Discuss about the Leverage Strategy in Business Ethics.
Business ethics have always played a vital role in the growth and development of most business organizations by positively contributing to increased productivity by ensuring that business practices and operations are conducted by the organizational standards with the aim of meeting the organizational, individual and stakeholder’s expectations are met. Ethical standards or factors are therefore important in decision making especially when an unethical behavior occurs affecting the reputation of the organization as well as the stakeholders of the company (Burrell, 2017). Unethical dealing or behavior is acting outside of what an individual or organization considers being morally right or proper. Workplace ethics are important as they ensure that there is transparency in business dealings and builds investor or customer trust with an organization. However, an organizational ethical culture is shaped by effective leadership. Organizational leadership has however been faced with ethical dilemmas in which they find themselves in a situation to choose between two options neither of which resolves the situation in an ethically acceptable manner (Arnold, 2016).
Various theoretical concepts or models have been developed to help in understanding the basis of ethical decision-making and leadership in many organizations who may be facing or accused of unethical dealings or experiencing ethical dilemmas. These theories include utilitarian theory, stakeholder approaches theory, the interrogative social contracts theory, the justice approach theory among others. This essay will therefore provide the theoretical framework of the unethical dealings of the Wells Fargo Company in which her employees were found to have created fake accounts in the name of their real customers. The creation of such accounts was found to be an unethical behavior or dealing and resulted to damaged reputation of the company as well as loss of customers’ confidence and trust with the company (Fryer, 2016). The study will also examine the application of the theoretical concepts, in this case, the utilitarian theory and the stakeholder theory in understanding the company unethical dealings and how they could be solved as well as why ethical behavior is important for the future growth and development of the company.
Wells Fargo and Company is an international bank in America that works as a financial services holding company. It is the 10th largest bank in the world and has its headquarters in San Francisco in the US. It was formed by William Fargo and Henry Wells and has total assets of $ 1 930.12B. The company has been operating on three different segments including community and wholesale banking, wealth, and investment banking. It also offers retail, commercial services, and corporate banking to its customers through the internet and other distribution channels to individuals and other distribution, businesses and institutions in over 50 states in the US as well as in other countries (Cavico & Mujtaba, 2017).
The company has been faced with great ethical issues of concern since 2011 however through relevant investigations in the year2015 and 2016 it was found that the company employees were creating fake accounts in the name of real customers. According to the investigation by the Federal regulators, it was found that the company employees had secretly created millions of unauthorized bank and credit card accounts without the knowledge of their customers. This effect led to the accounts earning the banks unwarranted fees and allowed Wells Fargo employees to boost their salary figures and an opportunity to make more money (Francés-Gómez et al., 2015).
Another reason for opening or creating the multiple accounts as investigated by the director or management of the consumer service financial protection Bureau found that the employees created these accounts to hit their sales targets and receive bonuses. This shoddy behavior led to the firing of 5300 employees form the company who were held responsible for the unethical behavior (Neesham & Gu, 2015). From the investigation by the regulators, it was found that the employees had moved funds from existing customer accounts that ended up making the customers be charged with insufficient funds and overdrafts due to the insufficiency of funds in their original accounts. It was also found that the financial institution had submitted an application for 565 443 credit accounts without their customer’s consent or knowledge was 14, 000 of these accounts were found to have incurred over $ 400000 in fees, including annual fees, interest charges and overdrafts (Kaptein, 2017).
These charges were to be paid to the respective customers by the Bank in which the management of the company recognized its mistakes and committed itself to taking full responsibility irresponsibility of its workers that calls for a need to make a change to its sales practices as well as its internal oversight. Such unethical behavior by the employees as well as lack of oversight and internal control by the company, therefore, resulted in lack or reduction of customer’s confidence and trust and many customers have been advised to look for other banks to invest or make their deposits to. Such behavior has led to an increased burden of costs to the bank in paying for the charges and the overdrafts in the customers’ accounts as well as the burden of rebuilding its destroyed reputation. Organizations are required to act responsibly by practicing in ethical standards that ensure they achieve social corporate responsibility (Preuss et al., 2016).
Different theoretical concepts and school of thoughts have been developed to help different organizations make decisions and act appropriately in event of unethical behaviors in their organizations. The theoretical concepts and frameworks provide different insights and understanding of evaluating different behaviors in an organization to help minimize the occurrence of unethical behaviors with appropriate internal control mechanisms (Doh et al., 2016). Some of these theoretical frameworks include the utilitarian theory, the stakeholder theory and integrative social contract theory among others. However, this study will focus on the understanding of utilitarian theory as well as the stakeholder’s approach theory in understanding the business ethics surrounding the situation faced by Wells Fargo and company in understanding her employee’s unethical behavior.
The theory was developed and proposed by Jeremy Bethany and John Stuart Mills to help in understanding normative ethics that define the morality of individual or organizational actions. The theory is based on the principle that an individual or organization moral action is one that maximizes utility or happiness for the greatest number of people and the fact that actions are right or moral in proportion as they tend to promote happiness or well-being for the greater good of all (Rath, 2016). It is believed that any ethical theory, moral standards are separable into good and bad. The utilitarian theory argues that the good morals are defined as the existence of pleasure and absence of pain that is described as a utility. In this case, the utility is used to refer to any action that maximizes total benefit while reducing negative consequences of the largest number of people that simply means that something or a behavior is good if it does better than harm for many people (Cavico & Mujtaba, 2017).
This theory is one of the best-known and most influential moral theories and its main idea is that whether actions are morally right or wrong depends on their effects. And therefore the utilitarian’s believe that the purpose of morality is to make life better by increasing the amount of ethical behavior for most business organizations and the corporate world at large (Yazdani & Murad, 2015). The utilitarian reasoning can applicable for many purposes. One of the purposes includes moral reasoning by employees in the organization and for any rational decision-making. This theory, therefore, can be used in understanding the unethical behavior facing the Wells Fargo company and arising from her employees. Since the theory advocates for ethical behavior to be practiced for the greater good of all other people and not only for an individual gain it can be concluded that the employees of Wells Fargo Company did not mind about the company reputation and its social corporate responsibility to its stakeholders and more so to the company customers.
However the theory despite its importance in understanding business ethics it has been criticized by different scholars for a number of reasons in which according to them the theory does not meet their threshold of understanding business behavior. One of the critics of the theory has been that the theory has been criticized to be distasteful suggesting that the theory does not provide enough support for individual rights (Bhasa, 2017). The argument, in this case, is that it overemphasizes of moral actions that promote the greater good of all without taking into account the individual rights. If this critic were to hold true in our case it would mean that, the employees were right to create fake accounts so that they may hit their target. The creation of such accounts is not the case as it is a business ethics to conduct business operations having in mind the effect it will bring to all the stakeholders in the company that is what this theory was promoting and therefore this critic can be said to be irrelevant in making organizational decisions.
The theory has also been criticized of impossibility meaning that the theory is not applicable in which the people criticizing the application of the theory based their idea on the fact that it is impossible to measure happiness or utility o consumers or customers. However, in our case, it is possible to measure the utility of the bank’s customers based on their exhibited behavior towards the bank (Ayios et al., 2014). If the organization does not meet the demands and expectations of their customers then the customers will look for other banks, when the bank employees act in any unethical manner the productivity of the company is reduced as well as the confidence of the people with the bank that can be measured. Lastly, the theory has been positively criticized for insufficiency of the scope for not using some important source of information to explain happiness or satisfaction. The theory can integrate other sources of information in relation to the social corporate responsibility of business practices for the theory to become even more relevant in the future (Fok et al., 2016).
The theory of utilitarian on my personal perspective plays an important role in understanding the basis of acting morally under the principle that a good or moral action should be of maximum benefit to the greater population other than just an individual. This means that an individual before committing any unethical behavior he or she should look at the impact that action will have on other people before looking to the common good he or she would receive from such an act. In this case, therefore, the employees of Wells could have thought of the impact of their behavior to the customers and to the organizations at large before thinking of their personal motives that later did cost them their jobs and put the company into a financial crisis. The self-interests and motives of hitting their sales targets as well as increasing their income made them overlook the greater good of the company and its customers. The theory is therefore relevant and can be used by the organization to teach the employees about the importance of putting the interests of the customers first and conducting their business activities in an ethical manner.
This theory was developed or proposed by Freeman in a bid to explain the concepts of business ethics in an organization. The theory suggests, therefore, that the purpose of a business is always to create as much value as possible for stakeholders and therefore for the business to succeed and become sustainable in future the business executives must keep the interests of the customers and all other stakeholders in the business aligned and going in the same direction. The theory, therefore, argues that every business creates or destroys customer values as well as that of the communities, suppliers, financiers, and employees.
The general idea about the theory is that it tries to answer what an organization should be and how it shall be conceptualized. The theory or concept it should be thought of as a grouping of stakeholders and the purpose of the organization is said that it should be aimed at managing the stakeholder’s needs, interests, and recipients. The business stakeholders, in this case, include customers, local communities, employees, shareholders, as well as distributors. The theory, therefore, builds a framework responsive to the concerns of the managers who are being confronted with unprecedented levels of environmental change. The company decisions in many ways affect the stakeholders and therefore the company through the managers has to build specific ethics principles whereas decisions made out of consideration of their impacts are usually ought to be. Therefore, the theory is important in the analysis of the behavior of Wells Fargo company employees and provides a vital role for the management of the company to respond appropriately to enhance the company internal control mechanisms as well as the decision-making processes of the company.
The theory has however been criticized by a number of people for a number of reasons in which most critics just like Teppo feels that the theory is not sufficient and therefore offers an unrealistic view of how organizations operate (Lankoski et al., 2016). In his view, an organization is said to be a shell that can be written upon freely by various groups surrounding the company that lay a claim to the company. Therefore, the functions of the company do not revolve around meeting the interests of their stakeholders but operate in a broader perspective in which it has to achieve certain goals and objectives.
The theory has also been criticized that it does not sufficiently explain why a stakeholder is as it broad. It suggests that the company stakeholder community should include everyone who is affected by an organization. However, the argument the critics are of the view that the theory should distinguish between non stakeholders influencers in the company and the true influencers as the concept of stakeholdership is a concept which is more than just a union o influence and impact (Bridoux et al., 2016). Lastly, the theory has also been criticized as lacking an explicit specification of the relationship between stakeholders and economic reasoning. This is because the theory in one hand has achieved a certain degree of acceptance in the company strategic management functions but on the other hand, there is substantial economic resistance to the shareholders (Schneider et al., 2017). However, the criticisms do not affect the relevance of the theory in defining the organizational responsibility towards shareholders as it the case Wells Fargo Company that has a great responsibility towards the stakeholder community.
This theory, therefore, provides a basis of understanding of the responsibility and the role-played by the company management team and especially by the manager in meeting the demands of the company stakeholders. In other words, managers have a greater responsibility towards the stakeholders of the company other than just in the economic value of the company and will do anything, in this case, to meet and protect the interests of the stakeholders. For instance, in the case of our company in which the employees created fake accounts using the real names of customers. The company reputation and image was destroyed and the company had to take full responsibility to ensure that it owns its mistakes as a company for lack of internal control mechanisms to deal with such issues and committed itself in compensation of the loss incurred by their customers who form part of their stakeholders. Despite the mistakes arising from stakeholders, the company had to deal with them separately after owning to their mistakes as a company.
Conclusion
Business ethics in any organized form a very important role in enhancing the growth and development of the company as well as helping the company to become socially and corporately responsible. Every organization has an established ethics and code of conducts that have been developed to guide the company operations according to the established standards and ensuring that they minimize the chances of unethical behavior from the employees or any other which may affect the growth and development of the company (Kristen, 2015). A good leadership is very important as it helps in promotion of an effective organizational ethical culture. The managers must take into consideration ethical factors as they may influence the management and the company leadership to make sound decisions to protect organizations from unethical behavior. Unethical behavior can have negative impacts and implications to the growth of a company from destroying the reputation of the company, loss of confidence with the company by stakeholders from both prospective and potential customers as well as to the community in which the company serves (Ketokivi & Mahoney, 2016). It is therefore important for Wells and Fargo Company to work on its ethics and code of conduct in order to improve the performance of the company and restore the company lost glory and reputation.
Due to this matter, it is therefore recommended that the company should adopt a policy measure that takes into account the ethical behavior of the employees and defines their responsibility toward the company stakeholders and especially towards the customers (Grandy&Sliwa, 2017). It is also recommended that the company should also develop an internal control measure that takes into account the monitoring and evaluation of the activities and operations of every employee in the organization. Such a measure will ensure these unethical behaviors are established and determined early enough before they put the company into great financial crisis as well as help company develop effective measures for those found culprits of unethical behavior in the company.
References
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