First, let's start by understanding what business ethics is all about. In simple terms, business ethics is a set of moral principles that govern the behavior of individuals and organizations in the business world. Okay? These principles guide individuals and organizations to make the right choices when it comes to business practices. Why do companies need this? Wouldn’t it just be easier to plow everyone down who dares stand in their way? No. Companies need to think about business ethics because it builds trust between a company and its stakeholders. A company that behaves ethically will gain a positive reputation, it will attract new customers, and it will retain current ones. Great, right? That’s what you want to achieve as a growing organization.
So the concept of business ethics is pretty easy, right? It makes sense. Now, let's take a look at the example of Wirecard. Who here hasn’t heard of Wirecard?
For those of you who don’t know, Wirecard was a German-based payment processing and financial services company, and until recently, it was considered one of the hottest fintech startups in the world. At its peak it was valued at roughly €24 billion. But, in June 2020 it all went south, there was a massive scandal, you’ve all heard about it. In essence, Wirecard was accused of inflating its revenue and profits through accounting fraud. The company announced that €1.9 billion was missing from its accounts, but the money never existed. It was all a fraud. The scandal caused Wirecard to file for insolvency, and many people lost their jobs and investments. The company's stock price plummeted, and investors lost billions of euros. It was massive, it shook the whole business world. Why am I talking about this? The Wirecard scandal is a clear example of why business ethics are so crucial. If the company had adhered to ethical principles, I'm sure it would have survived.
So how can we apply business ethics to this example? Wirecard's story is a cautionary tale of what can happen when a company focuses solely on growth and profits, and neglects the importance of morality. The first keyword I want to bring up is transparency. Wirecard should have been transparent about its financial statements and reported accurate data to its shareholders. Had they not lied about their finances, they would still be doing business today. So we see, honesty and transparency are fundamental pillars of business ethics and thus business success. Because business ethics is not just a buzzword or a nice-to-have, okay? It is essential for the long-term success and sustainability of any organization. Without trust, customers will not be loyal and will take their business elsewhere. And without confidence, investors will not be willing to invest in a company. Unethical behavior may seem profitable in the short-term, but it will eventually lead to reputational damage, legal consequences, and loss of trust from stakeholders. Just look at Wirecard.
So secondly, what can we learn here? It is important to have strong internal controls and compliance procedures. Wirecard should have had a robust internal control system in place to prevent fraud and detect any irregularities. To ensure that the company is operating ethically. Now in the Wirecard case, there was an audit conducted by EY - Ernst & Young - one of the Big Four accounting firms. So you can see, Wirecard even fooled one of the biggest auditing firms in the world. This should not have been possible. Were there bribes involved? Who knows, but it was probably just an oversight. Either way, in the end, everyone lost. It was a lose-lose situation.
Lastly - okay we are almost done with Wirecard - but there is one more point that I’d like to touch on. And that is to simply have a culture of integrity within an organization. The lack of ethics within Wirecard came from the top, from the C-level management. Many employees didn’t even know what was going on. They were just as shocked as the rest of us when all of this came out. However… however I am certain that there must have been some employees who had an inkling that something was not quite right, maybe they had a gut feeling. But they didn’t say anything, maybe they found themselves in a dilemma. And that is because it came from leadership. Most companies preach loyalty. Maybe in this case they pretended that some information was confidential when it really wasn’t, to keep employees from talking about it. Really, every company culture should encourage employees to act ethically and raise concerns about any wrongdoings. Every organization, every company has a responsibility because it affects many people. Right? You’ve heard the term “Corporate Social Responsibility”? If you’re a cynic, you might say “Oh, that’s just for greenwashing, it’s all pretend”. But if you really understand business ethics and you understand CSR, then you will know just how important it is - especially nowadays - for a company’s long-term success. Luckily, many big companies like Disney or Microsoft are committing to being more ethical, lowering their carbon footprint, fighting discrimination like the glass ceiling and promoting equality. You may have heard that recently the topic of nepotism, especially in the entertainment industry, has been at the center of debates. And also information privacy. We’ve all got phones. Artificial Intelligence is on the rise. So these examples too exemplify the increasing significance of business ethics. Twenty years ago, nobody was talking about cultural appropriation. Now, everyone does. Does that mean that people are becoming more idealistic? Either way, why not try to make the world a better place?
Okay. Are you still with me? Our course is about business ethics. The Wirecard scandal is a stark reminder of why business ethics matter. It shows that even companies that are successful and well-respected can be involved in unethical behavior. As business leaders, we have a responsibility to ensure that our companies operate with integrity and transparency, which is better for long-term success anyway. By doing so, we can create a culture that values honesty, fairness, and accountability. I urge you to remember, in business and in life, always choose to do the right thing, even if it is not the easiest thing to do. Prioritize ethical behavior, always strive for long-term success, and never forget that trust and confidence are essential to success. Thank you for listening.
- Do you agree with the professor’s point of view? Why do you believe that business ethics are important or unimportant?
- Would you rather work for an unethical company with high pay or an ethical company with low pay? Why?
- Discuss a real life example you know where a company did not behave ethically, and what you would have done differently.