Ethical Decision Making
The importance of ethical decision making Ethical decision making involves acting in a morally correct and socially responsible way. The law is based on ethical principles. However, the law is only ethically relevant to the period in time which it was made. This means that the law will never be able to account for every course of action and that the responsibility lies with the decision makers to ensure they act in an ethical manner. White collar crime in Australia has resulted in the collapse of HIH Insurance and One-Tel. These tragic events have exposed the importance of ethical decision making.
Australia’s corporate ethical scandals In the criminal justice system, we classify crime into two different elements. The first is actus reus – a wrongful act. The second is mens rea – the guilty party knowing their actions are wrong. In the case of HIH, both elements were present. The standard of proof for white collar crime is beyond reasonable doubt. The collapse of HIH Insurance Ltd in 2001 is a prime example of the consequences of unethical behaviour. The collapse was a result of a number of immoral business decisions made by management.
The company managed to hide severe financial difficulties from investors by commencing a series of takeovers, such as that of FAI Insurance. Unethical accounting practices were employed to cover up the reality of the company’s financial situation. On 20th June 2000, the intangible asset of “goodwill” represented $405 million of the company’s assets . The Australian Securities and Investments Commission (ASIC) claimed that the executives “breached their duties by showing a lack of good faith, care and diligence for HIH’s assets. One HIH director, Rodney Adler, was found guilty on four counts and was sentenced to 4? years in jail. The court held that he was “being intentionally dishonest and failing to discharge his duties as a director of HIH in good faith and in the best interests of HIH, contrary to section 184(1)(b) of the Corporations Act. ” The HIH collapse resulted in significant losses to shareholders and creditors, including a large number of insurance claimants whose claims could not be met. The repercussions of the collapse will “echo through the economy and community for years to come. Another example of the repercussions of unethical behaviour is that of the corporation One-Tel. The company failed to release important information regarding the corporation’s activities and success to its investors, including its partners James Packer and Lachlan Murdoch. Their failure to communicate reliable information resulted in the liquidation of the company in 2001. On 4 July 2005, ASIC announced that it had commenced civil proceedings against Steve Vizard (CEO) for insider trading. ASIC was successful in preventing Vizard from managing a corporation for ten years.
Vizard was also ordered to pay $390 000 in pecuniary penalties. One-Tel’s collapse affected not only its employers, employees and shareholders but the entire telecommunications industry as well as the wider community. Theoretical framework of ethical responsibility The client must understand the context of their business environment in order to determine the most ethical course of action. This involves understanding the legal implications surrounding business partnerships, as well as the various laws regarding property development in NSW.
The client can then relate the theoretical framework to their business context in order to achieve the most ethical result. Business Partnerships A partnership is defined as “the relationship which exists between persons carrying on a business in common with a view to making profit”. Partnerships may be formed either orally or in writing; it is generally advised, however, that the client produce a written agreement in order to establish certainty of terms and minimise the potential of future problems arising. The written agreement should include details of partners and of their business agreement, including all financial details.
It is imperative that the client understands the responsibilities of the six partners. The partners must keep accurate records of all their dealings on behalf of the firm. They must account for all private profits earned as a result of information gained during the course of the partnership. They must also refrain from setting up directly competitive firms unless they share all profits gained with the other partners. Under the Partnership Act 1963 , each partner of a firm is liable jointly with the other partners of that firm for the debts incurred.
Property Development in NSW A lack of ethics in the property development industry in NSW has recently caused some concern. The concern lies primarily with the relationship between local governments and private developers. Generous donations to the Wollongong local government from property developers have resulted in the approval of questionable property development that has raised concerns in the local Wollongong community. The situation in Wollongong “shows how democracy can be destroyed when the political process is captured by private interests. ”
Property development can have a significant impact on the environment, affecting drainage, parking and water cleanliness. The potential negative impact property development has upon the environment means that some development projects are “required to be assessed in terms of their environmental impact” before they proceed. Property managers are required under the Property, Stock and Business Agents Act 2002 to hold a license if they wish to engage in business in NSW. The Act also contains guidelines that must be followed regarding the misrepresentation of characteristics of properties for sale.
It is prohibited to publish statements that are materially false, misleading or deceptive. A licensed property manager is also prohibited to make a statement, representation or promise which is false, misleading or deceptive, or to conceal a material fact. An agent or certificate holder must act honestly, fairly and professionally with all parties involved in a property transaction. Theoretical framework The Markkula Centre for Applied Ethics has developed an ethical framework for clients when making business decisions. This framework involves a five step process: 1. Recognise an ethical issue.
The client must acknowledge the presence of any ethical issues that may cause conflict on stakeholders including governments and communities. 2. Get the facts. The client must gather information regarding the facts of the case. It is also important to identify which stakeholders have the greatest stake in the issue. 3. Evaluate alternative actions from various ethical perspectives. The client has to assess the issue according to criteria from differing perspectives, for example the utilitarian approach, the rights approach, the fairness approach, the common good approach and the virtue approach. 4. Make a decision and test it.
Decide the best course of action based on these criteria and confirm it by explaining the reasons behind the decision to someone you respect. 5. Reflect on the decision. Analyse the overall impacts and consequences of the decision and consider what could have been done better. Conclusion The importance of ethical decision making has been highlighted in recent years by the collapse of HIH Insurance and One-Tel. Poor ethical decisions by these companies inflicted severe ramifications on employees, employers, shareholders and the wider community. As a result of the HIH scandal, amendments were made to the Corporations Act 2001 .
These amendments included new standards for auditors which were effective as of 1 July 2004. The scandal involving donations by property developers to local governments in Wollongong alerted the community of the need to more closely monitor these relationships in order to maintain accountability. While the law incorporates the moral values of our society, the onus is on businesses to apply self-regulatory systems, such as the framework developed by the Markkula Centre for Applied Ethics, to assist them in making ethical decisions. It is important to establish ethical leadership in a business.
By creating ethical standards, evaluating performance in relation to those standards and introducing a formal procedure to deal with any breaches, companies will gain respect from the community, strengthen employee morale and establish an incorruptible reputation as a business.