Business Ethics
and the Environment
Author: Nabil Ishak - Fontys Hogescholen
Introduction
Business enterprises today are expected to meet standards of responsible business conduct that go beyond what had been expected traditionally. Although people more often than not still speak of business in terms of products, jobs, and profits, it is understood and accepted across the globe that a business enterprise remains a member of its community. The pursuit of profits and economic progress is not a license to ignore community norms, values, and standards of respect, integrity, and quality.
Improved business performance, profits, and economic progress come to those who effectively and efficiently foster and meet the reasonable expectations of their primary stakeholders which are customers, employees, suppliers, investors, and the environment, as well as the owners and managers themselves. Moreover, many businesses now concern for the impact they have on all their stakeholders, including their social impact (how they deal with employees, suppliers, and the community) and their environmental impact (how they treat the environment).
Instead of showing a lot of ways that business, ethics, and environmentalism conflict and lead to impossible choices, it is more useful to ask, “How is it possible to put these ideas together?” Businesses must continue to create value for their financiers and other stakeholders. To leave a livable world for future generations, business leaders also must pay attention to environmental matters. Yet most of the methods, concepts, ideas, theories, and techniques used in business do not put business, ethics, and the environment together. In addition, environmental considerations are frequently viewed as barriers to profitability. The environment is rarely considered central to business strategy unless there is some regulation that constrains business goals.
Code of Conduct in Protection of the Environment
A code of conduct is often the primary means by which management gives guidance to its employees and agents as to what is expected of them by way of business conduct. A code of conduct addresses minimum standards of conduct and procedures to reduce the enterprise’s risk of liability and damage to its reputation. A code of conduct should address the enterprise’s standards, procedures, and expectations regarding the environment. A code should include a statement that the enterprise will abide by both local and international laws and regulations designed to protect the environment. It should address how the business balances production objectives with environmental protection in general. In more detailed standards, procedures, and expectations, the enterprise might discuss how to reduce waste products, how to avoid polluting air and water, and how to manage and report chemical use and disposal.
In this case, Global Warming is one issue that we focus on. Global warming is not a 20th century phenomenon. It has, in fact, occurred in the past more than once, along with periods of extreme cold known as the ice ages. With so much written and reported about global warming, sometimes it’s difficult to detect which is fact and which is just part of scientific scare tactics. Global warming has and will always occur naturally. Why it has become such a concern in our lifetime is due to the fact that human activities and practices have contributed significantly to its occurrence and severity. With the advent of industrialization and careless environmental practices, we have caused the increase in the average global temperatures by contributing negatively to the greenhouse effect.
Now, most businesses try to dismiss the global warming issue as hyperbole because they do not want anything to disrupt their exploitation of developing countries. If we do a research we will see that the further industrialization of developing countries such as India, China, Indonesia, Vietnam, and other countries is contributing to global warming. Eventually, businesses have to come up with environmental responsibility as one of their business ethics. Environmental responsibility is a vital component of a business strategy as it not only helps the environment, but it wins the trust of communities and gains the respect of the governments of the countries in which the business operates.
The environmental responsibility can be shown through creating a product life cycle, which is oriented to environmental policy. This is aimed to avoid the shift of environmental problems from one stage of the product life cycle to another. All stages of product life cycle need to be addressed, e.g. design, raw materials utilized, production processes, transport/distribution, use/consumption, and waste/disposal phases. For example, enterprises should take into consideration the use and waste phases when designing a product so as to minimize the overall environmental impact (including pollution). In addition, enterprises must also implement eco-efficiency strategies, as these have immediate positive effects notably in terms of reducing energy and resources consumption, minimizing waste generation, etc.
However, business ethics (environmental responsibility, as a part) is not a simple as it looks as there is no longer one agreed moral code and multinationals operate in different parts of the world, employing and serving people from different cultures. Profit will still be the main motivating factor for businesses and this affects all the people who work there, generating its own culture with its own standards, so it becomes difficult for individuals to stand up against any attitudes and decisions they disagree with.
Conclusion
Recently, there has been a rapid growth in knowledge and technology, so that humans now face choices we have never had to face before that affects the continuation of humanity and the world within which we live.
Global Warming is one of those issues. This issue “pushes” the businesses to consider all their impact on the environment such as emitting pollution, producing waste and the use of resources. So they must be able to think about their business ethics since the importance of environmental ethics is brought home daily by the news of global warming and its effect on our lives, both now and in the future.
In addition, balancing business growth and environmental responsibility are always going to be a challenge for business. Businesses are encouraged to have an environmental responsibility, just as they do for many other issues – again this has often been a reaction to consumer pressure, and also international pressure from organizations.
Finally, as consideration, global warming will probably be one of the greatest threats to long-term human survival and our future will depend on how we respond today.
Introduction
Business enterprises today are expected to meet standards of responsible business conduct that go beyond what had been expected traditionally. Although people more often than not still speak of business in terms of products, jobs, and profits, it is understood and accepted across the globe that a business enterprise remains a member of its community. The pursuit of profits and economic progress is not a license to ignore community norms, values, and standards of respect, integrity, and quality.
Improved business performance, profits, and economic progress come to those who effectively and efficiently foster and meet the reasonable expectations of their primary stakeholders which are customers, employees, suppliers, investors, and the environment, as well as the owners and managers themselves. Moreover, many businesses now concern for the impact they have on all their stakeholders, including their social impact (how they deal with employees, suppliers, and the community) and their environmental impact (how they treat the environment).
Instead of showing a lot of ways that business, ethics, and environmentalism conflict and lead to impossible choices, it is more useful to ask, “How is it possible to put these ideas together?” Businesses must continue to create value for their financiers and other stakeholders. To leave a livable world for future generations, business leaders also must pay attention to environmental matters. Yet most of the methods, concepts, ideas, theories, and techniques used in business do not put business, ethics, and the environment together. In addition, environmental considerations are frequently viewed as barriers to profitability. The environment is rarely considered central to business strategy unless there is some regulation that constrains business goals.
Code of Conduct in Protection of the Environment
A code of conduct is often the primary means by which management gives guidance to its employees and agents as to what is expected of them by way of business conduct. A code of conduct addresses minimum standards of conduct and procedures to reduce the enterprise’s risk of liability and damage to its reputation. A code of conduct should address the enterprise’s standards, procedures, and expectations regarding the environment. A code should include a statement that the enterprise will abide by both local and international laws and regulations designed to protect the environment. It should address how the business balances production objectives with environmental protection in general. In more detailed standards, procedures, and expectations, the enterprise might discuss how to reduce waste products, how to avoid polluting air and water, and how to manage and report chemical use and disposal.
In this case, Global Warming is one issue that we focus on. Global warming is not a 20th century phenomenon. It has, in fact, occurred in the past more than once, along with periods of extreme cold known as the ice ages. With so much written and reported about global warming, sometimes it’s difficult to detect which is fact and which is just part of scientific scare tactics. Global warming has and will always occur naturally. Why it has become such a concern in our lifetime is due to the fact that human activities and practices have contributed significantly to its occurrence and severity. With the advent of industrialization and careless environmental practices, we have caused the increase in the average global temperatures by contributing negatively to the greenhouse effect.
Now, most businesses try to dismiss the global warming issue as hyperbole because they do not want anything to disrupt their exploitation of developing countries. If we do a research we will see that the further industrialization of developing countries such as India, China, Indonesia, Vietnam, and other countries is contributing to global warming. Eventually, businesses have to come up with environmental responsibility as one of their business ethics. Environmental responsibility is a vital component of a business strategy as it not only helps the environment, but it wins the trust of communities and gains the respect of the governments of the countries in which the business operates.
The environmental responsibility can be shown through creating a product life cycle, which is oriented to environmental policy. This is aimed to avoid the shift of environmental problems from one stage of the product life cycle to another. All stages of product life cycle need to be addressed, e.g. design, raw materials utilized, production processes, transport/distribution, use/consumption, and waste/disposal phases. For example, enterprises should take into consideration the use and waste phases when designing a product so as to minimize the overall environmental impact (including pollution). In addition, enterprises must also implement eco-efficiency strategies, as these have immediate positive effects notably in terms of reducing energy and resources consumption, minimizing waste generation, etc.
However, business ethics (environmental responsibility, as a part) is not a simple as it looks as there is no longer one agreed moral code and multinationals operate in different parts of the world, employing and serving people from different cultures. Profit will still be the main motivating factor for businesses and this affects all the people who work there, generating its own culture with its own standards, so it becomes difficult for individuals to stand up against any attitudes and decisions they disagree with.
Conclusion
Recently, there has been a rapid growth in knowledge and technology, so that humans now face choices we have never had to face before that affects the continuation of humanity and the world within which we live.
Global Warming is one of those issues. This issue “pushes” the businesses to consider all their impact on the environment such as emitting pollution, producing waste and the use of resources. So they must be able to think about their business ethics since the importance of environmental ethics is brought home daily by the news of global warming and its effect on our lives, both now and in the future.
In addition, balancing business growth and environmental responsibility are always going to be a challenge for business. Businesses are encouraged to have an environmental responsibility, just as they do for many other issues – again this has often been a reaction to consumer pressure, and also international pressure from organizations.
Finally, as consideration, global warming will probably be one of the greatest threats to long-term human survival and our future will depend on how we respond today.
Here you can get presentation slides regarding article above.
| business_ethics_and_environment.pdf |
Is Offshoring Good Strategy?
Author: Nabil Ishak - Fontys Hogescholen
Many businesses assume that offshoring (sending work and jobs to other countries where labor is cheaper) as the logical approach to global competition. In certain situations, it saves money and enhances profitability, and industrial markets succeed when the overall economy is growing. However, there are numerous hidden costs and cultural and political problems.
The Cons
While many U.S. companies expected drastic savings from sending some jobs overseas, those expectations often haven't been realized. According to a recent McKinsey Global Institute survey of 216 top-level U.S. executives, businesses expected to save up to 70%, but the average savings was about 20%. Further, 50% of the respondents with overseas projects were likely to bring their work back to the U.S. because those anticipated cost savings were not achieved.
Still, offshoring is now a fact of life, so what happens to displaced U.S. workers? According to the McKinsey survey, 31% of those workers were not fully re-employed. Some workers found higher-paying jobs, while most did not. Thirty-six percent soon found jobs that matched or increased earnings, but 55% were, at best, working at 85% of their former wages. Twenty-five percent took pay cuts of 30% or more.
The survey also found three primary pitfalls: poor knowledge transfer, inferior work quality and lower morale among the respondents' U.S. workforce leading to poorer overall productivity. Shifting jobs overseas works for call center transactions that last one to five minutes and repeat 20 times an hour, but it's more difficult for projects that depend on teamwork and business nuances.[i]
The Pros
The arguments for offshoring center around free trade and globalization[ii]
How do we deal with it?
Offshoring is a process of creative destruction. Offshoring is not suitable for every company, though, and careful consideration needs to be taken before any decision is made. Some organisations are just not suitable for offshoring aspects such as staffing and company culture may pose such a big obstacle that offshoring may cause more harm than good. So firstly you need to look at the benefits and balance those against the negatives. At times offshore staff will simply not have the level of skill required to complete the necessary tasks.
Further, the challenge for government is to develop policies that ease the pain that offshoring inflicts and speed workers transition to new jobs. So-called wage insurance policies are a promising policy response. Such programs are designed to cover the loss of wages for displaced workers until they gain new employment or to make up the difference between the old wages lost and wages paid for new jobs. So does this mean that offshoring is dying? No. All it means is that it must be done for the right reasons, and with the right controls.
[i] http://nreionline.com/mag/real_estate_pros_cons_offshoring/
[ii] http://management.about.com/cs/generalmanagement/i/offshoring.htm
Many businesses assume that offshoring (sending work and jobs to other countries where labor is cheaper) as the logical approach to global competition. In certain situations, it saves money and enhances profitability, and industrial markets succeed when the overall economy is growing. However, there are numerous hidden costs and cultural and political problems.
The Cons
While many U.S. companies expected drastic savings from sending some jobs overseas, those expectations often haven't been realized. According to a recent McKinsey Global Institute survey of 216 top-level U.S. executives, businesses expected to save up to 70%, but the average savings was about 20%. Further, 50% of the respondents with overseas projects were likely to bring their work back to the U.S. because those anticipated cost savings were not achieved.
Still, offshoring is now a fact of life, so what happens to displaced U.S. workers? According to the McKinsey survey, 31% of those workers were not fully re-employed. Some workers found higher-paying jobs, while most did not. Thirty-six percent soon found jobs that matched or increased earnings, but 55% were, at best, working at 85% of their former wages. Twenty-five percent took pay cuts of 30% or more.
The survey also found three primary pitfalls: poor knowledge transfer, inferior work quality and lower morale among the respondents' U.S. workforce leading to poorer overall productivity. Shifting jobs overseas works for call center transactions that last one to five minutes and repeat 20 times an hour, but it's more difficult for projects that depend on teamwork and business nuances.[i]
The Pros
The arguments for offshoring center around free trade and globalization[ii]
- When a product or service can be produced more
cheaply overseas, it makes more sense to import it than to produce it
domestically.
- Much of the revenue earned abroad returns to this
country in wages for other employees, investment in R&D, profits for
shareholders, and taxes for the government.
- It doesn't matter where the work is done as long
as the companies earn the profit to return to their shareholders.
- Companies must do what's best for them selves.
- Lower priced goods and services are good for all
consumers.
- New, more
sophisticated jobs will be created in America to fill the void now that the
less important jobs have been sent overseas.
- It will help improve the economies of poorer countries so they won't need so much financial aid from the US.
How do we deal with it?
Offshoring is a process of creative destruction. Offshoring is not suitable for every company, though, and careful consideration needs to be taken before any decision is made. Some organisations are just not suitable for offshoring aspects such as staffing and company culture may pose such a big obstacle that offshoring may cause more harm than good. So firstly you need to look at the benefits and balance those against the negatives. At times offshore staff will simply not have the level of skill required to complete the necessary tasks.
Further, the challenge for government is to develop policies that ease the pain that offshoring inflicts and speed workers transition to new jobs. So-called wage insurance policies are a promising policy response. Such programs are designed to cover the loss of wages for displaced workers until they gain new employment or to make up the difference between the old wages lost and wages paid for new jobs. So does this mean that offshoring is dying? No. All it means is that it must be done for the right reasons, and with the right controls.
[i] http://nreionline.com/mag/real_estate_pros_cons_offshoring/
[ii] http://management.about.com/cs/generalmanagement/i/offshoring.htm
A Dirty Dilemma: Exporting Hazardous Waste
Author: Nabil Ishak - Fontys Hogescholen
What Is Hazardous Waste? Why Do We Export Hazardous Waste?[i]
What is Hazardous Waste?
Hazardous waste is any of a number of solids, liquids, or contained gases generated by many modern industrial processes. Some examples of common hazardous wastes include spent auto batteries, spent solvents, and sludge from industrial wastewater treatment units. The U.S. federal waste law, the Resource Conservation and Recovery Act (RCRA), defines hazardous waste according to a number of factors. In 1995, U.S. entities generated approximately 279 million tons of RCRA regulated hazardous waste, of which approximately 226,000 tons, or slightly less than 1%, were exported.
What Is Hazardous Waste? Why Do We Export Hazardous Waste?[i]
What is Hazardous Waste?
Hazardous waste is any of a number of solids, liquids, or contained gases generated by many modern industrial processes. Some examples of common hazardous wastes include spent auto batteries, spent solvents, and sludge from industrial wastewater treatment units. The U.S. federal waste law, the Resource Conservation and Recovery Act (RCRA), defines hazardous waste according to a number of factors. In 1995, U.S. entities generated approximately 279 million tons of RCRA regulated hazardous waste, of which approximately 226,000 tons, or slightly less than 1%, were exported.
Why Do We Export Hazardous Waste?
There are a number of reasons why U.S. entities export hazardous waste. Often, the nearest waste management facility capable of handling a particular waste stream may be just over the international border from the point of generation. In other cases, there may be a facility in another country that specializes in treating, disposing of, or recycling a particular waste. Such a facility may be the only one of its kind in the world, or it may present more environmentally sound management solution for the waste. In some cases, hazardous wastes constitute “raw” material inputs into industrial and manufacturing processes. This is the case in many developing countries where natural resources are scarce or non-existent. In addition, the use of hazardous wastes is often preferable to natural resource extractions or hazardous waste disposal.
The Cons
The guiding principles of waste management, Reduce, Reuse and Recycle, have been adopted by most country as an eco-friendly means of waste reduction. Unfortunately the practice of hazardous waste export is increasingly being employed to solve the developed world’s waste problems. While most consumers attempt to put the 3 Rs into practice, many are not aware that unregulated recycling can add to the environmental cost of hazardous waste export.
Not all industrial countries have signed up to the Basel Convention (1989) and the Basel Ban Amendment (1995), which ban the export of hazardous materials, and those that have signed up continue to find ways to circumvent the provisions. This has led to an increase in the environmental problems associated with the export of hazardous waste. Although recycling is a major means of waste reduction, the irresponsible export of recycled material can lead to environmental problems. Exporting Harm by Jim Puckett and published by the Basel Action Network in February 2002 says, “Indeed, informed recycling industry sources estimate that between 50 to 80 percent of the E-waste collected for recycling in the western U.S. are not recycled domestically, but is very quickly placed on container ships bound for destinations like China”.[ii]
There are two fundamental reasons for banning the economically motivated trade in hazardous wastes:[iii]
- Downstream Impacts: Hazardous waste trade is fundamentally unjust and environmentally
damaging since it victimizes the poor, burdening them with toxic exposure and
environmental degradation. This is especially egregious when the victims get
little benefit from the industrialization that created the waste in the first
place.
- Upstream Impacts: Hazardous waste trade allows waste generators to externalize their costs, creating a major disincentive to finding true solutions upstream for the problems they create. As long as one can cheaply dump their waste problems on poorer economies, there will never be incentives to minimize hazardous waste at the source. This forestalls the necessary innovation to solve environmental problems through design.
The Pros
Some countries do not have any appropriate disposal facilities and therefore must export their wastes abroad; however, among the countries that do have domestic waste disposal capabilities, we consider whether relative costs play a role in the direction of trade. Recent findings on incineration costs in some of the developed countries find that Germany has the highest per ton incineration cost, while the Netherlands and Denmark follow closely at about $115 per ton. Norway, and France all have higher incineration costs than the United States and the United Kingdom. It is tempting to link the incineration cost to the severity of environmental regulations in these countries. It is certainly true that higher standards lead to higher disposal costs, as authorities require that better, newer and more expensive technology be installed to operate a waste disposal facility. However, it is worth noting that Denmark has relatively lax regulations as well as the third highest incineration cost, and that France has looser regulations than the United States but higher costs.
In Europe, availability and therefore cost of landfill space also varies substantially. Britain has good impermeable rubbish dumps in the Midlands and South East England, although some of these pits tend to be far from the cities, which generate the waste. In particular, there is a network of incinerators, treatment plants, and old quarries. The stable rock foundation and impermeable clay soil facilitate safe disposal. Landfill costs in the United Kingdom are consequently one third that of West Germany. The Netherlands on the other hand not only has high incineration cost but also finds it hard to dig holes since much of the country is lying at or below sea level.
It exports 12.5 percent of its waste, and has landfill cost of $44 per ton, almost twice the cost of the United Kingdom. Among the countries for which landfill costs are available, West Germany has the highest cost per ton, $60, with high costs for Denmark and Sweden, both at $54 per ton respectively. The UK and France have the lowest costs, $24 per ton in the UK and $20 per ton in France. This major disparity in landfill costs suggest why many generators all over Europe would prefer to export to England and France, even though they must incur transportation costs.
Countries in Europe are closely situated and given the numerous borders for any given country, it is quite likely that a generator in a country such as Germany would find the cost of a foreign disposal site such as one in France, together with the transportation cost less than the domestic disposal cost. Even where the foreign and local disposal costs are equal, it may be the case that the transportation cost to the French site is less than the transportation cost to another locale in Germany. The fact that European countries engage widely in the waste trade may then be linked to the geographic locations of these countries.
Furthermore, it is possible that economies of scale also influence the disposal choice. An example is Ireland where the economic viability of an incinerator depends on the importation of 3,000 tons of waste from abroad. In this case, if there are 2 countries similar to Ireland, each with 4,000 tons of waste to dispose of and economically needing 8,000 tons to operate an incinerator efficiently, it may be better for one country to build the incinerator and for the other to merely export its waste to the former.[iv]
How do we deal with it?
Hazardous waste exports to developing countries are motivated entirely by brute global economics. Market forces, if left unregulated, dictate that toxic waste will always run “downhill” on an economic path of least resistance. If left unchecked, the toxic effluent of the affluent will flood towards the world’s poorest countries where labor is cheap, and occupational and environmental protections are inadequate. A free trade in hazardous waste leaves the poorer peoples of the world with an untenable choice between poverty and poison – a choice that nobody should have to make.
[i] Bernard, Andrew. Trade in Waste Among Developed Countries: Evidence and Origins. (http://www.epa.gov/compliance/resources/policies/civil/rcra/intnltrahazwas-rpt.pdf)
[ii] http://www.suite101.com/content/the-environmental-cost-of-hazardous-waste-export-a98093
[iii] Puckett, Jim. Exporting Harm: The High-Tech Trashing of Asia. (http://www.ban.org/E-Waste/technotrashfinalcomp.pdf)
[iv] http://dspace.mit.edu/bitstream/handle/1721.1/50206/35720865.pdf?sequence=1
Are Top Managers Responsible When Corruption Is
Afoot?
Author: Nabil Ishak - Fontys Hogescholen
Almost every company, regardless of size, industry or country of operation, is exposed to some degree of corruption risk. Some sectors, such as defence, construction and the extractive industries, identified the danger early and began developing management strategies. Others are just waking up to the risk, often because high-profile enforcement penalties have caught their attention, or because they are seeking opportunities in unfamiliar markets. Companies are also focusing on corruption risk to protect their most vital asset - their reputation - and are developing socially responsible business models expected by investors and other stakeholders.
Corrupt practices constitute a destructive force that undermines fair competition, stifles economic growth and ultimately undercuts a business’s own existence. It extends to low staff morale and a loss of trust among customers as well as prospective business partners. Majority shareholders and other actors inside corporations abuse their entrusted power for personal gain, to the detriment of owners, investors, employees and society at large.
The Cons
Individuals who have dealings with the company, particularly employees, are responsible for their own standards of conduct. In addition, where employees legitimately suspect that others may be acting fraudulently or corruptly against the company they should report this to an appropriate officer. They should also report to their manager if they believe that company's systems are unsound in the prevention of fraud or corruption. The Chief Officer will decide whether disciplinary action should be taken against an employee. Serious cases of fraud or corruption would represent gross misconduct and therefore the employee would be liable to dismissal. At the end of business day, the actions of individuals, more than the official codes and theoretical due diligence of top managers, actually shape a company’s culture.
The Pros
A corporation's goals and policies are established by the chief executive officer in collaboration with other top executives. All of these principals are closely monitored by a board of directors. In a large corporation, the chief executive officer meets frequently with the other top executives to ensure that the overall operation of the corporation is conducted in accordance with these goals and policies. In a governmental or nonprofit organization, top executives oversee budgets and ensure that resources are used properly and that programs are carried out as planned.
Although the chief executive officer of a corporation retains overall accountability, a chief operating officer may be delegated several responsibilities, including the authority to oversee other executives who direct the activities of various departments and implement the organization's guidelines on a day-to-day basis. In publicly held and nonprofit corporations, the board of directors or a similar governing body ultimately is accountable for the success or failure of the enterprise and the chief executive officer reports to the board. In addition to being responsible for the operational success of a company, top executives, particularly chief financial officers, are accountable for the accuracy of their financial reporting, especially among publicly traded companies.
How do we deal with it?
When corruption is practiced or happened within a company, the top managers should be responsible on this. It is because from them should come the company ethics to be followed by their employees and to strictly implement it. If a company has a clear and strong ethics against corruption then there is a bigger chance that it would not cause problems to the company. As for top managers, the challenge to them is to come up and emerge with the best management practice. It is advisable for companies to conduct anti-corruption training programs.
Almost every company, regardless of size, industry or country of operation, is exposed to some degree of corruption risk. Some sectors, such as defence, construction and the extractive industries, identified the danger early and began developing management strategies. Others are just waking up to the risk, often because high-profile enforcement penalties have caught their attention, or because they are seeking opportunities in unfamiliar markets. Companies are also focusing on corruption risk to protect their most vital asset - their reputation - and are developing socially responsible business models expected by investors and other stakeholders.
Corrupt practices constitute a destructive force that undermines fair competition, stifles economic growth and ultimately undercuts a business’s own existence. It extends to low staff morale and a loss of trust among customers as well as prospective business partners. Majority shareholders and other actors inside corporations abuse their entrusted power for personal gain, to the detriment of owners, investors, employees and society at large.
The Cons
Individuals who have dealings with the company, particularly employees, are responsible for their own standards of conduct. In addition, where employees legitimately suspect that others may be acting fraudulently or corruptly against the company they should report this to an appropriate officer. They should also report to their manager if they believe that company's systems are unsound in the prevention of fraud or corruption. The Chief Officer will decide whether disciplinary action should be taken against an employee. Serious cases of fraud or corruption would represent gross misconduct and therefore the employee would be liable to dismissal. At the end of business day, the actions of individuals, more than the official codes and theoretical due diligence of top managers, actually shape a company’s culture.
The Pros
A corporation's goals and policies are established by the chief executive officer in collaboration with other top executives. All of these principals are closely monitored by a board of directors. In a large corporation, the chief executive officer meets frequently with the other top executives to ensure that the overall operation of the corporation is conducted in accordance with these goals and policies. In a governmental or nonprofit organization, top executives oversee budgets and ensure that resources are used properly and that programs are carried out as planned.
Although the chief executive officer of a corporation retains overall accountability, a chief operating officer may be delegated several responsibilities, including the authority to oversee other executives who direct the activities of various departments and implement the organization's guidelines on a day-to-day basis. In publicly held and nonprofit corporations, the board of directors or a similar governing body ultimately is accountable for the success or failure of the enterprise and the chief executive officer reports to the board. In addition to being responsible for the operational success of a company, top executives, particularly chief financial officers, are accountable for the accuracy of their financial reporting, especially among publicly traded companies.
How do we deal with it?
When corruption is practiced or happened within a company, the top managers should be responsible on this. It is because from them should come the company ethics to be followed by their employees and to strictly implement it. If a company has a clear and strong ethics against corruption then there is a bigger chance that it would not cause problems to the company. As for top managers, the challenge to them is to come up and emerge with the best management practice. It is advisable for companies to conduct anti-corruption training programs.
Should Companies Operate in Violent Areas?
Author: Nabil Ishak - Fontys Hogescholen
When a conflict breaks out, this will not only affect the population in the region, but also the foreign companies investing in that country. In the past few decades, there has been a general shift towards globalization, as opposed to a primary focus on the national economy. Also, companies themselves have an increasingly geographic diversification, for example, because they are searching for cheap labour forces, but also because they need a physical presence in a country with the natural resources needed for their industry. The developing economies in the world, where cheap labour can be found and that still primarily depend on the presence and export of natural resources, tend to be the unstable societies in the world, with the highest risk of conflict. Since companies are also affected by conflict, they should be aware of the risks and extra costs such an escalation would bring along when operating in such an unstable country. What are the risks and extra costs a company is confronted with when conflict breaks out in the area it operates?
The Cons
Some extra costs for companies in conflict areas
The Pros
Companies such as the extractive industry are tied to the specific area, for example by the presence of natural resources. For these industries, the choice to operate may be a more profitable choice than to leave and to lose everything. By virtue of geography, they are bound to operate where lucrative and strategic natural resources such as oil, gas, precious gems and minerals are found. For them, the risks of operating are simply outweighed by the ties to the area, the long investment cycles and the expected returns on investment.
Even non-extractive industries today can be tied up to a specific area; for instance, a high-technology company may be tied to a particular location by the availability of trained personnel or links to other firms. Most companies today have extensive, long-standing relationships with contractors and subcontractors, and they often depend upon particular links both physical and human in this supply chain. Also, when international economic competition is fierce, especially when natural resources are present in a specific area, companies will be more willing to stay present in the country. However, since they stay primarily for their own profit, they most probably will not be willing to spend money on the conflict, apart form the obvious extra costs to protect its employees and assets.[i]
How do we deal with it?
Conflict situations always pose more costs on society than would be the case in a stable, peaceful situation. Companies do not only have to deal with the effects the extra costs for society has on its operations (indirect societal costs), but also with the direct costs the conflict causes. Apart from the financial costs of conflict, there are also many risks companies should take into consideration. The most important decision a company has to make when faced with a conflict situation is whether to operate or not in the country. What are the risks and extra costs a company is confronted with when conflict breaks out in the area it operates? Whatever the consideration to operate may be, it will result in risks and extra costs for the company. As mentioned above, there are quite a lot of risks and extra costs a company has to face when deciding to stay invested in a conflict zone.
[i] Duijvendijk, Els. Companies in Areas of Conflict (http://igitur-archive.library.uu.nl/student-theses/2006-0324-082814/Companies_in_Areas_of_Conflict.pdf)
When a conflict breaks out, this will not only affect the population in the region, but also the foreign companies investing in that country. In the past few decades, there has been a general shift towards globalization, as opposed to a primary focus on the national economy. Also, companies themselves have an increasingly geographic diversification, for example, because they are searching for cheap labour forces, but also because they need a physical presence in a country with the natural resources needed for their industry. The developing economies in the world, where cheap labour can be found and that still primarily depend on the presence and export of natural resources, tend to be the unstable societies in the world, with the highest risk of conflict. Since companies are also affected by conflict, they should be aware of the risks and extra costs such an escalation would bring along when operating in such an unstable country. What are the risks and extra costs a company is confronted with when conflict breaks out in the area it operates?
The Cons
Some extra costs for companies in conflict areas
- Extra risk
management costs, such as a very high insurance, if the insurance company
should at all want to provide a company operating in an unstable area with
insurance. Other risk management costs involve, for example, the emergency
training programmes of employees.
- One of the
most apparent risks of operating in countries where violent conflict exists is
the risk of material losses. These losses can be the destruction of the company
private property, like factories and machines, but also the destruction of
public infrastructure that in many cases has been financed and built by the
company itself. This infrastructure is often vital to the continuing of the
company operations. When a company settles in an underdeveloped area, it can be
necessary to construct roads, railways and/or pipelines. When these are destructed
in conflict, it becomes very hard to continue with business, since rebuilding
is expensive and the risk of reoccurrence may remain.
- Operating
in conflict situations can also cause a loss of opportunity costs. In most
cases, a conflict situation means a situation of chaos in the whole country. Even
if the factory itself is safe from violence, there is still a risk of
disruption of production. The supply chain can be disrupted, markets can be
unreachable and trade links may be lost. In many conflict situations it may
take months instead of days for essential imports such as machinery and raw
materials to reach their destinations, should they get there at all? Therefore,
important investment opportunities can be lost.
- Security
costs to protect the company employees, there may also be the extra costs of,
for example, increased stress, lower productivity levels, more labor disputes
and disruption of labor markets. The most important is the risk of loss of life
amongst employees and the long-term effect the conflict will have on the morale
and mental health of those surviving: this risk includes, for example, trauma counseling.
Apart from death, kidnapping is another risk, which affects employees and their
relatives. Employees and their relatives can live in constant fear of being
kidnapped. Employees or contractors could be kidnapped for purposes such as
ransom money, making political gestures, achieving military advances, gaining
media attention and airing grievances against the company or government. Due to
this extra stress, productivity levels may decrease.
The Pros
Companies such as the extractive industry are tied to the specific area, for example by the presence of natural resources. For these industries, the choice to operate may be a more profitable choice than to leave and to lose everything. By virtue of geography, they are bound to operate where lucrative and strategic natural resources such as oil, gas, precious gems and minerals are found. For them, the risks of operating are simply outweighed by the ties to the area, the long investment cycles and the expected returns on investment.
Even non-extractive industries today can be tied up to a specific area; for instance, a high-technology company may be tied to a particular location by the availability of trained personnel or links to other firms. Most companies today have extensive, long-standing relationships with contractors and subcontractors, and they often depend upon particular links both physical and human in this supply chain. Also, when international economic competition is fierce, especially when natural resources are present in a specific area, companies will be more willing to stay present in the country. However, since they stay primarily for their own profit, they most probably will not be willing to spend money on the conflict, apart form the obvious extra costs to protect its employees and assets.[i]
How do we deal with it?
Conflict situations always pose more costs on society than would be the case in a stable, peaceful situation. Companies do not only have to deal with the effects the extra costs for society has on its operations (indirect societal costs), but also with the direct costs the conflict causes. Apart from the financial costs of conflict, there are also many risks companies should take into consideration. The most important decision a company has to make when faced with a conflict situation is whether to operate or not in the country. What are the risks and extra costs a company is confronted with when conflict breaks out in the area it operates? Whatever the consideration to operate may be, it will result in risks and extra costs for the company. As mentioned above, there are quite a lot of risks and extra costs a company has to face when deciding to stay invested in a conflict zone.
[i] Duijvendijk, Els. Companies in Areas of Conflict (http://igitur-archive.library.uu.nl/student-theses/2006-0324-082814/Companies_in_Areas_of_Conflict.pdf)
