Understanding the Business World

Strengths, limitations and challenges of ethical and socially responsible business practice: A case of GlaxoSmithKline and Rolls Royce

The concepts of business ethics and corporate social responsibility are widely research over the past few years. Following an increase in unethical and socially irresponsibility business practices, current thinking on this topic hold that businesses should not only avoid any harm but also positively affect the society in which it operates (Ryan, O’Malley and O’Dwyer 2010). As a result, the idea of corporate social responsibility (CSR) has significantly expanded in terms of significance (Mišura, Cerović and Buterin 2018). Literature on business ethics and CSR agree that organisations have an ethical and social responsibility and the economic mission to create value for shareholders. Ethical and social responsibilities refer to the activities and behaviours expected of a business by its stakeholders and the society at large (Martínez et al. 2016).

This paper discusses the strengths, limitations, and challenges of ethical and socially responsible business practice. This discussion is made in reference to the case of GlaxoSmithKline (GSK) and that of Rolls Royce. GSK is a world top pharmaceutical firm and states that corporate responsibility is indispensable in its operations. In fact, the company states that CSR is inherent in its mission (GSK 2002). In its corporate and social responsibility report (2010), GSK states that it is committed to the highest ethical standards and operating within the law. Additionally, the report states that senior managers are expected to lead by example by committing to the Code of Conduct among other GSK policies while supporting subordinate staff to do the same (GSK 2006). Despite GSK’s expressed commitment to ethical and socially responsible business practice, the company has been involved in several scandals. These include illegal promotion of prescription drugs, bribing doctors, failure to report safety data, and promoting unauthorised use of medicines. For example, Chinese police have recently accused GSK salespersons of using US$490 million through travel agencies to facilitate bribes to influencing officials and doctors which was aimed at increasing sales revenue (Reuters 2013). In July 2012, GSK pleaded guilty and paid a fine of $3 billion to settle the scandal (Salvioni et al. 2015). On the other hand, Rolls Royce is a pre-eminent engineering company committed to delivering quality products as well as protecting the society is operates in. In its sustainability report, Rolls Royce acknowledges that high standards of ethical behaviour and compliance with laws and regulations are vital to building reputation and long-term success of the business (Rolls Royce 2016). Additionally, Rolls Royce has a Global Code of Conduct that sets out its ethical principles underpinning its operation (Rolls Royce 2016). However, Rolls Royce has not escaped scandals: the company paid penalties amounting to £671m for paying bribes in order to secure contracts in different countries across the world (The Guardian 2017). With a focus on these two organisations, this paper outlines the strengths, limitations, and challenges of ethical and socially responsible business practice.

Ethical and socially responsible business practice builds corporate reputation. According to Yadav et al. (2018), reputation is a product of socially developed impressions of an organisation and an asset to the firm in that it improves product prices, lowers labour and capital costs, improves decision-making, and enhances employees’ loyalty. From this perspective, reputation has an incontrovertible role in value creation. In the same vein, Šontaitė-Petkevičienė (2015) writes that consumers prefer organisations with ethical and socially responsible business practice. Thus, engaging in CSR behaviours is among the ways through which organisations can improve their corporate reputation. Rolls Royce was among the most trusted organisations in the world but following the bribery scandal at the international level, there is a question of how much more there could be at the domestic level (Fraud Advisory Panel 2017). In addition report indicates that little is known about Rolls Royce corruption at the home level leaving law enforcement professionals suspecting more incidences of corruption. Therefore, bribery cases have not only cost Rolls Royce £671m in penalties but have also tarnished its reputation both locally and internationally. Similarly, consumers trust in GSK has significantly reduced following GSK agreeing to plead guilty and paying $3b for unlawful promotion of certain prescription drugs, failure to report certain safety data, and false pricing reporting practices. By pleading guilty, there is a question on how many more such cases are yet to be uncovered, which further tarnishes GSK’s reputation.

Ethical and socially responsible business practice builds customer loyalty. Sindhu and Arif (2017) state that if customers believe that they are treated unfairly or overcharged, they cease being repeat customers. This was the case for GSK following the bribery scandal: according to Ameer and Halinen (n.d.), GSK’s sales in China in 2012 declined to 61% within just four months with several large hospitals shutting their doors for GSK sales representatives. Therefore, the bribery scandal cost GSK customers it had served for a long time. On the other hand, Rolls Royce was accused to giving bribes to secure contracts in different countries, which implies that the organisation manipulates consumer decision making. According to Stanisavljević (2017), customers prefer products from companies involved in social causes. Therefore, the bribery scandal scares away some customers and potential customers in that they might feel the company does not sell based on the quality of its products but on manipulative marketing. Customers also purchase more, have more trust, and more likely to recommend socially responsible companies Martínez and del Bosque (2013), which implies that GSK and Rolls Royce risked losing potential clients by engaging is unethical and social irresponsible business practice.

Ethical and socially responsible business practice retains good employees. According to Aminudin (2013), staff talented at all levels of an organisation need fair compensation for their work and dedication. This implies that organisations that are open and fair with their dealings with employees stand a higher chance of retaining best talents. On the other hand, Supanti et al. (2015) write that employees do not want to be associated with firms violating business ethics and CSR, which implies turnover rates are high in companies with unethical and socially irresponsible business practice. Further, CSR is known to increase the attractiveness of prospective employees (Park and E. Levy 2014). Ethically and socially responsible organisations attract employees that are committed to organisational goals not for extrinsic factors such as salary and promotion but for satisfaction (Carnahan et al. 2017). In its corporate and social responsibility report, GSK acknowledges the power of attracting, motivating, and retaining best talents in business success resulting increased value for employees. This aspect of management can be linked with GSK’s success in retaining employees. Similarly, Rolls Royce is committed to creating a work environment in which all employees and motivated to realise their full potential (Rolls Royce 2016). Honesty, openness, employee autonomy and fairness are at the core of Rolls Royce work environment.

Ethical and socially responsible business practice creates a positive work environment. According to Fu et al. (2014), subordinate employees emulate the practices to management level employees. This implies that when a company commits to ethical practice, its employees will follow the example and commit to the principles and code of codes published by the company. In agreement, Glavas and Kelley (2014) write that socially responsible companies do not struggle enforcing employee rules and regulations as there is a culture of commitment to ethics. Still, Story and Neves (2015) write that once a company observes business ethics and CSR, its employees understand the value of engaging in socially responsible behaviours thus they ensure their practices do not harm other within the organisation. From both cases, GSK and Rolls Royce have failed meeting their ethical and social responsibilities, which leaves a question whether the same would be transferred to employees. It is evident that both GSK and Rolls Royce have their principles in valuing employees but this may not mean the principles are enforced given the companies have conducted ethically wrong behaviours while they have strong social and corporate plans to avoid such. Therefore, it may be challenging for GSK and Rolls Royce to create a positive work environment given their unethical practices.

Ethical and socially responsible business practice avoids legal problems. Jones Christensen et al. (2014) write that in pursuit of profit, many businesses engage in unethical practices such as failure to fully comply with labour laws, environment laws, marketing principles, and using sub-standard materials in production. In the same vein, Farooq et al. (2014) posit that once such businesses are caught in unethical practices, the consequences are severe as they include loss of revenue to settle penalties and negative publicity which has a long-tern negative effect of the company’s reputation. These consequences are identifiable in the cases of GSK and Rolls Royce: GSK lost $3 billion while Rolls Royce lost £671m in paying legal fines not to forget the long-term negative effect on corporate reputation. GSK may not be able to sell in China as it did prior to the bribery scandal, which translates to a decline in sales revenue. Similarly, corruption in securing contracts have cost Rolls Royce trust of customers and prospective buyers. Therefore, unethical and socially irresponsible behaviour have seen GSK and Rolls Royce in legal problems resulting to heavy loss of revenue.

Most of the dimensions of CSR that are beneficial to an organisation and undervalued by customers, which arises from ineffectiveness in communication (Eberle et al. 2013). In the same vein, Šontaitė-Petkevičienė (2015) states that social responsible business do not avail information on their practices in a way that customers can understand thus customers are not made fully aware of the benefits of social responsible business practice. This results in customers and the society misjudging the good intentions of a business. This is a significant challenge for many organisations. For example, though GSK has about 77% of its waste being recycled or incinerated for energy generation, this information is not easily accessible to customers thus they end up consuming more of what is published by mainstream media and less of what is published by the organisation (GSK 2017). Information emanating from the media is in most instances negative resulting in a negative perception of the intentions of GSK. Among the overlook GSK’s goodwill information include having more than 1.5 million used inhalers been recycled and more than 70% of GSK offices and sites having achieved zero waste to landfill (GSK 2017). Therefore, it is vital for GSK and Rolls Royce to effectively communicate their good intentions to customers, which will further build corporate reputation.

Summarily, ethical and socially business practice is integral to the success of any organisations. Business ethics and CSR are important as they build corporate reputation, build customer loyalty, retain good employees, create a positive work environment, and helps a business avoid legal problems. The paper also establishes that most of the ethically and socially responsible businesses fail to effectively communicate their good intentions to customers resulting in poor judgement of the firms’ actions. While both GSK and Rolls Royce have CSR frameworks, they have faced legal fines over unethical business framework. This implies that business should actively implement and enforce their CSR frameworks to avoid risking their reputation following legal fines. Though GSK and Rolls Royce reputation has tarnished, it is possible to rebuild it through commitment to ethical and socially responsible business practice. This will also result in revenue growth given that CSR is directly related to customer loyalty.

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