies it can be harder to control that code of ethics was effectively

communicated to every employee. However this pays off. If workforce sees integrity in

its company’s actions related to its values, it will be empowered to adopt the same

approach. All in all, Stakeholder approach is not only financially profitable, but essential

framework and key to a successful business.

1. Ferrell, Fraedrich. Business Ethics: Ethical Decision Making and Cases. Boston:

Houghton Mifflin Company, 2008.

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3. Chen, Yi-Ru. "All Academic Research". All Academic Inc.. June 22, 2009

<http://www.allacademic.com//meta/p_mla_apa_research_citation/1/1/3/4/1/pages113413

/p113413-6.php>.

4. Cohen , Sally M.. "Forrester. Making leaders successful every day". Forrester

Research, Inc.. June 22, 2009

<http://www.forrester.com/Research/Document/Excerpt/0,7211,53746,00.html>.

5. Trudel, Cotton , Remi, June. "Wall Street Journal/MIT Sloan. Does Being Ethical

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<http://sloanreview.mit.edu/business-insight/articles/2008/2/5028/does-being-ethical-

pay/>.

6. June 21, 2009 <http://www.consultwebs.com/vioxx_alert.html>

7. Poulter , Sean . "Burger King, McDonald's and KFC agree to cut levels of salt and

fat in foods". Associated Newspapers Ltd. June 22, 2009

<http://www.dailymail.co.uk/news/article-1088113/Burger-King-McDonalds-KFC-agree-

cut-levels-salt-fat-foods.html>.

8. Veleva, Vesela . "The State of Corporate Citizenship 2007". Boston College

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Company. June 22, 2009

<http://www.mckinseyquarterly.com/The_state_of_corporate_philanthropy_A_McKinsey

_Global_Survey_2106>.

10. "Social Marketing". Social Marketing Institute. June 21, 2009 <http://www.social-

marketing.org/sm.html>.

11. "Agenda 21". UN Department of Economic and Social Affairs. The Division for

Sustainable Development. June 21, 2009

<http://www.un.org/esa/dsd/agenda21/res_agenda21_08.shtml>.

12. "Exxon Valdez oil spill". Wikipedia the free encyclopedia. June 22, 2009

<http://en.wikipedia.org/wiki/Exxon_Valdez_oil_spill>.

13. "Recycling". Dell Company. June 21, 2009

<http://content.dell.com/us/en/corp/about-dell-recycling.aspx>.

14. "United Nations Framework Convention on Climate Change. The Kyoto Protocol.

". UNFCCC. June 21, 2009

<http://unfccc.int/kyoto_protocol/mechanisms/emissions_trading/items/2731.php>.

15. Freeman , Edward R.. Strategic Management: A stakeholder approach.. Boston:

Pitman, 1984.

16. Stern, Reuben J.. Stakeholder Theory and Media Management: Ethical

Framework for News Company Executives.. USA: Journal of Mass Media Ethics, 2008.

17. Webley, More, Simon, Elise. "Does Business Ethics Pay?".Institute of Business
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