Business Ethics– Suggested Reading

1. Ethical Management – Satish Modh2. Ethics and the conduct of business – John R.

Boatright3. Business Ethics – An Indian Perspective by

A.C.Fernando4. Values for Managers – Prof S.K.Chakraborty5. Business Ethics, an Indian Perspective – Prof

P.S.Bajaj & Dr. Raj Agrawal 6. Ethical Choices in Business – R.C. Sekhar7. Managing for values S.S.Iyer

To see the world in a grain of sandAnd heaven in a wild flower,

Hold infinity in the palm of your handAnd eternity in an hour

--William Blake

Today’s leaders are respected for their ideas

and not their positions

Youtube references for Business Ethics start up

• http://www.youtube.com/watch?v=ghokREsbaoI

• http://www.youtube.com/watch?v=klQYxYr6DHQ

• http://www.youtube.com/watch?v=HtpbOm7MD3M

• http://www.youtube.com/watch?v=hkihgw-PDbA

• http://www.youtube.com/watch?v=WLIsGqz6X34

People today have huge expectations of the companies to whom they will lend their

talent, particularly the Gen Y. This generation is simply not going to gift their talents to companies that aren’t really clear

about what they stand for. And increasingly, if they do not stand for

making the world a better place, then they will just be rejected

A test case

• The VP / marketing of 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?

Business Ethics - Origin

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

A new era for business ethics

Harvard business school (under its new Director Nitin Nohria) has introduced taking an oath during the graduation ceremony saying that they won’t put their personal ambition before the interests of their employers or the society. As one passing graduate mentioned “For me, it was a stake in the ground, to say here are my values, here’s what I believe in. When I have a tough decision, I want to be in a position where I have my own personal oath to follow”

Business Ethics -Preamble• 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. However, it involves much more than simply compliance with law. It involves taking positive measures to promote integrity which go beyond merely avoiding illegality. The institute for Global Ethics defines it as the obedience to the unenforceable. The most difficult job of the manager (ethical leadership) is balancing short term business goals (financial) with the higher purpose of an organization.

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.

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 • In a good organization the value and the brand should almost

be the same. Values are good business.

Morality

• An individual has to have self discipline if he has to take a serious view of conduct. 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

• 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.

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

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’

What Is Not Business Ethics

• Ethics is different from religion• Ethics is not synonymous with law• Ethical standards are different from cultural traits

(standards)• Ethics is different from feelings• Ethics is not science in the strictest sense of the term• Ethics is not mere collection of values

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 (Trust)

• Responsiveness

• Citizenship

• Loyalty

• Uprightness

Transparency Conduct business in a truthful and open

manner

Do I try to clarify a minor error with knowing that it won’t change the outcome but will cause serious delay.

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 investors

Can 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

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.

Trust and ReliabilityKeep promises, agreements and other

commitments

• Trust relates to predictability and efficiency in business• 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

• Do I recommend that a manager be made redundant even though I have come to know him personally and know that it will cause him hardship?

• 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

• Do I overload retailers with our products in order to meet sales target and secure “bonus”

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 informaton.

Implementation of Ethical Values

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

• Earlier: “Business of business is business”; now “Business of business is ethical business”

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;

they 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

Six steps to become an ethical leader

• Take responsibility: Making clear to people what standards are required and that no transgressions will be tolerated.

• Be honest to yourself and others: It is not just about telling the truth but telling the whole truth. Selective truth telling is not candor.

• Be transparent: Give real reasons for decisions, rather than withholding information or relying on spin.

• Challenge wrongdoing: Do not be scared of accepting challenges and be scared

• Increase knowledge of ethics: Remain updated; acquire the skills and capabilities, including being able to identify ethical issues, have tough conversation and knowledge of right questions to ask to tackle the issue and arrive at the best ethical decision.

• Become a role model: Being a good role model is about actions and words.

Levels of Decision Making

• Decision making occurs on several distinct levels of individual, organization and business system. Each call for their own response of decision making ( individual – a demanding and corrupt boss; organization – sexual harassment; business system – sales practices within an industry).

• Identifying the appropriate level for a decision is important, because an ethical problem may have no solution on a level at which it may be approached. The fact that some problems can be solved only by displacing them to a higher level is a source of great distress for individuals in difficult situations, because they still must find some less than perfect response on a lower level.

• Decision making in the conduct of business is dependent on three factors viz economic, legal and moral (ethical); simultaneous consideration of these make the process easier.

Ethics, Economics and Law

The ethics of hardball :

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

Home Depot : Good Ethics or Shrewd Business

Businesses 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.

Ethical motivations:1. The desire to protect or improve reputation2. Adherence to corporate governance guidelines and the need forrobust internal controls to manage business risks3. Increased emphasis on values in guiding organizational behavior

Ethical pay-off:They serve to protect their organizations from significant risks and to some degree help grow the business. Risks, such as breaches oflaw, regulations or company standards and damage to reputationwere perceived to be sufficiently reduced

Risk awareness:Those lower down the hierarchy – staff and their line managers – are least aware of the risks and consequences of unethical behavioror misconduct. Organizations should develop strategies to addressthese aspects.

Why Should Business Act Ethically ?

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

Integrating ethics into organizational cultures;Creating Ethical Organizations

• Ethical behavior isn’t an act but a habit; in business context, this means training at the deepest level, ie,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 to enhance their skills in ethical decision making. They should be encouraged to act as ethical role models and in the process practice ethical leadership skills.

Business Ethics and Corporate Culture

Culture, is how an organization has learned to deal with its environment. It is a complex mixture of assumptions, ethos, behaviors, stories, myths, metaphors, and other ideas that fit together to define what it means to work in a particular organization. A major task of the leadership is to inculcate personal values and impart such a sense to organizational members. At one end values and ethics shape the corporate culture and dictate the way how power and politics operate, while at the other clarify the social commitments of the organization

Creating Ethical Organization

• Corporations are artificial legal entities; it is the persons manning the organizations (agents of the stock holders) are responsible for the ethical actions or otherwise. The fates of Enron, Arthur and Anderson, Baring Bank, Global Trust Bank, Satyam etc are pointers to this effect.

• Good corporate governance based on sound ethical principles can perform efficiently by preventing fraud and malpractices. This enables organizations to compete more efficiently in a business environment and prevents fraud and malpractices that destroy the organization from within.

• With ennobling features and characteristics, corporate governance can thus be described as the basic foundation on which an ethical organization can be raised.

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)

New economy, new ethical dimension

The new economy is radically and functionally 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 fallout of economic upheaval is that the evolving networks are transforming the relationshipswithin and between the companies. Managing all these relationships to keep everyone on board and avoid ethical conflicts has become increasingly important.

Benefits Of Managing Ethics In Workplace

In corporate governance, while the state of the art technologies and high level of managerial competencies could be of help in meeting the operational aspects in a highly competitive global market, it is the value based management and ethics that the organization has to use in its governance. The benefits that accrue are:

• Attention to business ethics has substantially improved the society

• Ethical practices has contributed towards high productivity and strong team work

• Changing situations require ethical education• Ethical practices create strong public image• Strong ethical practices act as an insurance

Globalization and Business Ethics

• Business is increasingly becoming global. Earlier, corporations doing business in many countries considered the country of their origin as the source of their capital, revenue, personnel and values. Under this ethnocentric perspective, the home country’s laws and ways were considered dominant; now the companies have understood that they have to adapt their business practices to different environments and cultures geocentric while seeking to global identity and policies.

• The initiative to make the MNCs adhere to certain code of conduct was started in 1970 and by 1985 a series of guidelines were formulated to make the international business community to be more accountable both nationally and internationally.

• These include ‘Caux Round Table’ (CRT), ‘Social Accountability International’ (SAI), ‘Global Reporting Initiative’ (GRI), ‘Account Ability’ and ‘Global Compact’

Caux Round Table (CRT) – Principles for Business

• The CRT principles seek to serve the global society by offering guidelines for ethical principles for worldwide business, including stakeholders, employees, owners / investors, suppliers and communities. [http://www.cauxroundtable.org/documents/Principles%20for%20Business.PDF]

• The CRT principles for business were formally launched in 1994, and presented at the United Nations World Summit on Social Development in 1995. These principles articulate a comprehensive set of ethical norms for business operating internationally or across multiple cultures

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:

Finally 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)

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