General Studies Paper 4 (Ethics): Profit maximization

Business Ethics

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Syllabus: General Studies Paper 4 (Ethics)

 

Does profit maximization in business paves a way to unethical practices in the corporate world? Critically examine.

 

Introduction

Corporate world functions on capitalistic principles which require profit maximization and hence was criticized during early times of Industrial revolution for being exploitative etc. Profit maximization can increase a company’s gains in the short term, but over the long run it can have negative repercussions for employees, owners and community stakeholders.

Body

Every business aims to earn a profit, but companies exist for other reasons as well, such as providing meaningful livelihoods and working toward social and economic well-being. Profit maximization strategies place clear, focused attention on the process of earning as much as possible. In the process, however, they may lose sight of other goals and aspects of a company’s vision.

This is the best model till date where efficiency, innovation and effectiveness are key ingredients. Consequently, per worker productivity is highest and hence profit to company and hence better salary for the employees’. Thus corporate world brings happiness for all employees.

However, it can lead to slippery slope. In the quest of profit maximization often it turns exploitative.

Profit maximization as the sole objective of corporate world would be detrimental for the society and the nation through several ways-

  • Employees
    • One of the fastest ways to maximize profit and reduce costs is to slash employee expenses.
    • In many industries, payroll makes up a large percentage of overall costs for a company.
    • Employee pay for restaurants, for example, routinely hovers around 20 to 25 percent of total costs, according to Forbes. 
    • Slashing employee expenses and removing benefits is an ethical issue that can cause poor morale in the workplace. 
  • Marketing
    • Marketing has a strong relationship with a company’s profits.
    • A solid marketing strategy can grow a brand, attract consumers and ultimately build profits.
    • However, in attempt to maximize profits, companies often straddle the line of what’s ethically right and wrong when it comes to marketing.
    • Examples of questionable ethics in regards to marketing include the placement of sexual ads in an attempt to attract people to a product or service, targeting children in advertisements and using violence as a means to draw attention to a product or service.
  • Environmental
    • The production of most items has some type of environmental impact.
    • Companies that want to grow profits may use unethical environmental practices by increasing pollution, contaminating water supplies and destroying forests.
    • It’s often less costly to negatively impact the environment than it is to positively impact it. 
    • Example: Volkswagen quoted wrong emission standards.
  • Quality
    • The cost of goods is usually one of the highest expenses a company deals with.
    • Companies can reduce the quality of the goods and still sell the goods at the same price to maximize profit.
    • By doing so, however, they cross the line into an unethical business practice.
    • The danger of reducing quality to maximize profit is damage to the company’s brand name and a loss of both consumer respect and trust.
    • For Ex: Ranbaxy quoted wrong drug ingredients. Johnson sold wrongs prescription of hip replacement therapy affecting millions of consumers, Union Carbide undermined gas leakage safety regulations only leading to death of thousands in Bhopal.
  • It leads to crony capitalism, and nefarious act of colluding with the government machinery in which country’s political, and economic directions are dictated by the few.
  • Basic civic human rights of the subjects are being infringed upon. For instance, corporate operating in some informal sector pay no due rights to the interest and well-being of the workers.
  • When the haves pay no regards to the law of natural and re-distributive justice, inequalities bloom which hinders country’s socio-economic growth and development.
  • If such unfortunate system left unchecked, it could possibly leads to an eventual collapse of the economy, and even open doors to violent revolution and turmoil.

In order to  make  profit maximization in tune with ethical standards.  Several steps can be taken.

  • Corporate social responsibility should be strictly enforced and efforts should be taken to increase the amount of taxation so that commercial responsibility towards the society could be channelized effectively.
  • Corporate governance should be emphasized so that there is scope for accountability and transparency in companies’ engagement with various stakeholders.

Suggestions for corporate and Government:

  • Strictly following laws.
  • Environment priority over materialistic gains.
  • Profit maximization through credibility building.
  • Profit sharing and rewarding labours through eligible rights.
  • Charity works through cess.
  • Gains through healthy competition and innovation.

 

Conclusion

Profit maximization has the potential to bring in extra money in the short term, while lessening your long-term earnings. In this context profit maximization has led to sever unethical practices. Gandhi ji wanted for Corporate Citizenship and Policy based upon Trusteeship for corporate entities. Today many of corporate like TATAs are actively engaged into CSR and philanthropic activities.

 

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