Business Ethics Concerns: State Farm Insurance Company

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Business Ethics Concerns: State Farm Insurance Company

Introduction

All stakeholders in business need to be insured against all the risks that may occur in the process of the transaction; moreover, ethics should be upheld in any business field. Ethical business relations should be founded on honesty, fairness, justice, integrity, and trust; and those buying should be able to trust the ones selling to them as well as lenders trusting borrowers. Failure to adhere to these expectations or abiding by the rules and principles ruins trust and makes it difficult to move on with business exchanges. The above virtues hold business relationships together, allowing every other thing to be more efficient and effective.

It is because of this that I decide to look at the current ethical issues, their sources, and how they affect business from a legal point of view. In this research paper, ethical issues will be discussed and how they affect business relations. Basically, an ethical issue is a problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical(Ferrell, Fraedrich, and Ferrell, p.63, 2006). Since ethical issues affect each and every organization, this research will give a brief description of State Farm and its operation and then discuss ethical issues in business, corporate governance, and society. Since State Farm is a company like any other, it will then be concluded that its ethical issues are similar to those of any other company. Discussing the ethical issues in business will bring out the three main ethical issues that hold the other entire morals in any given company. At the end of the research, issues relating to current, previous, and potential future work environments should be clear.

State Farm Insurance Company Ethical Issues

State farm insurance is a team of indemnity and monetary services firms, which has been operational since 1942 and it is the biggest mobile insurer in the United States. Research shows that it is the company that insures most homes and cars in the United States though it has extended its operations in Canada. It started as an insurance company for farmers in the United States with the notion that farmers tend to drive less and so have lower losses than their city counterparts; thus their insurance premiums would be also less. This position became an encouragement to the farmers to take up insurance covers and in the meantime, contributed significantly to the growth of the State Farm Insurance Company, forcing it to diversify the business to cover life, homes, banking, and financial services; indeed, the goal and desire of State Farm are to build a very strong relationship with their quality dealers.

Despite its growth, the company has in the recent past been dogged by many ethical issues, and these are, to some extent, taken to emanate from the fact that the company has been controlled and managed by the same family for a long time (Griffin, 1993, p. 26). Today, State Farm insures against loss from natural and man-made causes of property damage. It is also apprehensive about the outlook of global climatic change, its likely impact on stern weather conditions, and the challenges this may bring to the business of indemnity. In addition, State farm help protect their clients from the property destruction, human injuries, and economic impact that can emanate from natural calamities; The firm makes sure that homes built and repaired today are capable of surviving the forces of nature. However, the firm has been dogged by complaints of underpaying claims, especially those associated with hurricane Katrina (State Farm Insurance Complaints, 2009).

Ethical Issues in Business

It is vital to discuss business ethics since business can be unethical. In the world today, there is plenty of clear evidence of unethical practices. As Jones, Parker, and Bos (2005, p. 17) stated, One condition that brought business ethics to the forefront is the demise of small scale, high trust and face-to-face enterprises and emergence of huge multinational corporate structures capable of drastically affecting everyday lives of the masses. In a free market, the self-interest of consumers and producers can produce an outcome that is desirable to all parties; however, the market may lead to inequality of profit, wealth, and market power. This can happen when monopoly suppliers decide to exploit the consumers, or monopoly consumers exploit the supplying firms. Furthermore, inequality in worldwide income can result in unethical issues like child labor. Once Adam Smith had the opinion that people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices (Smith, 2009, p. 54). It is therefore common that businesses will be faced dilemmas since, as much as they would like to be ethical, they have a dominating economic drive that directs them to pursue their aim of maximizing profits, consolidating market position, and maximizing shareholders value (Zimmerli, Richter, and Holzinger, 2007).

As the business has to operate in a specific environment, it implies that a business ought to be accountable to the social and natural environment of where it operates. Under any circumstance, a business is bound to be ethical because of two main reasons: all actions of business affect the stakeholders, and that it is justified by the ethical measures it responsibly chooses to follow. To be considered ethical, the business should aim at achieving the Triple Bottom Line strategy while at the same time building relationships with all its stakeholders; indeed, a business will thrive in the contemporary environment by ensuring that its relationship with the stakeholders complements its pursuit for economic wealth (Ferrell, Fraedrich and Ferrell, 2006, p.30). However, this is an ethical issue that has been encountered by State Farm where it has been accused of failing to promptly respond to customers claims forcing the court to come to their rescue (State Farm Insurance Complaints, 2009). Furthermore, every organization must have a governing authority commonly known as the board of directors that provides insight and direction to affirm that the organization remains focused on its objectives in a moral, official, and socially acceptable manner. There are a number of ethical issues that are mostly encountered in business, among them being honesty, fairness, and integrity.

Honesty

It refers to the trustworthiness or the art of being truthful; that is telling the truth to the best of your knowledge without concealing anything. Honesty-related issues arise because business is regularly referred to as a game governed by its own rules and not those of society. Honesty becomes a problem when people reason from these perspectives:

Commerce relationships are a division of human relationships which are governed by laws like competition, profit maximization, and personal development within the organization.
Considering business as a game that people play, comparing it to some measure with sports like football or athletics.
Common rules and integrity do not apply in games like football.
By logic, if the business is a game like football, then normal moral rules do not apply.

Such reasoning may lead many to say that anything is acceptable in business. If the business is thought to be warfare, it will create the idea that honesty is unnecessary in business. Since people are not economically able, and cannot withdraw from the game of business, then business ethics must elaborate what rules apply in business games and develop laws that are suitable to the unconscious nature of involvement in it.

Fairness

Fairness is being just, reasonable and fair, and includes three key elements that arouse people to be fair: equality, reciprocity, and optimization. Equality in business is about how wealth is distributed among employees within a company, a nation, or throughout the world; reciprocity is an exchange through giving and receiving in social relationships. If one does an action that has a certain effect on another person and the other person reciprocates by taking another action that will have equal effect to what was done to him, then there is reciprocity; in business reciprocity means workers to be paid about their effort. Optimization is the bond between fairness and effectiveness. For instance, the optimal way to choose an employee is by looking at the most talented, most educated, or most proficient.

Integrity

This is being whole, sound, and in an unimpaired condition. Integrity is most important regarding virtue; in a company, it means strict adherence to ethical principles. At least, every business is supposed to adhere to all applicable rules and regulations. It is illegal for organizations to consciously harm customers, clients, employees, or even other companies by deception, intimidation, misrepresentation.

Ethical Issues in Corporate Governance

Corporate governance is the constitution by which companies are headed by and controlled, while the Board of the director is generally responsible for the governance of the company. Governance contains the set of rules meant to improve the correctness and dependability of corporate admissions with which firms have to observe to ensure investors security. Ethical issues that have been brought to book are excessive chief executive powers (CEO), confusing shareholders, fraud, executive salary, and other behaviors like sucking pension finances. Indeed, the above-mentioned issue and the like have contributed to the lowering of confidence in the structure of monitoring and management of organizations.

The main issue in governance is to come up with a sense of balance between the necessary power of the corporation and its proper answerability. Shareholders are the ones who elect the directors of the company, who in turn act legally in the interest of the shareholders. The board is thus recognized as being crucial in the process of developing an ethical framework, implicit or explicit, for the formulation of strategy and policy, monitoring management and ensuring accountability (Davis,1997, p.42). It is also noted that boards are not able to harmonize agency conflicts and guard the invested capital. This is a result of many reports on corporate malfeasance, exaggerated managerial salaries, and abuse of managerial benefits. Hence, there is a need for boards to be morally responsible. The corporation needs to have:

Economic responsibility: Shareholders of any company demand reasonable returns on their investments. They also need to have employees who want safe and fairly paid jobs: The customers should get good and quality products. This is why a business is set in society.
Ethical responsibility: It is where corporations do what is correct, just, and fair, without being followed by the legal framework.
Legal responsibility: Corporations need to abide by its provisions and ensure they play according to the rules dictating the game.
Philanthropic responsibility: It is the responsibility of the corporation to look at various issues like charitable donations, building recreation facilities for employees and their families, or supporting schools.

Ethics in the Society

Ethics in society are very important as they help the people to co-exist and uphold one another in issues regarding life. The spirit of ethics in society is to promote good life and provide effective guidance for such life. However, it was found that there are no absolute standards of value or morals. According to Mohapatra (2008), morality is a social affair and is essentially a matter of community concern; hence application of moral principles to social situations of practical life is vitally important. It is not logically true to say that a desirable world must contain all that is ethically attractive since it contains several things that are not morally attractive. Hence, being moral or acting morally is natural for a man just as it is for him to be rational. It can be argued that man is a naturally ethical being in the sense that every man has a natural ability to act in an amoral way. Moreover, the obligation of human beings to be morally upright ensures that ethical theories are put into use to solve societal issues (Mohapatra, 2008).

Ethical Issues in Government

During the research, it was found that there are situations in the government that may affect the work environment of a worker. According to State Farm, being transparent or open is one of their aims in carrying out their business. I feel that it should be the same for the government. However, according to the research, there is a lot of conspiracy in the government; basically, it is ethical to be open to building trust in your subjects. Another issue is the financial disclosure whereby, top government officials ought to disclose their wealth or file annual public financial reports according to the Ethics in Government Act of 1978: a United States federal law passed in 1978. This has to happen in any labor, business, or nonprofit organization. Communication is another ethic that government officials need to adhere to; how they communicate to their staff determines the overall productivity of ministries. For instance, it is unethical for a top government official to use facebook as a means of communication to his subject. It is also unethical for executive agencies to represent anybody before an agency two years after leaving government services.

Conclusion

After looking at the various ethical issues in business, corporate governance, society, and government, it is now evident that in any given company, there have to be complaints regardless of how well the company serves its customers. This is not an exemption of the State Farm Insurance Company. Since it is an organization that touches on all aspects of life and every sector of human beings, it has been found that every ethical issue affecting business, corporate governance, society, and the government is found in State Farm. It is not a wonder to find unpaid claims of accident reports, underpaid claims of homeowners, or even refuse to pay legitimate insurance claims to borderline fraud and intimidation. However, states have sections in their insurance codes that prohibit insurers from engaging in unjust or misleading practices. State Farm persists on the effective directive in those areas in which the government has legal attention instruction for solvency and instruction in market actions.

References

Davis, P. W. F. (1997). Current issues in business ethics. London, Routledge.

Ferrell, O. C., Fraedrich, J. and Ferrell, L. (2006). Business Ethics: Ethical Decision Making and Cases. MA, Cengage Learning.

Griffin, R. W. (1993). Management. NY, Houghton Mifflin.

Jones, C., et al. (2005). For Business Ethics: A Critical Text. London, Routledge.

Mohapatra, P. K. (2008). Ethics and society: an essay in applied ethics. New Delhi, Ashok Kumar Mittal.

Smith, A. (2009). An Inquiry into the Nature and Causes of the Wealth of Nations. Charleston, BiblioBazaar.

State Farm Insurance Complaints. (2009). State Farm Insurance Complaints. Web.

Zimmerli, W. C., Richter, K. and Holzinger, M. (2007). Corporate ethics and corporate governance. Berlin, Springer.

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