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Business Ethics and the Global Financial Crisis - Literature review Example

Summary
The paper “Business Ethics and the Global Financial Crisis” is an appropriate example of a business literature review. The recent global financial crisis was witnessed by the collapse of major institutions and the ineffectiveness of regulatory bodies in salvaging the financial markets. This resulted in a situation of desperation…
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Extract of sample "Business Ethics and the Global Financial Crisis"

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : Business Ethics and the Global Financial Crisis Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2010 Introduction The recent global financial crisis was witnessed by the collapse of major institutions and the ineffectiveness of regulatory bodies in salvaging the financial markets. This resulted to a situation of desperation whereby many businesses tried to formulate strategies of countering the effects of the crisis without putting into consideration ethics in business, forgetting that the cost of unethical practices in business is sometimes high. It would have actually been essential if businesses realized that even in the midst of the financial crisis ethics in business was still important. In my opinion not many institutions adopted proper application of ethical business practices; however the few that did were able to derive the benefits of the practice. The main points that back my opinion include the fact that economic analysts were not that open and responsible about the true facts concerning the global crisis. In addition organization did not focus on meeting their obligations of customer satisfaction. However I do not refute the fact that ethics in business was adhered to, which was indicated by initiatives whose goals were public oriented as opposed to meeting the objective of profit making. Ethics in business in the most basic manner can be described as written and unwritten moral principles and codes that govern the unacceptable and acceptable behavior in business organizations. Fundamentally ethics in business should result to a situation whereby the decisions and actions undertaken by the organization should be done morally (Marcoux 2009). Ethics in business is a significant attribute within the business environment. If the aspect was well intergraded before the crisis and at the initial stages of the financial crisis adverse effects would not have been felt by organizations as witnessed. Clarke, (2010) highlights that; the most deeply distressing aspect during the latest global crisis was the element of the systematic failure of contemporary economic analysts or orthodoxy, in effective and honest anticipation of the crisis. Clarke (2010) further argues that financial analysts did not appreciate the actual consequences of the crisis or provide any meaningful remedies for countering the crisis which they were chiefly responsible for leading the world into. For instance analysts did not have a well grounded idea about what was the real cause of the downturn; various speculated debates existed for instance excessive leverage other speculated effects caused by measurement standards such as the fair value accounting among many reasons. It is essential to take note of the fact that ethical standards recommend that both individuals and organizations should conform to sound moral practices of openness and responsibility. Responsibility basically implying that people in charge of policy formulation and guidelines should acknowledge the social responsibility they have towards their stakeholder and strive to find was of formulating effective guidelines for problem solving. Openness on the other hand involves creating an environment of transparency by striving to communicate to every constituent through giving the right information. Based on Clarke’s (2010) argument, it can be concluded that in actual sense if the principles of ethics in business were applied by financial economist, the crisis would have been to some extent been evaded or controlled to a certain functional level. Wade (2008), outlines that ethical business should meet obligations. This means that regardless of the circumstances within the macro-environment, the management of organizations should do everything within their power to gain the trust of their clients. It is evident that most institutions during the crisis were so much entangled in the quest for finding strategies of getting themselves out of the crisis or reducing the effects of the crisis on their operations and forgot their main stakeholders; the clients or customers. Lewis, etal, (2010) also bring to light the fact that the global financial downturn reminded the world of the extensive dangers of unregulated institutions and markets and of the vital importance of transparency, risk management and disclosure. During the crisis, financial institutions and investment banks took the risk of implementing positions that were extremely leveraged. Apparently the 2007- 2009 financial crisis was mainly blamed on “excessive leverage.” (Clarke, 2009). For instance; consumers in Europe and the U.S were faced with conditions of borrowing such as only individual who borrowed for investment purposes, such as buying stocks and house purchases for speculative purposes were allowed to use leverage for financial sense (Witzner & Dorroch 2009). The crisis also initiated rising default rates for mortgages within the vastly inflated housing market. Such kind of a phenomenon resulted to reduction of customer confidence in many organizations. If the ethical consideration of obligation of acknowledge, then customer confidence in some of the institutions that collapsed would still be maintained, the business would have managed to overcome the crises due to the advantage of having a large customer Base. For instance the 2008 Wall street crisis would have been managed if consumer friendly strategies such as Predatory lending were adopted whereby low interests are charged for financing homes. This method would have resulted to increasing customer base which would further support the organization during the crisis (Witzner & Dorroch 2009). We can however not fully argue that during crisis ethics in business was not at all up-held. Various initiatives were devised by organizations and governments which symbolically illustrated how important ethics in business can prove to be useful. For instance the ethical practice of provision of quality services was undertaken by institutions in order to give their customer quality services which they defiantly deserve. For instance organizations designed global rescue packages to cater for their clients this include fiscal stimulus so as to produce the greatest impact on the significant growth constraint, which comprised of mortgage support such as in some countries like in the United States. Also in the last quarter of 2008, both central banks bought US dollars2.5 trillion of the government debt as well as strained private assets belonging to banks. This was perhaps the largest liquidity injection into the credit market, as well as the largest monetary policy accomplishment, in the globe history. Up till now, different U.S. government agencies have dedicated trillions of dollars in form of loans, guarantees, asset purchases and direct spending (Global Research, 2008). This kind of initiatives assisted in reinventing some of the business operations that were on the verge of total collapse. Patocan and Matjaz (2007) highlight that; modern enterprises should depend largely on the application of sustainable development, for effective business environmental management. Already there are organizations that have proven to be effectively involved in the culture of sustainable development as a result the organizations depend on attributes such as Sustainable enterprise ethics (SEE), which demands for a culture of value behaviour that upholds ethics in business’s. Sustainable development should assist enterprise to take futuristic and holistic initiatives that have long term viability. This has been evidence in the recent economic crisis whereby organization that adopted sustainable development managed to uphold sustainable enterprise ethics which evidently worked on their favor. For instance during the crisis certain Banks did a wonderful job of upholding public relations such as by offering incentives such as 20% fees on hedge funds , which was greatly welcomed by customer. Conclusion Ethics in business was a vital element in dealing with the recent financial crisis. This because if the application of principles of business ethics such as sound moral practices of openness and responsibility, would have been useful in solving the effects of the crisis. Secondly principles such as obligation were also vital elements of the importance of business ethics during the crisis. However if in the midst of the crisis business also seemed to have adopted strategies of enhancing ethics in business which proved beneficial for instance through Sustainable enterprise ethics (SEE). As a result it would have actually been essential if business realized that even in the midst of the financial crisis ethics in business was still important. However not many institutions adopted proper application of ethical business practices during this period those that did were able to derive the benefits of the practice. In summary, ethics in business is important in despite of the macro environmental condition which may have implications to business. References Clarke, T, 2010, ‘’Recurring Crisis in Anglo American Corporate Governance, University of Technology Sydney. Clarke, T, 2009, European Corporate Governance. London, Routledge Global Research, 2008, Causes and Solutions to the Global Financial Crisis, United Nations general Assembly, Retrieved on August 25 from http://www.globalresearch.ca/index.php?context=va&aid=10792 Kaletsky, A, 2009, Goodbye, homo economics. Prospect. http://www.prospectmagazine. co. Lewis, V, etal ,2010, ‘’Was the financial crisis caused by lack of corporate ethics?’’ Global journal of business research. California, National University. . Marcoux, A, 2009, Business-Focused Business Ethics. in Normative Theory and Business Ethics, Plymouth Rowman & Littlefield: pp. 17–34 Potocan, V,& Mulej K, 2007, Business cybernetic, Kybernetes. Robert W, 2008, “Globalization, Growth, Poverty, Inequality, Resentment, and Imperialism,” in Global Political Economy, oxford: Oxford University Press. Witzner, D & Dorroch, J, 2009, ‘’why moral failures precede financial crisis’’, Critical perspectives on international business, New York: Schulich School of Business, critical perspectives on international business Read More

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