Impact of Business Ethics on Nigerian Financial Institutions

Impact of Business Ethics on Nigerian Financial Institutions

Abstract

Ethics has come to represent sets of high moral standards and requirements for in most cases office holders on which they will be held accountable for any form of misdemeanour. It is also all encompassing and serves as yardsticks for societal uprightness. The murky waters of business are neck-deep in different types of moral and immoral dealings. Short cuts and unconventional practices have become the order of the day. The codes of ethics which are the sets of moral principles are relegated to the background. The banking industry which plays an intermediation role in every economy has its own fair share of these unethical practices. This paper therefore explores this Trojan and its impact of the Nigerian financial institutions. Findings reveals plethora of unhealthy practices and discusses their effects on these institutions. Furthermore, the paper recommends the need for a total clean-up. Government must intervene to sanitize these institutions which services as the heart and soul of the economy.

1.0 Background of study

Business ethics and corporate image are terms that are, of late, used synonymously due to the high levels of businesses going bust. Business ethics cannot be considered a new concept, but one that has been relegated to the back-burners by practitioners in order to accentuate their short-cut practices. These unsavoury practices have occupied a prime of place on various tabloids and a heated public debate has ensured, riding rough-shod on these bandwagon of debaters are academicians, practitioners and other experts. Hence the latest business scandals caused by unethical behaviours of practitioners calls for serious debate and scrutiny. Furthermore, leadership issues in various organisations are beginning to come under discussion as it affects every fabric of the organization. Business ethics and leadership combine to form a strong corporate image which is a very vital element in every organization. Employees at their various levels in organizations have an important role in ensuring and maintaining a good corporate image. Unfortunately, most organisations do not understand the role of their employees in the achievement of corporate image. The demands for ethical behaviour by companies and their leaders today are stronger than ever before. Just as some organizations have woken up to social responsibilities; they now face even more complex demands concerning business ethics. Recent global corporate scandals have done long-lasting damage to the image of some of most business organizations. No single organization is safe from corporate scandals, and one main issue in these ethical misconducts is the negligence of ethical corporate values and lack of ethical leadership (Schein 2004). Trevin and Brown (2004) suggest that unethical behavior has been in existence since the beginning of the humanity, and now in this modern era, people are getting more unethical than ever due to the more complex business environment. Ethical and responsible business has truly become an inevitable norm in most of the developed world. They do these by following laid down laws, paying taxes and salaries and producing high quality products. But are these same with organizations in the developing economies?

2.0 Review of related literature

2.1 Overview of ethics

Ethics are the principles and values an individual uses to govern his activities and decisions. In an organization, a code of ethics is a set of principles that guide the organization in its programs, policies and decisions for the business. Chandan, et al (1990) defined ethics as a

“theory of morality which attempts to systematize moral judgements and establish and defend basic moral principles”. The ethical philosophy an organization uses to conduct business can affect the reputation, productivity and bottom line of the business. Furthermore, ethics concern an individual's moral judgements about right and wrong. Decisions taken within an organisation may be made by individuals or groups, but whoever makes them will be influenced by the culture of the company. Morals are beliefs or principles that individuals hold concerning what is right and what is wrong in a community or society. Clow and Baack(2004). Clow and Baack (2004) opined that the concept of ethics and morality does not only differ in interpretation and application, but also differs from culture to culture and from one community to another.

2.2 Corporate Image

Corporate image can be defined as “the overall estimation in which an organization is held by its constituents through perceptual representation of an organisation’s past actions and future prospects when compared with other leading rivals (Formbrun, 1996). Corporate image confers clear-cut advantages and privileges on organizations (Rayner2003). It proves difficult to imitate, at the same time, it creates responsibilities. The obligations that managers and the organization owe must meet the personal standards of the workers, the quality standards of customers, the ethical standards of the community and the profitability standards of the investors. Therefore, organizations sustain their corporate image by building strong and supportive relationships with all of their constituents- i.e. customers, suppliers, investors, community, government and others. Villanova, Zinkhan and Hyman (2000) stated that corporate image is an overall perception of the organization held by different segments of the public. For example, the products and services consumer stakeholder buy are seen as having personal and social meanings in addition to functional utility. Again, they are interested in the long term stability of the company and ability of the company to maintain supplies, product/service, quality and price. The management are interested in all aspects of financial ratio analysis that all outside investors used in evaluating the firm to bargain effectively for more funds.

Organizations strive to ensure that they develop and maintain a good corporate image for the following reasons;

The Enhancement of the corporate competitive advantage thus leading to higher profitability.
Promotion of favourable relationship with the community in the environment they operate, else it may experience difficulty in recruitment, selection and maintaining the employee morale.
Influencing investors and financial institutions.
Establishment of a corporate goodwill for the organization.
The Creation of a good identity for the employees thereby leading to their satisfaction.
The Stimulation of sales, thus influencing customer loyalty.
The Promotion good relationship with the government, opinion leaders and various interest groups, (Ayozie, 2012; Agwu, 2014).

Murray (2003) stated that good corporate image builds strategic value for a company by granting it a competitive advantage over rivals. They do this by trying to outwit rivals in marketing new products, hiring the best job candidates and to show profitability. These make them gain image and good image can lead to higher sales. According to Martineau (2000) the image of an organization can associated with the self-image of an individual customer, suggesting a model of how image affects patronage that people become customers where the image of the provider is similar to the image they have of themselves. Studies on corporate image have generally focused on the effect of advertising, corporate logo, brand preference or interaction with employees (Davies and Miles, 2000

2.3 Ethical leadership

The respect that leaders must have requires that one’s ethics be without question. A leader not only stays above the lines between right and wrong, he stays well clear of the ‘’grey areas’’ Alan, G. Bernard. Ethical leadership is essential in an organisation because leaders who strive for ethical conducts motivate others to act in ethical ways. Ethical leadership has a structural component and a substantive character opponent. Substantively, leaders can use their power in a positive way to influence people. For many years, philosophers and spiritualists have guided people on ethical ways to live and work. Even in light of availability of rich information and knowledge, there are untold numbers of temptations and acts of unethical and illegal behaviours within organisations as evidenced by daily news and government reports. Human beings often have a tendency to depart from the part they know is right. It is a well-known fact that power can corrupt a person in authority and leadership is a power relationship. Have powers opens the doors for a person with power to capitalise on personal gains in certain situations. Motivations that spark wrong doings are greed, envy, anger, fear, and even jealousy.

According to Northouse (2007), leadership is a process whereby an individual influences a group of individuals to achieve a common goal or objective. Ethical leadership can be defined as “the demonstration of normatively appropriate conduct or practices through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement and, decision-making” (Brown, Trevino and Harrison, 2005). This definition shows that ethical leader can set the example for others and overcome any temptations that may occur along the way. Freeman and Stewart (2006) defined an ethical leader as someone with the “right values” and “strong character” and also a person that makes himself an example for others to follow and withstand temptations that may come along the way. He was of the opinion that Ethical leaders are stakeholders in companies, striving to achieve the purpose, vision and value of his realm without compromising self-interest. He also stated that Ethical leaders embody the purpose, vision, and values of the company and of the constituents, within an understanding of ethical ideals. Ethical leaders link the goals of the organization with that of the internal employees and external stakeholders. To be an ethical leader, you must know that positive relationships with all organisational stakeholders are the gold standard for all organizational efforts. Such a leader must be able to understand that good quality relationships built on respect and trust are the most vital determinants of organizational success. Ethical leaders should understands that these kinds of relationships germinate and grow in the deep rich soil of fundamental principles such as trust, respect, integrity, honesty, fairness, equity, justice and compassion. They must also know that complying with these basic principles, organizations will be able to grow and be sustained (Sanusi, 2013). Trevino, Hartman and Brown (2000) brought about a matrix comprising unethical leadership which comprises of weak moral person, weak moral manager, hypocritical leadership which comprises of weak moral person, strong moral manager, ethical leader which comprises of strong moral person, strong moral manager), and ethically silent or neutral leadership which comprises of weak/strong moral person, weak moral manager.

Trevino and Brown (2004) stated that an executive must be seen as both a “moral person” and a “moral manager to have a reputation of ethical leadership.” A moral person is someone with a good character showing good levels of honesty and trustworthiness, caring about the employee welfare and is seen as approachable by his or her subordinates. A moral manager is a person who leads others on the ethical dimension allowing employees to know what is expected of them. Such a person also holds his employees accountable. Moral managers set ethical standards and ensure to communicate ethics messages. They also use the position of leadership to promote ethical conducts in organizations. They use incentives and punishments to guide ethical behaviour in the organization. Trevino and Brown (2004) expanded the Executive Ethical Leadership Reputation by citing examples of leaders in each of the reputation matrix. He combined the “moral person” and “moral manager” dimensions to bring about a two-by-two matrix. A leader who is strong on both dimensions is seen to be an ethical leader.

2.3.1 Characteristics of an Ethical Leader

Resick, Hanges, Dickson and Mitchelson (2006) identified five key attributes that characterized ethical leadership which includes:

Character and integrity
Ethical awareness
Community/people-orientation
Motivating which involves encouraging and empowering others
Managing ethical accountability.

Freeman and Stewart (2006) further identified the following characteristics of an ethical leader. They are:

The articulation and embodiment of the purpose and values of the organization by the leader
The leader’s focus on organizational success rather than on individual ego.
The leader finds the best people in the organization and develops them to a more effective and efficient person.
He or she builds a living conversation about ethics, values and the creation of value for stakeholders
The leader takes a charitable understanding of others‟ values in the organization.
The leader makes tough calls while being imaginative and proactive in the organization.
The leader creates stakeholder’s support and societal legitimacy.

The characteristics of an ethical leader was also discussed by O‟Connell and Bligh (2009) as they identified the following nine characteristics of an ethical leader from a synthesis analysis of past researches which are

The leader uses an ethical lens
The leader makes ethical decisions
The leader considers the long-term implications of business decisions needed to be taken in the organization.
The leader considers other’s welfare when making decisions and treats others in the organization fairly
The leader acts ethically and is a role model for ethical behaviour
The leader communicates the importance of ethics to everyone in the organization
The leader understands everyone in the organization and those he/she works with
The leader holds others accountable for acting ethically
The leader offers training and support for employees on how to act ethically in organization.

2.4 Cross-cultural differences within business environments

Every culture has its values and norms that are improved on over generations. Increasingly the business environment is tending toward a global economy. With this trend come excitement, opportunity, and unfortunately potential for problems associated with differing attitudes and practices commonly encountered when interacting with different. According to Sims and Gegez, (2004), these cross-cultural differences within the business environment bring a lot of challenges when the concept of business ethics is considered. Ethics, when viewed as an accepted set of rules are a prerequisite to any business transactions organizations may have to undertake. In most cases, parts of the rules are covered by legal stipulations or regulations. However, these can hardly ever be fully detailed or up to date. Again, according to Schnebel and Bienert (2004), laws and regulations are mostly the reflection and outcome of a clear and sanction able set of morals that is understood as commonly given by the society that institutes and follows them. Apart from making profit, the aim of a business firm is to be found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs and who form a particular group at the service of the whole society (Annus and Paul, 1991; Young, 2012). The role of the perception of ethical behaviour of a business and of exercising moral judgement is very important especially with the increasing interest and debate surrounding globalization. According to Ahmad, Chung, and Eichenseher (2003), National and international business transactions largely depend on shared perceptions as to what is ethical behaviour. Global business ethics has now become a significant problem for many multinational organizations (Asgary and Mitschow, 2002).

2.5 Nigerian banking and business ethics

Ikpefan, Achugamonu, Isibor & Agwu, (2015) stated that the banking business in Nigeria defined by the Section 61 of Banks and Other Financial Institutions Act, 1991 (BOFIA) is “the business of receiving deposits on current account, deposit account or other similar accounts, paying or collecting cheques drawn by or paid in by customers, provision of finance or such other business as the Governor of Central Bank of Nigeria (CBN) may, by order published in the Gazette, designate as banking business”. However, the Central Bank of Nigeria, according to Sanusi, (2013) issues guidelines to banks and redefines banking businesses in Nigeria as “The business of receiving deposits on current, savings or other accounts; paying or collecting cheques drawn or paid in by customers; provision of finance, consultancy and advisory services relating to corporate and investment matters; making or management of investment on behalf of any person; and the provision of insurance marketing services and capital market business or such other services as the Governor of the Central Bank of Nigeria may, by gazette, designate as banking business” with the introduction of Universal Banking. Ikpefan, et al., (2015) stressed that banking is therefore a business like any other type of business has the characteristics to run as a going concern and make profit for the stakeholders of the organization and for its expansion. The business of banking goes beyond profit making. This is because of its crucial role to occupy in the economy of financial intermediation and custodian of private and public assets. This crucial role has made it mandatory for banks to imbibe good business ethics in order to show them as ethical, sound, safe and reliable organizations. Adewunmi (1998) stated that the General Assembly of Bank Chief Executives had formulated the General Standards expected of bankers and banking institutions in Nigeria prior to the introduction and adoption of a Code of Ethics in the banking industry in Nigeria. The aim was to ensure the highest level of compliance to good and effective banking practice and a strong commitment to high ethical standards in the banker-customer relationship, (Agwu, 2014). But this has led to important questions like:

Do banks in Nigeria stick to these ideals?
Why have the Nigerian banks deviated from the ethical expectations?
What is responsible for the unethical practices in Nigerian banks?

Francis (2000) stated that every business aims to make money and be successful but making money in an unethical manner will cause a breach in the Nation’s social system. He added that organizations must be taught good business ethics in order to make them make money in an ethical manner. That is, with honour. Unethical business practices in a bank can be dangerous to the bank, to the depositors, to other banks, and to the customers at large which, cannot be acceptable. Solomon (1999) therefore stated that thinking in terms of “making money” and “the market”, devoid of any larger sense of obligation or ethics, never made any country or culture “great.” “Indeed, such crude self-interest thinking is what destroys many countries and culture”. Hunkin (2002) stated that “unethical behaviour can promise many things which could be survival, providing a solution to conflict or punishment, providing the chance to exploit or flatter, and self-enrichment. In business, its impact on both the innocent and the guilty and on social trust is hazardous.” Competition and the struggle for customers and profits are not sufficient to justify unethical practices in the banking industry. There must be a proper attention given to Ethical training, ethical orientation and ethical awareness if Nigerian banks are to be regarded as ethical corporations with ethical values attractive to customers, depositors and investors. The interest in business ethics may be related to recessions, and their likelihood, and also to recent changes in the law (Francis, 2000). An understanding of business ethics also necessitates an appreciation of some legal concepts such as duty of care, safety, harassment and issues of privacy and freedom of information. All these are purposed at preventing unpleasant situations, which could have been avoided in the first place, (Atuma & Agwu, 2014).