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Topic 13: Islamic Business Ethics

CBEB3101 BUSINESS ETHICS

Week 13

Semester 1, 2011/2012

Contents of Topic 132

1. Sources of Islamic ethical system

2. Characteristics of Islamic ethical system

3. Axioms of Islamic ethical philosophy

4. Islam and stakeholder relationships

5. Prohibited earnings

6. Ethical guidelines in business

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Sources of Islamic ethical system

Both provide complete guidance for Muslims to live their life

Decisions that are based on the Qur’an and Sunnah are deemed ethical

Qur’an

A book revealed by Allah to

Prophet Muhammad

p.b.u.h in seventh century

Arabia

Sunnah

The recorded sayings and

behaviour of the Prophet

Muhammad p.b.u.h

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Ethics from Islamic perspective

A concept of goodness, righteous, equity, equilibrium and justice, truth and right, known and

approved and PIETY.

Ethics governs all aspects of life

Success in life = “inviting to all that is good, commanding what is right and prohibiting what is wrong.”

Ethics

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Characteristics of Islamic ethical system

Based on how Islam views this world – ‘Islamic Worldview’

The Islamic Worldview

Nature is God’s creation

The creation of the universe, nature and man constitute signs of God’s existence, power, wisdom and purpose

The nature contains His bounty meant for human use and enjoyment but constrained by divine law

His power over all created things is absolute

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The Islamic Worldview (1)

The earth and the universe, and all those exist in them, have been made obedient to man

Man have special position

Man have great moral responsibility: mindful of God’s

commandments, obedient to Him, be morally upright and forever grateful to Him.

Man = servants to God must manage and

develop the world in accordance with His plan

to gain goodness.

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The Islamic Worldview (2)

Goals in life

Based on human well being and good life Stress brotherhood/

sisterhood and socio-economic justice

Balance the satisfaction from achieving both the material and a spiritual needs

God has created balance and harmony – maintain it

HARAM

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The Islamic Worldview (3)

God subjects humans to continuous tests – their behaviour and use of natural resources

Behaving ethically amidst the test of worldly temptation shows that Muslims have proven their worth to God.

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The Islamic Worldview (4)

Intention is important in determining whether actions and decisions ethical

God knows everything, thus knows our intention completely and perfectly

Good intentions followed by good actions are considered as acts of worship

Rejects utilitarianism

Forbidden acts cannot be compromised

Decisions that benefit the majority or a minority are not necessarily ethical

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Axioms of Islamic ethical philosophy

Unity

Equilibrium

Free will

Responsibili

ty

Benevolence

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Unity

Muslims must not separate his daily life with his religious beliefs

Muslims life composed of political, economic, social and religious aspects

People are accountable to God and their success in the hereafter depends on their performance in this life on earth

Muslims should strive for cooperation and equality of effort and opportunity in business.

Muslims must not separate his daily life with his religious beliefs

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Equilibrium

A sense of harmony among the various aspects of human life - produce the best social order.

Strive to behave in a way that promotes harmony

Wastage is condemned

Act of giving is important –balance between poor and rich

Any extremist acts such as extravagant and spendthrift acts are condemned

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Free will

Man have ability to act without external force within the parameters of God’s creation and as God’s trustee on earth.

Man have freedom to lead his life as God’s servant on earth

Free will to live must be exercised intelligently

Man have intelligence to choose how ethically or unethically they will behave

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Responsibility

Must accountable for own actions

Unlimited freedom is absurd

Individual and collective responsibilities

Need to fulfill obligations to God and other human beings

Business contract is sacred Promises must be honored - obligation to business

partner

All business obligations must be honored unless morally wrong

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Benevolence

A kind action that benefits persons – encouraged

Committed without any obligation to do so

Business people are encouraged to be kind to customers, employees, suppliers, debtors and partners

Examples?

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Stakeholder relationships

Expected to care about the general welfare of the society

Businessmen expected to help those in need, weak and poor – benevolence

The reward for taking care of the poor and weak is stressed in Islamic teaching.

Highly encouraged to be involved in philanthropic activities and give charities to needy people

Business owners are accountable for problems they created

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Workplace Issues (1)

Islam wishes its followers to treat all Muslims equally well - Al-’Adl (Justice and Fairness) E.g. Fair in hiring, promoting, performance appraisal,

disciplining employees etc

Employers are under obligation to pay fair remuneration - Al Ujrah (Fair wages) Exploitation is forbidden

Employers should understand that Islam is applicable in all aspects of lives Should give employees time off to perform prayers Should not make employees do something that is against

their religion Should not sexually harassed employees

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Workplace Issues (2)

To foster equity and balance, non-Muslim employees’ beliefs should be similarly respected

Employers must respect employees’ right to privacy - Huquq-al ‘Ibad (People’s Right)

Employers should not publicize employees wrongdoing with the intention of shaming them

Employees must avoid from being dishonesty, breaching trust, and involving in conflicts of interest - Al-Amanah and al-Ikhlas (Trust and Honesty)

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Marketing (1)

Emphasizes free and independent judgment of consumers

Consumers should not be cheated, coerce, mislead in marketing exchanges

The Prophet Muhammad (pbuh) prohibited a transaction concluded under coercion. Unethical because consumer’s decision-making freedom

must be protected from all elements of coercion

E.g. of coercive elements: sexual appeal, fear appeal, subliminal advertising, and fake scientific claims

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Marketing (2)

Buyers should expect to receive goods that are in working conditions and priced fairly

Islam forbids unethical practices such as Use of incorrect weights and

measures Hoarding Price manipulation Deception Purchase of stolen property Charging and receiving

interest (riba)

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The environment

God gives us a temporary custody of the environment to facilitate our life

Appreciate beauty of natural environment - God’s signs

Use resources but don’t cause injury or damage or inconvenience

Must take corrective action if cause damage and endanger others

“There is no scope for causing damage in Islam neither in the case of an independent action nor as a reaction’ - The Prophet Muhammad(pbuh)

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Suppliers

Must negotiate a fair price and terms of contract

Must not take advantage of their influence and size

Islam honours written contractual obligations to govern biz relationship

But gharar (uncertainty/ambiguous) type of transaction are forbidden because it could lead to dispute or conflict.

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Debtors and shareholders

Islam encourages benevolence – help debtors in financial trouble

Debtors must not delay debt repayment Not paying debts are

considered as big sin

Shareholders

Debtors

Islam encourages partnerships especially if the intention is righteous

Islamic code of ethics requires all partners to be fair and to avoid cheating one another

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Prohibited business/earnings

Muslims are not allowed to involve in Haram business

Haram = forbidden

Examples: Trading in alcohol Drug dealing and trading Sculptors and artists Production and sale of Haram goods Prostitution Al Gharar – uncertainty or unspecified quantity

e.g. selling of agricultural produce not yet harvested.

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General ethical guidelines for Muslims in Biz

Also govern one’s daily life. God is witness to biz transactions, thus must

behave ethically. Be honest and truthful Keep your word/promise Love God more than your trade Be humble in how you conduct your life Use Mutual consultation in your affairs Do not deal in fraud Do not bribe Deal justly