The Impact of Business Ethics on the Financial Performance of Non-Profit Making Organisations (NGO) in Nigeria
Chapter One
OBJECTIVE OF STUDY
The study aims to examine the effect of business ethics and corporate code of conduct on nonprofit organisations’ financial performance. The specific objectives are to;
- To Examine the effect of business ethics on nonprofit organisations’ financial performance in Nigeria.
- To Evaluate the influence of corporate code of conduct on nonprofit organisations’ financial performance in Nigeria.
- To Investigate the combined effect of business ethics and corporate code of conduct on Nigeria’s nonprofit organisations’ financial performance.
CHAPTER TWO
REVIEW OF LITERATURE
INTRODUCTION
There has been a drive in the recent decade to understand the nature of organisations using the concept of climate. Climate is a crucial component that influences both production and pleasure among its members, according to research. Climate has also been identified as a factor that influences ethical behavior in both communities and individuals. Climate may play a substantial role in how members behave or are encouraged to behave ethically or unethically as a ‘catalyst’ or at the very least as a potentially forceful modulator of individual organisational behavior. As a result, the formal set of rules and regulations of the organisation, as well as the organisational atmosphere in combination with an individual’s own ethical attitude, may be crucial variables. Conceptual framework refers to an investigation of the related work of other scholars. In this study, the conceptual framework involves an investigation of various research works on business ethics and financial performance on Nonprofit organisations (NGOs) in Nigeria. Theoretical Framework refers to basic conceptional structures which are used to explain certain course of actions.it is a plausible or scientifically acceptable general principle or body of principles offered to explain phenomena. Organisational performance may be affected by how well managers understand the many theories of ethical business conduct due to their importance to this investigation. it is reasonable to assume that a positive correlation exists between an organisation’s ethics and performance. Nonprofit organisations will serve as a case study in this research, aiming to investigate the same problem. The content validity and reliability of the questionnaire as a research instrument were both confirmed using the test-retest procedure and a Cronbach alpha of 0.72. For this study, researchers employed multinomial regression analysis to examine the influence of business ethics on organisational performance. According to the findings, there is a direct link between a company’s code of ethics and its overall success. Organisational effectiveness is boosted by adherence to high standards of business ethics.
DEFINITION OF ETHICS
What defines right or wrong and what constitutes good or poor human behavior in a commercial setting is business ethics (Shaw, 2010). Ethics in business is a topic that has been explored extensively worldwide. Comparing views toward corporate ethics in nations including the United States, Western Australia, Israel, South Africa, and Turkey in cross-cultural research by Freeman and Greenwood (2020) confirmed the premise that cultural variations impact ethical behavior despite similarities in moral beliefs. According to Cunliffe and Locke (2016), who researched South African business ethics from an academic and practical social perspective, academic business ethics and ethical corporate practices must be further improved. Ethics in business has been a popular topic of study for many writers and researchers. A more specific term for business ethics is management ethics, excluding nonprofit companies from their purview (Campbell and Cowton, 2016).
On the other hand, research has shown that various organisational circumstances influence the ethical conduct of people. Individuals’ opinions of an organisation’s ethical atmosphere, for example, may impact employees’ ethics-related attitudes and behaviors. Employees and consumers are examples of stakeholders who might be considered stakeholders in a company’s ethics, according to Bell et al. (2020). According to Freeman and Greenwood (2016), ethics is the science and art of analysing and resolving moral challenges by applying concepts and frameworks to the problem at hand. Ethical standards aid people and organisations in adhering to specific norms of behavior while engaging with each other, as indicated by the above definitions. Ethics includes hard and soft components, such as obligations and rights (many of which are legally protected) that must be adhered to by everyone and desired but optional elements such as ideals, goals, or best practices that may differ from one organisation to the next. Ethics in business is defined by Bell and Vachhani (2020) as an established system for determining what proper and incorrect conduct on the part of both individuals and groups is. These are the accepted benchmarks by which a company’s rightness or wrongness in the marketplace is assessed.
Ethical considerations in the context of business actions and choices are at the heart of business ethics. Moral and social ideals typically play a role in corporate ethics. According to Bell and Vachhani (2020), businesses address the morality of economic systems (free market, communism/socialism) and organisations’ behavior within these systems. Ethical principles and moral dilemmas can arise in the business environment, according to Freeman and Greenwood (2016). Ethics in business refers to how firms integrate essential principles such as honesty, trust, respect, and fairness into their rules and operations. In light of the above, Bell and Willmott (2020) noted that some factors must be considered when integrating ethics into business. Financial institutions and other organisations must balance their goal for profits with the needs and desires of society to be viable in the long run.
THE NEED FOR BUSINESS ETHICS
Moral principles that govern a company’s conduct are known as business ethics. It’s just a reflection of the corporate culture. Business decisions are guided by the same principles that govern our daily lives (Fox and Alldred, 2017). Right and wrong are two terms that must be distinguished to act ethically. Ethics are the principles and values that guide an individual’s actions and decisions. Individuals’ personal and professional decisions (the right and wrong of right and wrong) are at the heart of this topic. Organisational and business-related values, norms, regulations, principles, and strategies impact and guide the implementation of these morality-related decisions in business ethics. Ethical guidelines are used by businesses to make choices, initiatives, and policies following their values. As defined by Fox and Alldred (2015), business ethics is the pursuit of an understanding of what can be considered acceptable in the activities of organisations operating in a given culture and at a given time. As a result of the reciprocal link between ethical principles and companies, problems such as what actions are acceptable or undesirable for a happy working life may be answered via the study of business ethics (Gill et al., 2018). A person’s conduct should be based on such values as honesty, integrity, fairness, and consideration of others.
The term business ethics refers to principles that serve as a road map for how one conducts one’s business affairs with others. It has to do with one’s conduct and sense of moral responsibility. It focuses on morality and ethics. It is concerned with moral and ethical standards and behaviors (Gherardi, 2019). It has been suggested that the perceived attractiveness of an organisation to potential employees is influenced by perceptions of its ethics, values, and social responsiveness.
Suppose an organisations’ business ethics are a part of its corporate social responsibility. In that case, it has a moral duty to conduct its business activities in a non-exploitative way and under ethical standards, not necessarily because such acts or inactions violate the law. To maximise profits, increase sales, and gain market share for their products and services, companies should actively promote issues of ethics and morality as part of their social responsibility initiatives (Hendry et al., 2018). When allowed to flourish within an organisation, typical unethical business practices such as defrauding clients and customers, misleading product advertisements, de-marketing of competitors’ products and services, poor responses to customer complaints and inquiries, over-invoicing and under-invoicing of customers’ invoices, and insider trading become part of the climate of the organisation and thus anti-corporate social responsibility initiatives (Kothiyal et al., 2018). From the perspective of business ethics, corporate social responsibility’s other dimensions such as contributions to national and local government bodies, usage of local suppliers, and labor-hire come into being (Kim and Donaldson, 2015). As a result, organisations must adhere to internal regulations and government mandates that demonstrate integrity, corporate governance, and transparency to implement comprehensive CSR programs. It is part of the social compact that organisations have to conduct their business ethically and socially responsible. As per the income tax regulations, out of the profit available to an organisation, the state is entitled to a specific part as per the profit & loss account and the balance sheet, which is a mark of honesty and strong business ethics (Ladkin, 2018).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter presents the method and procedures employed in carrying out the research. The focus of this chapter is on the design of the research and the method that was employed in soliciting for responses from the respondents. In this chapter, the methodology employed in this study will be discussed. Data collection and analysis are parts of the research design, a conceptual framework for doing research (Kothari, 2004). It is a document that outlines the research strategy used to attain the study goals and answer the research questions. Since a case study focuses on a smaller number of events or variables and their relationships, the researcher used a case study approach. Regarding qualitative research, Kothari (2004) has defined a case study as a thorough and attentive observation form that lays greater attention on the entire investigation of a restricted number of situations and their interrelations. Despite the suspicion that a case study has an unscientific*c ring to it, Saunders and other writers (2009) claimed that a well-constructed and detailed case study might challenge an existing theory. Due to the focus placed on an in-depth examination of fewer occurrences or situations and their interrelationships, this research used case studies.
Research Design
A research design or strategy is a general plan of how to go about answering the research question. This is used to obtain data to aid in the test of hypotheses or answer research questions. It serves as guidelines to the researcher by aiding in generating data for his study This study adopted a survey research design. The design aims to analyse and explain the issues under investigation and examine the effect of business ethics and corporate code of conduct of the financial performance of nonprofit organisations by collecting data at only one point without the researcher’ influences in the process. It is possible to acquire a great quantity of data in a short time using surveys. Surveys are more cost-effective than many other methods of collecting data. There are various ways surveys may be used to gather information on a wide range of topics. It is common for surveys to be utilised in social research and demography. Surveys are a common tool for gauging people’s ideas, emotions, and perceptions. Surveys may be narrowly focused or broad in scope, depending on the aims they want to achieve. The researcher uses a questionnaire to collect data from the respondents to answer the research questions. Because of this, the questionnaire’s design is of paramount significance to guarantee proper data collection so that the findings can be understood and generalised. In similar research, researchers such as Holotiuk, Pisani and Moormann, (2017); Kraus, Ribeiro-Soriano and Schüssler (2018); Jepkoech & Ayembe (2019); Mckenzie (2018) have used this study method.
RESEARCH METHODOLOGY
Methodology is the approach to the entire process of the research study that the researcher is trying to build or explore. Two approaches exist are the quantitative approach which is deductive in nature involves collecting data in raw form before being processed and analysed. Here, questionnaires, graphs, or statistics can be used as its numerical, and the qualitative approach which is inductive in nature involves use of secondary data through interviews or non-numeric data.
POPULATION OF THE STUDY
Population is the full set of cases from which the sample is taken (Saunders et al: 1997). The study would be limited to Lagos State in Nigeria. Lagos State’s robust economy is expected to expand at a rate of 4.5 percent GDP per year by 2035, which is considerably higher than the world average growth rate of 2.9 percent at that time. Lagos’ expanding economy and infrastructure mainly supports rapid population growth. Lagos would be the fifth-biggest of Africa’s economies if it were a nation unto itself (Tamilore, 2015). According to the Nigerian Population Commission (2020), the estimated population of Lagos State is 17,552,940, which will be the population of this study. Based on the aforementioned, it is envisaged that Lagos State has more nonprofit organisations than the rest states in Nigeria. According to the Lagos State Directory, there are a total of 222 registered NGOs in the State.
CHAPTER FOUR
RESULTS AND DISCUSSIONS
The study examines the effect of business ethics and corporate code of conduct on nonprofit organisations’ financial performance. A total of 150 (one hundred and fifty) questionnaires were administered to the respondents four NGOs in Lagos State, Nigeria. However, 138 questionnaires were retrieved and considered usable for analysis. The study achieved a response rate of 92%, which was considered sufficient based on Mugena and Mugena (2003), who assert that 50% is deemed suitable and sufficient for analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
The study examines the effect of business ethics and corporate code of conduct on nonprofit organisations’ financial performance in Lagos State. The study reveals that there is a gap in literature addressing the interactions among the variables (business ethics, corporate code of conduct and financial performance). The study provided discussions on the business ethics, code of conduct and financial performance based on the extant literature. The study is was anchored on the stakeholders’ theory and the unitarianism theories. It’s worth noting that the link between corporate codes and company success is indirect. Organisation in developing economies like Nigeria tend to focus on increasing profits and efficiency instead of adhering to ethical standards. The direct link between business ethics and company performance may be poor in emerging economies because corporate ethics and management transparency are considered less significant in developing nations with shorter histories of economic growth than in industrialised countries. This hypothesis has to be tested empirically in the future since there is no research on business ethics that used data from developing economies. Even while corporate ethics was not directly linked to firm performance in this study, workers reacted favourably to corporate ethics in terms of their organisational attitudes and workplace behaviours, which eventually led to an increase in financial performance for the company. Micro processes act as a connection between macro variables, and this pattern is in line with institutional theory, which states that the institutional framework affects organisational results by influencing members’ cognition and behaviour.
Conclusion
In order to do business ethically, companies must devote a significant quantity of resources (e.g., labour hours or capital). Because these funds could have been better spent on other projects to improve the company’s financial success, it’s critical for executives to recognise the link between corporate ethics and financial performance. In addition to prior research that looked at the relationship between business ethics and financial success from the perspective of external stakeholders, this study looks at how corporate ethics influences financial performance from the perspective of internal stakeholders. This study investigates the effects of several factors that are said to reflect corporate ethics and have an impact on internal stakeholders on various corporate financial performance metrics in order to get a comprehensive conclusion on the relationship under consideration. Based on our findings, we conclude that when internal stakeholders are considered, corporate ethics is unrelated to financial performance.
The results of this study, which are based on a sample of organisations from a wide range of nations, provide vital insights into financial management methods around the world. Based on a sample of companies from a variety of countries, this study shows that corporate ethics has little impact on financial performance when internal stakeholders are considered. Previous research focusing on external stakeholders has found a link between corporate ethics and financial performance (Long & Driscoll, 2008; Roberts & Dowling, 2002; Hosmer, 1994; Hummels & Timmer, 2004). Given these findings, financial managers should devote resources to external stakeholder ethics efforts in order to improve financial performance. Because these elements indirectly affect financial performance, companies should focus on ethics activities that affect their reputation, corporate legitimacy, external stakeholder risk assessment, and external stakeholder trust. According to previous research, the content and type of ethical disclosure have an impact on the factors. Long & Driscoll, 2008; Hummels & Timmer, 2004). Furthermore, ethical activities that are significant for and visible to external stakeholders of the business have an impact on the firm’s reputation (Roberts & Dowling, 2002).
Despite the above-mentioned findings and practical consequences, this study contains a number of flaws.
Despite its limitations, this study adds to our understanding of the impact of business ethics on financial performance. First, unlike past research, our analysis empirically evaluates the direct association between corporate ethics and financial performance across a greater range of countries and industries. Furthermore, in contrast to other studies that may have used biassed perceptual assessments of business ethics, this study uses objective measures to address this issue.
Recommendations
Based on the findings of the study, the following recommendations are made;
- The largest indicator of a company’s financial success is business ethics, thus companies should focus their ethical efforts on boosting their own ethics. This may be done in a variety of ways, including adopting an ethics code and rules that are in agreement with legal and professional norms.
- Internal ethics may be strengthened and ethical operations enforced via human resource practices (e.g., ethics training and encouraging ethical conduct). Due to quickly changing legal frameworks and increasing public scrutiny, just satisfying legal duties may not be adequate. Organisations, especially at the highest echelons, should reflect complete ethical responsibility in their criteria for decision-making.
- An organisation’s board of directors may play an essential role in accomplishing this goal by developing an ethical code of conduct and displaying examples and acts that set the ethical tone.
Suggestions For Further Studies
As a result, future research should look at the link between company internal ethics and financial performance in countries with collectivist cultures. These studies should employ a dataset that is comparable to the asset4 dataset used in this work, or at the very least use questionnaires that do not use likert scales to acquire organisational members’ perceptions.
Second, most previous research have looked at the link between business ethics and financial performance from the perspective of external stakeholders, but this study looks at internal stakeholders. Future studies should include a more thorough theoretical framework because past studies were confined by either a strictly internal or exterior focus. This framework should contain many aspects of corporate ethics and the various mechanisms that explain the external and internal processes of corporate ethics, as well as their outcomes. In turn, this entire paradigm should be empirically examined in a more sophisticated setting to investigate the relationship between corporate ethics and financial success and its mechanism.
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