Why Business Ethics

What moves us, reasonably enough, is not the realization that the world falls short of being completely just (ethical) – which few of us expect – but there are clearly remediable injustices around us which we want to eliminate

Amartya Sen

(The Idea of Justice)

(Italics inserted by author)

Business Ethics

According to Norman Bowie (1986) “One might date the birth of business ethics [in USA] as Nov 1974 – the date of the first conference on business ethics at the university of Kansas.’ Bowie lists the evolving concerns of business ethics in US as the beginning with the issues of whistle blowing and extending to cover codes of ethics, employees’ rights, and the question of corporate social responsibility and the relationship between businesses and the civil and institutional environment in which they operate.

It is difficult to be sure what sparked this growth of interest but happened at a time when the western society took the governmental brakes off the market and a brief period of economic growth was followed by a major recession; questions were being asked about the behavior of some of the corporations and individuals

Ethical Values Across the Continents

• Human reason is very convenient and accommodating instrument & is guided by self interest, partiality and prejudice. – Sri Aurobindo

• Unless men increase wisdom as much as knowledge, unilateral increase of knowledge will increase sorrow. – Bertrand Russell

• The intellect has sharp eyes for methods and tools but is blind to ends and values– Albert Einstein

The Genesis Of Crisis

The current economic crisis has taught us three important lessons:

Globalization has a significant impact on all countries, including those that have not opened up completely

Innovation must be based on economic fundamentals; any irrational exuberance will always come back to haunt us like the present global crisis

Excessive greed will always have disastrous consequences and development and growth must be inclusive and not limited to a few lucky people

Business Ethics

• The concept of ethics comes from the Greek word, “ethos”, meaning both individual’s character and a community’s culture. Business ethics involves adhering to the legal, regulatory, professional and company standards, keeping promises and abiding by general principles like fairness, truth, honesty and respect.

• Business ethics is a fuzzy area. The institute for Global Ethics defines it as the obedience to the unenforceable

Definitions

Ethos:

The fundamental character or spirit of a culture, the underlying sentiment that informs the beliefs, customs or practices of a group or society; dominant assumption of people or period.

The moral element in dramatic literature that determines a character’s action rather than his thoughts or emotion.

Definition – contd.

Ethics: That branch of philosophy dealing with values

relating to human conduct with respect to the rightness or wrongness of certain actions and to the goodness or badness of the motives of such actions

The rules of conduct recognized in respect to a particular class of human action or a particular group, culture etc. ‘Medical ethics’, ‘Hindu ethics’

Values

Value may be defined as ‘that is desired’. It has reality only in its fulfillment, and therefore, needs to be actualized before it can truly become value (instrumental). It is not always the end results, but also the means to realize it (intrinsic). Indian philosophy has identified four types of values:

• Logical values (true values)

• Ethical values (good values)

• Absolute values (all comprehensive value)

• Aesthetic value

Every society has its own set of value systems, which guides people living in it

Morality

• Morality is a complex combination of concepts and beliefs by which a culture intends to regulate individual behavior

• When we step outside the safety of our homes, moral clarity often blurs. Without a backdrop of shared attitudes, and without law and judicial procedures that define ethical conduct, we fall back on our value judgments or start following others.

• An individual has to have self discipline if he has to take a serious view of morality. He has to resist temptation with firmness, to lead a truly moral life. Self satisfaction of feeling at peace with ones self represents self approval. It implies accepting the authority of conscience in matters pertaining to morality

Therefore,

In management and organizational terms, ethos

would mean the set of values or beliefs that an organization has.

Ethics translates that into code of conduct incorporating the ethos

of the organization.

The interactive nature of Management process

PlanningUse logic &

methods to think throughgoals & actions

ControllingMake sure the

organization is movingtowards its objectives

OrganizingAllocate work,

authority & resourcesto achieve organizational

goals

LeadingDirect, influence & motivate

employees to performessential tasks

The management cycle and ethics

Source: IUCN-WCPA Framework for MEE

Issues of Ethics

• Transparency

• Fairness

• Fiduciary

• Propriety

• Dignity

• Reliability

• Responsiveness

• Citizenship

• Loyalty

• Uprightness

Transparency Conduct business in a truthful and open

manner

Does a salesperson tell a client that the bulk supply of the desk computers cannot be made in the stipulated two years and lose the contract or conceal the problem from the client.

What should I do about a talented colleague in my consulting team who is very good at never telling lies outright to the clients but often says things he can not be sure of

FiduciaryAct in the best financial interest of the

company and its investorsCan I remain objective as a buy side analyst

when the representatives of the sell side try to sway my judgment with nice dinners, trips and tickets

Do I agree to bribe Rs.10,000.00 so that police let my company’s van filled with explosives to continue or risk my colleague (traveling with the van) to be sent to jail

Propriety

• The VP of marketing for a major brewing company is aware of that the college students account for a large proportion of sales of beer and that people of this age group form loyalties to particular brands of beer. The VP is personally uncomfortable with the promotional gimmicks of their competitors to encourage drinking on campuses, including beach parties, and beer drinking contests. She worries about the company’s contribution of underage drinking and alcohol abuse among college students. Should the VP go along with the competition?

DignityRespect the dignity (health, safety,

privacy rights) of all people

What should I do when consulting for a tobacco company which still, illegally permits smoking in offices, when I want to respect the culture of the client firm, but concerned about my team’s health while surrounded by smoke.

How wary should I be about an Iraqi fighter’s surrender when it has not been uncommon for surrendering Iraqi soldiers to shoot the soldiers who come to collect them.

ReliabilityKeep promises, agreements and other

commitments

• Do I back out of an employment contract I just signed with one employer (but haven’t started yet) to take an offer from other employer who is paying more.

• Is it acceptable to delay sending reports to weekly sales to our inventory finance company so that we could leverage one more day of cash flow to pay for the inventory

FairnessDeal fairly with all parties

• A woman was promoted as the manager of a critical team for a priority project solely on the basis of her competence and knowledge. The men in the team were resentful of working under her and have been sabotaging work. Should the decision be reversed in the larger interest of the project?

• What should I do when my manager wants me to inaugurate a new plan for the customers without including a safety check to ensure that customers are not charged monthly for something which they believe to be one time charge

Loyalty

• As a Muslim is it OK to stock alcohol in my stores in Non Muslim countries

• After I discover I’m going to be laid off, is it defensible to be unhelpful to the individuals who are taking your job and spend time at work looking for a new job

• Hoe can I help our 100 Bangladeshi employees whom I find out will be let go within the following year without transgressing the confidentiality of this information.

Ethics, Economics and Law

The ethics of hardball :

The cases of Toys “R” U and Child World;

Home Depot : Good Ethics or Shrewd Business

Business are economic organizations that operate within the framework of law and are critical to business decision making. But the view that they are only relevant considerations and that ethics does not apply is NOT TRUE. Even hard fought games like football have a code of sportsmanship in addition to the rule book.

A good test of moral point of view is whether we would feel comfortable if our colleagues, friends and family were to know about a decision we have made.

New economy, new ethical dimension

The new economy is changing the world and the people who work in it. Technology, globalization, intangibles and the war for talent are all driving the new economy and helping to create

new corporate paradigms. In the new economy, business models can be seen as groupings of assets (or stakes) and

businesses will need to be accountable to each asset owner (stakeholders) in some kind of mutually agreed way. Wider

accountability involves a wider ethical dimension that business must grapple with, and with this comes a greater risk of ethical

conflicts that can damage an organization. Avoiding them presents a new management challenge

CorporateCenter

Part owned

Wholly owned

Alliance

An economic network

The significance of economic networks is that they are transforming the relationshipswithin and between companies. Managing all these relationships to keep everyone on board and avoid ethical conflicts has become increasingly important.

Ethical Implementation

Business values and principles have no meaning unless they are put into effect. Implementation processes and approaches are absolutely critical

• Get real: To be effective, ethical management must be concerned with how real people behave at work. (fire-fighter)

• Ethics before profit: Most of the companies are now embedding responsibility for ethics into business processes, so that decisions all around are taken with ethics in mind. (use of poly bags)

• Linking ethics with behavior: Should ensure established ethics programs as a way of minimizing the risk of ethical misconduct or wrongdoing amongst the employees. Most companies now favor a value based approach

Ingredients of success of ethical practices in organizations

• Leadership:Executives and supervisors care about ethics and values as much as they do about the bottom line

• Consistency between words and actions: Management practices what it preaches

• Fairness: Operates fairly to all the employees• Openness: People discuss openly about ethics and values

and are integrated into decision making.• Just rewards: That the ethical behavior is rewarded; more

effective than unethical behavior being punished• Value driven: That the ethics and compliance program is

value driven; this would result in lower observed unethical conduct, stronger employee commitment and a stronger belief that it is acceptable to deliver bad news to the management

Recipe for failure of ethical practices

Ethics and compliance program that is perceived as existing only to protect the reputation of senior

management may be more harmful than having no program at all.

Employee – Organization Ethical Matrix

Organization’s

Ethics

Member’s

Ethics

High Low

High

(1)

Most Desirable

(Congruent)

(2)

Problematic

(Incongruent)

Low

(3)

Problematic

(Incongruent)

(4)

Least Desirable

(Congruent)

High

Low

Low High

Economic Concern

Exploitative

Holistic Balanced

Manipulative

Moral Concerns

Values – Organizations Matrix

Types of organization

Ethicaldilemma

Stage of moralDevelopment

Moderators

Individualcharacteristics

IssueIntensity

Structuralvariables

Organizationalculture

Ethical / unethicalbehavior

Factors affecting ethical / unethical behavior

Value based Management:An approach to managing in which managers establish, promote andpractice organization’s shared values

Integrating ethics into organizational cultures

• Ethical behavior isn’t an act but a habit; in business context, this means training and at the deepest level, what we call “Corporate Culture”.

• The key to establishing an ethical culture is to strike a balance between institutional authority (compliance mode) and individual autonomy (value based) to build an environment that supports personal autonomy while providing proper guidance through codes, rules and policies. The critical task is to develop ethical leadership among all employees and especially to enhance their skills in ethical decision making.

Steps to establish enduring ethical infrastructure

1. Self assessment (or ethical climate assessment)2. Commitment from the top (explicit long term commitment)3. Codes of business conduct (blueprint for building moral culture)4. Communication vehicle (clear & unambiguous communication)5. Training (required to convert values into action; specially

significant in multicultural environment)6. Resources for assistance (to help the employees make difficult

ethical choices against deadlines)7. Organizational ownership (ethics is not an insular activity,

would need full involvement of all the employees)8. Consistent response (principle of hot stove)9. Audits and measurements10. Revision and refinements (development of ethical culture is a

continuous process and not something that reaches completion)

Business ethics management is largely about managing the risk to an organization’s reputation, and any risk management program that does not include a strong emphasis on behavior

is fundamentally flawed. Program components such as training,reporting systems and feedback gathering mechanisms mustbe accompanied by development of a broader value based

culture that the employees see as consistent and believable.

Without an effective champion, who has the full support of senior management, a business ethics program is all too likely

to prove ineffectual. The success of the program will ultimatelydepend on having the right combination of spirit and structure.

It will also depend on the cause being championed and supportedby senior managers.

Lessons learnt:

The Ethical ProcessEpilogue

There is no end to this game. You never cross the goal line and you can not run out the clock. You have to keep up the effort, even when things seem to be going well

QUESTIONS ??

Bibliography

1. Ethical Management – Satish Modh

2. Ethics and the conduct of business – John R. Boatright

3. A study in Business Ethics – Rituparna Raj

4. Values for Managers – Prof S.K.Chakraborty

5. The Ethical Organization – Alan Kitson and Robert Campbell

6. Ethics in Management – S.A. Sherlekar