Business Ethics Programme for the Bauernfeind Company

1. INTRODUCTION

The goal of this project is to establish a complete, globally applicable set of values and norms, as well as guidelines and regulations which should be accepted by each employee and manager, no matter in which country he or she works.

Concerning the structure of this programme, two parts are distinguished - a theoretical approach to business ethics on the one hand and a concrete framework of ethical guidelines and on the other hand.

In the first part a basic explanation about the role of business ethics in a changing business environment is given, followed by an overview of some important concepts of business ethics, social accountability standard SA 8000 and implementation of it.

In the second part, we start with a code of ethics, where the necessity and importance of it is pointed out.

The highlight is put on important aspects related to corporate governance, which includes especially a set of relationships between a company’s management, its board, its shareholders and other stakeholders.

The next chapter deals with the code of conduct, in which rules and regulations will for ethical behaviour based on Bauernfeind's values are outlined. The code applies to all employees and managers in all countries where the Company is conducting its business, even if some of the aspects mentioned in this Code of Conduct are not required by law in some of these countries.

Furthermore the questionnaire for the company is developed

Finally, the project work is summarized and conclusion is drawn.

2. GENERAL INFORMATION

2.1 Business ethics and globalization

The recent 20 years have been the era of globalization with enormous growth in international trade, financial flows and foreign direct investment (FDI).

In former times, most Western companies did not engage in international business activities. On the one hand their domestic market seemed to be attractive enough and there were sufficient opportunities for growth. On the other hand, companies did not have to take into consideration the specific features of foreign markets. Managers did not have to deal with foreign languages, currencies and “strange” cultural behaviour. Furthermore, companies did not need to adapt their products to different customer preferences or care about legal and political uncertainties.¹

Nowadays, however, the changing business environment and the dependency on other nations’ goods and services has forced most companies to seek opportunities in foreign markets as well. In general, companies decide to invest abroad for a variety of reasons:

- Limited domestic growth is one of the major reasons why firms enter foreign markets. This development has started in the 70’s when Japanese manufacturers began to enter Western markets in many sectors. Nowadays those companies have to face competition from other Asian countries, such as South Korea and Taiwan, which have gained advantages through their low-cost labour force.
- Geographic market diversification to reduce country-specific risk is another popular reason behind many companies' expansion plans. Country specific risk is defined as the risk of operating in only one country and thus being dependent on its political and economical system.
- Lower cost of production in developing countries is a popular reason, as well. However, such a "cost-led approach" is unlikely to lead to be successful in the long-term. If customers' needs are not identified and satisfied, the company will not be able to become a successful "global player".²

However, this development assigns companies new tasks and challenges, especially concerning business ethics. Global companies will have to face the question, how and under which guidelines and principles they will conduct their business. This could imply the following fields:

- working conditions, like child - labour or equal treatment of male and female workers (shall companies introduce a global standard regardless of national law differences);
- human rights (clear principles, which consequences a global company will take, when human rights in one the countries, where this company is conducting business, are violated);
- environmental issues (with regard to globally effective pollution and environmental standards);
- Social responsibility (which measures a global company will take to make its contributions to society);
- Bribery and corruption (where the definition of what bribery is has to be exactly defined and the way how to behave when bribes are offered has to be made clear).

2.2 Corporate culture and Business Ethics

Corporate culture

Corporate culture refers to the values, beliefs and customs of a company. It is the collection of beliefs, expectations, and values shared by an organization’s members and transmitted from one generation of employees to another. The culture sets norms (rules of conduct) that define acceptable behavior of employees of the organization.³

Since the quality of ethical operating of a company gains more and more importance business ethics is to be linked with corporate culture.⁴ Ethical beliefs have to become part of the daily thinking and acting and therefore these beliefs shall become part of the company’s mission statement. Not only profit or other rational facts, but also human recourses, the environment and other issues are considered in the overall concept of a company.

7-S model

Linked to the corporate culture, the 7-S-Model is based on the assumption that the members of an organisation are sharing a system of combined values and beliefs. Therefore organisations where the employees are taking the center stage of the company are considered to be more successful than others⁵. Based on that fact the 7-S-Model shows the multiplicity interconnectedness of all the seven elements that define an organization’s ability to change. Those elements are divided into the so called soft facts and the hard facts. Strategy, structure and systems belong to the hard S´s. They are feasible and easy to identify. The soft facts include skills, staff, style and the shared values. Soft facts are hardly feasible and they are highly determined by the people at work in the organisation. Although the soft factors are below the surface, they can have a great impact of the hard structures, strategies and systems of the organisation.

illustration not visible in this excerpt

Figure 1: The 7-S-Model^[6]

The seven key elements of the 7-S-Model are:

- Strategy: The actions a company has chosen for its future growth and to gain a sustainable competitive advantage.
- Structure: The framework in which the activities of the company’s members are coordinated. The structure of a company is primarily influenced by the organisation’s size and diversity.
- Systems: The formal and informal procedures that govern everyday activity and support structure and strategy.
- Style: The style of an organisation consists of the leadership approach of the top management and also of the company’s overall operating approach.
- Skills: The skills mean the distinctive capabilities and competencies that reside in the organisation.
- Staff: The human recourse management, including the development, training, socialisation, integration, motivation of people and how their careers are managed.
- Shared values: Shared Values are the superordinate goals, which include guiding concepts and fundamental ideas around which a business is built.

If one of the elements changes then this will affect all the others. For example, a change in HR-systems like internal career plans and management training will have an impact on organizational culture (management style) and thus will affect structures, processes, and finally characteristic competences of the organization.

The 7-S-Model stimulates the thinking about the soft facts like skills, staff, style and shared values and therefore also about corporate culture and the creation and implementation of corporate ethics.

2.3 Business Ethics and Corporate Culture

Business ethics is defined as the study and evaluation of decision making by businesses according to moral concepts and judgments. Ethical questions range from practical, narrowly defined issues, such as a company's obligation to be honest with its customers or to broader social and philosophical questions, such as a company's responsibility to preserve the environment and protect employee rights. Many ethical conflicts develop from conflicts between the differing interests of company owners and their workers, customers, and the surrounding community. Managers must balance the ideal against the practical—the need to produce a reasonable profit for the company's shareholders with honesty in business practices, safety in the workplace, and larger environmental and social issues.

Ethical issues in business have become more complicated because of the global and diversified nature of many large corporations and because of the complexity of government regulations that define the limits of criminal behavior. For example, multinational corporations operate in countries where bribery, sexual harassment, racial discrimination, and lack of concern for the environment are neither illegal nor unethical or unusual. The company must decide whether to adhere to constant ethical principles or to adjust to the local rules to maximize profits. As the costs of corporate and white-collar crime can be high, both for society and individual businesses, many business and trade associations have established ethical codes for companies, managers, and employees.^[7]

According to Rothlauf^[8] only a wholistic approach in ethical behavior can lead to successful consequences. Ethical behaviour takes not only place on a company level but also on an individual level, a branch- or company level and an economical level. On the individual level the employees and managers of a company have to be willing to submit their own behaviour to the ethical rules of the company. On the company- or branch level it is not only about the profit but also about the social responsibility and guidelines through ethical codes of the branch and the company. The economic level deals with the legitimation economic system with all its legal and normative basic principles.

2.4 Three Levels of Ethical Orientation

There are 3 levels of ethical orientation in the area of business ethics^[9]. They show which behaviour lead managers to decide on specific ethical questions.

On the first level “moral according to regulations” the company orientates itself at the legal regulations without thinking about their sense in a deep way. Managers acting on that level are only concerned about how far they can go with their decisions without clashing with the exististing law. They do not think about what would be ethically correct with regard to the environment, or the costumers in a third world country.

The second level is the “moral based on mutuality”. On this level managers act with the understanding, that everybody relies on the others. They treat others in the way they want to be treated themselves. If a company for instance sells cement in Germany and therefore developed special manufacturing methods to make it free of asbestos this company should not sell cement which contains asbestos in other countries^[10].

“Moral in responsibility” is the third level of ethical orientation, where an intense dealing with social responsibility takes place. The long- term consequences of the company´s behaviour are reflected and the willingness to explain, to control and to improve the own ethical behaviour exists. This level is the highest level of ethical orientation and therefore it is the one that is most difficult to achieve.

2.5 Corporate Governance

Corporate Governance is the legal and factual frame for leading and controlling a company.^[11] It includes the laws governing the formation of firms, the bylaws established in the company itself, and the structure of the firm.

The corporate governance structure specifies the relations, and the distribution of rights and responsibilities among primarily three groups: the board of directors, managers and shareholders.^[12]

Basically the concern of corporate governance should ensure the conditions whereby a firm´s directors and managers act in the interests of the company and its shareholders. An other concern is to ensure the means by which managers are held accountable to capital providers for the use of assets.

2.6 Implementation of ethics in the company

The institutionalisation of ethics in a company can take place on two levels:

- Code of ethics
- Code of conduct

The code of ethics and the code of conduct facilitate moral acting in a company’s organisation. Both should be described in the following section of this work.

2.7 Code of Ethics and Code of Conduct

Ethical codes are specialised and specific codes of ethics. Such codes are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. Therefore the code of ethics describes the system of values of a company. Such values could be e.g. honesty, integrity, safety at the workplace, environmental protection, sticking to existing laws, commitment to the society or a human oriented human recource manangement. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.

In the code of conduct those statements about the values and beliefs of the company are defined more specific. Concrete actions and behaviours are derived from the ethical code. IBM writes for instance in their code of conduct: “No IBM employee can give money or a gift of significant value to a customer, supplier or anyone if it could reasonably be viewed as being done to gain a business advantage.”^[13]

The code of conduct consists of conventional principles and expectations that are considered binding on any person who is a member of the company.^[14]

An increasing number of companies requires employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.^[15] A code of conduct can be helpful to define accepted behaviours, to promote high standards of practice, to provide a benchmark for members to use for self evaluation, to establish a framework for professional behaviour and responsibilities or to serve as a vehicle for occupational identity, as a mark of occupational maturity¹⁶.

2.8 Introduced Standards

One of the most actual business topics recent years is business ethics. Companies started to notice, that a reasonable commercial advantage can be achieved through adoption of the ethical dimensions in their business practices.

This caused the need of creation of certain standard based on ethical field. Few years ago Social Accountability Standard SA 8000 was introduced. This standard can be used by any company in any industry field.

Having the certificate of the SA 8000 brings a lot of benefits:

- creation of better working conditions;
- increase of public awareness as a company is committed to protect employees’ rights;
- improvement and better supply chain management;
- reinforcement of employees' ongoing commitment and motivation, thus positively impacting the quality of your service and products;
- competitive advantage over competitors;
- helps to access new markets and build stronger brand awareness;

3. BAUERNFEIND LTD

We operate in semiconductors industry. According to the definition, provided by the hyperdictionary¹⁷ semiconductor is:

- a conductor made with semiconducting material
- a substance as germanium or silicon whose electrical conductivity is intermediate between that of a metal and an insulator; its conductivity increases with temperature and in the presence of impurities

Semiconductors are the key components of electronics, which penetrate all industries. That is the reason why semiconductors industry is the worlds most innovating and the most growing industry in the world.

The semiconductors industry is generally divided into these 4 product segments:

- Memory chips, these serve as temporary storehouses of data and pass information to and from computer devices' brains ( Toshiba, Samsung, NEC)
- Microprocessors: These are central processing units that contain the basic logic to perform tasks (Intel)
- Commodity integrated circuit: Sometimes called “standard chips”, these are produced in huge batches for routine processing purposes.
- Complex SOC: “System on a Chip” is essentially all about the creation of an integrated circuit chip with an entire system's capability on it.

Customers' needs are becoming increasingly complicated and require more advanced technologies as our information society rapidly evolves.

Semiconductors industry differs from other industries concerning few points. First, we operate in a very fast changing field, and as a consequence, there is always a pressure to come up with something better and even cheaper, and smaller in size then a certain period before. Second, the produced products life cycle period is extremely short.

It is necessary to look closer at business environment of Bauernfeind Ltd. For this purpose, the Porter’s 5 forces model is used.

illustration not visible in this excerpt

Figure 2. Porter’s model

New entrants. The industry of semiconductors is very difficult to enter, since the technology needed to produce goods is very expensive and needs huge investments.

Suppliers. There are many suppliers, which provide necessary materials for the producers. This causes, that the power of the suppliers is comparably small.

Buyers. Since it is very difficult to enter this market, there are already key players defined. This causes, that some of them have a certain monopoly in particular segments. This causes the buyers power to be low.

Substitutes. The threat of substitutes in the semiconductors industry really depends on the segment. To have a unique product is possible just for a certain time, after it the same appears, which consequence is that the possibility of substitutes is high.

Industry competitors. Concerning the fact that there is all the time growing need for better, cheaper more advanced product, it creates a huge competition between the existing companies in the market.

Our company operate in a very sensitive and fast developing industry. This business environment of Bauernfeind Ltd. influences the competitive advantage as such. New technology, fast operating systems are not advantageous here anymore.

One of the competitive advantages, possible to create today is to build a picture of our company as the ethical one, by introducing Code of Ethics, Code of Conduct and acquisition of the Social Accountability Standard SA 8000.

4.THE CODE OF ETHICS OF BAUERNFEIND LTD.

4.1 Preamble

The following statement of Code of Ethics articulates principles that are deemed appropriate and acceptable by Bauernfeind. Our industry is comprised of producers of semiconductors and of semiconductor equipment, such as measuring equipment and instruments.

We do our business in accordance with all applicable laws and regulations. Compliance with the law does not comprise our entire ethical responsibility. It is rather a minimum, absolutely essential condition for the performance of our duties. We are committed to serving our customers, clients, fellow employees, stockholders and surrounding with the highest degree of ethics. The principles and policies that guide our business practices are summarized in this document. Some of these policies and guidelines are general in nature, and in some instances are covered in more detail by specific policies and guidelines issued by Human Resources, Finance, Purchasing and other departments. We believe that these ethical principles should be respected by all Fellows and Members who intend to maintain good standing in the Bauernfeind¹⁸.

4.2 Proposal of LETTER FROM THE PRESIDENT

Dear Colleagues:

Ensuring that Bauernfeind Ltd. Company is one of the leading companies in the field of the semiconductors production, in all aspects, is a cornerstone of our strategy. Operational excellence includes loyal and ethical conduct by each of us, from the members of the Board of Directors and the Executive Management Team to each individual employee. This document provides guidance for understanding business values. They form the foundation for all Bauernfeind. activities. Ethical behaviour is important in its own right and also essential for our business because it influences customer and client trust. Respect for the differences in backgrounds, experiences, and talents of each Bauernfeind. Team Member is mandatory.

The Company will not tolerate discrimination or harassment of any sort. Bauernfeind recruits, hires, upgrades, trains, and promotes individuals without regard to race, color, religion, sex, national origin, age, disability or veteran status. Each Team Member must accept responsibility for creating and maintaining a harmonious and safe working environment. Resolving problems in a productive manner and working together efficiently as a team are ongoing goals we must all strive to achieve. We must ensure that our ideas and concerns are communicated in an honest and constructive manner and must also be willingly to accept constructive criticism from other Team Members.

This is an important agreement that enhances our efforts to build a partnership in which we can all take pride. I look forward to working with you as we take Bauernfeind to the next level of growth and success.

I encourage to do read this Code of Business Ethics and make a personal commitment to aside by it.

President & CEO

November 2004

[...]

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¹ Kotler, Armstrong, Saunders, Wong; Page 166

² Kotler, Armstrong, Saunders, Wong; Page 167

³ www.quintcareers.com/jobseeker_glossary.html

⁴ J. Rothlauf: Total Quality Management; 2. Auflage; 2004

⁵ J. Rothlauf: Total Quality Management; 2. Auflage; 2004

^[6] http://www.themanager.org/Models/7S%20Model.htm

^[7] The Columbia Electronic Encyclopedia, 6th ed.

^[8] J.Rothlauf: Total Quality Management; 2. Auflage; 2004

^[9] Berkel/Herzog: Unternehmenskultur und Ethik; Arbeitshefte Führungspsychologie; Band 27

^[10] J. Rothlauf: Total Quality Management, 2. Auflage, 2004

^[11] J.Rothlauf: Total Quality Management

^[12] www.free-definition.com

^[13] IBM business conduct guidelines, p. 11

^[14] http://www.thefreedictionary.com/code%20of%20conduct

^[15] http://www.free-definition.com/Business-ethics.html#General_definition

¹⁶ http://www.calsca.com/ethics_lscabc.htm

¹⁷ http://www.hyperdictionary.com/dictionary/semiconductor

¹⁸ http://www.casro.org/whatis.cfm http://www.casro.org/codeofstandards.cfm