Fake cigarettes - ethical marketing? Copyrighted image Credit: Production team

One aspect of good citizenship is the adoption of high standards of ethical behaviour. Some people assume that organisations, in becoming good citizens, will also adopt ethical standards. So what do we mean by Corporate Ethics? A simple definition might suggest that an organisation’s ethics involve establishing and living by a set of standards regulating its conduct and interaction with a variety of interested stakeholders. These ethical standards would ideally reflect the concerns of these stakeholders, and be captured and communicated in the organisational mission statement.

Such a definition suggests that a responsible, ethical strategy is the product of negotiation with the various concerns of stakeholders including the organisation’s legal obligations, mediated by managers to create a set of organisational guidelines.

However, while such a definition reflects stakeholder views, it may also reflect the power imbalance between stakeholders, and may not necessarily require an organisation to behave responsibly. Underpinning the idea of corporate ethics is a concern that an organisation should reflect the values of its stakeholders, accept the rules and regulations of the society within which it operates both in practice and in spirit, and develop a broader consciousness beyond simple delivery of returns to its shareholders.

The organisation must also survive and deliver those returns, in the case of both for-profit and not-for-profit organisations, and it is in this respect that conflict may emerge. Who, therefore, does the manager answer to: the shareholder, the government, the consumer, members of wider society, or themselves? We should bear in mind the view, that Corporate Social Responsibility itself is potentially unethical, in that it leads to the misallocation of resources and that it does not properly reward shareholders for the risk they are exposed to by investing their capital. This is not an easy question to answer.

Why are ethics important?
There is no simple answer to the question of why ethics are important: there will be a continuing dialogue within any organisation over the degree to which corporate objectives conflict with corporate obligations to behave responsibly.

It is worth emphasising that most organisations do behave 'responsibly' most of the time. The cases where they do not and the continuum between best and worst behaviour is what interests us here. In addition, all managers and employees within organisations can expect to occasionally face difficult moral dilemmas – whether to act against your employer, to whom you may owe a debt of trust and loyalty, possibly by becoming a whistleblower – or to act upon the basis of your own moral code, and by implication upon your interpretation of events, which may (of course) be biased.

A whistleblower is typically an employee of an organisation who has become concerned about the legal or ethical behaviour of the organisation, and who has chosen to ignore the normal reporting structure of the organisation (i.e. to a line manager) and reported their concerns to a more senior manager; a government or law enforcement body; or the media. Whistleblowers run a risk of retaliation by the organisation involved.

 

 
Enron code of ethics book cover Copyrighted image Credit: BBC

It is easy to identify how poor standards of ethical performance can harm an organisation. The most notorious cases in recent years are those of Enron, the US energy company, or Parmalat, the Italian diary company. Simply stated, because of unethical behaviour, the principal stakeholders in the enterprise – the shareholders – have lost value, while other key stakeholders – the employees – have lost their jobs and pensions. Because of unethical behaviour, these organisations have failed in their principal objective. These cases may be exceptional only in terms of the volume of money involved. Failure to accept regulations or undertaking to deceive authorities can be an issue for all organisations, and the threat of failure similar.

 

The wider implications are that overall trust in the operation of organisations is undermined by evidence of large-scale illegality of this kind. On a more micro-level, if employees believe that their organisation is inherently unethical, then their commitment and support of that organisation may deteriorate, leading to a failure of organisational purpose.

In complex operating environments obtaining the maximum performance from your human resource is a critical success factor. Ethics may simply be important because having high standards enthuses the majority of employees, and reinforces their commitment and support for the organisation and its aims. Evidence from The Centre for Tomorrow’s Company, a UK think tank, suggests that employees prefer to believe their organisation is a responsible organisation. Being responsible may therefore enable employers to retain high quality, motivated workers by retaining a responsible image

The ethics of marketing techniques
Marketing has traditionally been seen to be at the dubious end of the spectrum of corporate activities, and it was criticised as long ago as the 1930s for its unremitting, pervasive manipulations . Recent management writers, have expressed similar concerns, saying that marketing is basically manipulative and monopoly seeking. Far from meeting genuine customer needs, marketing’s task is to shape consumer wants, determine their perceptions and persuade them of the attractiveness of what the company has on sale.

Target marketing
Market segmentation – recognising the differences among customers and choosing to target a segment of them with similar needs – is the essence of modern marketing. But target marketing is increasingly subject to criticism, partly because of invasions of privacy, but more particularly relating to the vulnerability of targeted groups of consumers. Initially this concern centred on children and old people but, more recently, marketing campaigns targeted at minority ethnic groups and poorly educated populations have also been attacked. These practices can lead to a diminished reputation for the firm and lost sales arising from consumer boycotts and negative word-of-mouth. This adverse impact is aggravated when the targeting involves products that are considered ‘harmful’, such as lottery tickets, weight-loss products, fast food, financial services and, particularly, alcohol and tobacco products.

The regulatory environment for marketing
Because of spectrum scarcity (i.e. the limited capacity of the airwaves to carry broadcasting), national governments have historically adopted the practice of issuing and controlling licences to television and radio broadcasters. This makes it easier to understand why much of the law surrounding advertising and promotional activity is couched as part of the wider regulation of broadcasting rather than directed specifically at the marketing industry itself.

A complex pattern of ‘co-regulation’ has grown up, based on self regulation segmented along industry lines and statutory controls based on a variety of legislation from trading standards to broadcasting law. As communication technology has converged on digital standards, there has been a move to simplify regulatory structures in order to protect the ‘citizen-consumer’ of the 21st century, without unnecessarily burdening advertisers or media owners.

The general trend in Europe (led in this respect by the UK) is towards liberalisation – a doctrine which downplays the cultural or social significance of broadcasting and the media in favour of their economic importance. The consequences are less intervention by the government and an increasing emphasis on self-regulation. The trend towards regulating content across all media rather than operating on a medium-by-medium basis (which has been the traditional pattern of such regulation) is a more rational approach to the changing media environment Critics of liberalisation argue for a more interventionist model of regulation aimed at protecting the diversity, cultural distinctiveness and social value of the media by, for example, limiting the number and type of media outlets that can be owned by any one company.

While the communications industry itself tends to regard such protectionism as counter-productive because of the limitations it places on growth and investment, too much power vested in any one international group is not likely to be in anyone’s long-term interests in a competitive market. In Italy, for example, the controversial politician Silvio Berlusconi not only owns the largest media conglomerate in the country, but also has extensive interests in advertising agencies.

Another regulatory issue of particular concern to the marketing communications industry is the question of privacy. The information that is increasingly driving marketing communications strategy is, by its nature, personal. Customers are increasingly realising the value of the data being collected on them. Some are extremely concerned to protect their privacy.

The legislative climate in Europe is currently highly supportive of privacy, in a way which constrains the freedom with which marketing communicators can approach prospective customers, or maintain relationships with them where the balance of information is one-sided (particularly when information is shared between marketing companies).

About this article

This article is based on extracts taken from the Open University Business School courses Strategy (B820) and Marketing In A Complex World (B825).