EVM Module

EVM Module 1 1

Ethics & Values in ManagementModule 1: Introduction

Prof N. R. Govinda SharmaJanuary 2015

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• Does life have a purpose?

• Or, is it a process?

• Happiness is not just at the end of the journey but all along

• Is being ethical in business a means to an end or an end by itself?

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Emphasis of the course on Ethics

• The course intends to – Train you in moral reasoning

– Provide some frameworks and theories

– Take you through cases

– Take you through Activity Based Learning: Form teams, note the dates for submissions

• Each team to discuss with me the topics and activities they wish to take-up

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Emphasis• Emphasis of this course is:

– Not to announce the answers but elicit them

– Not promote a specific set of conclusions

– But to make you and me

• Raise pertinent questions– The most useful guidance involves asking questions, not

giving answers!

• Think, Talk and Reason ethical issues

– Help you to arrive at your decision • In short , arrive at your own “Ethical Compass”

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Understanding the complexity of ethical issues

• Rajat Kumar Gupta– Sentenced in October 2012 to two years

in prison, an additional year on supervised release and a fine of $5 million

– Convicted on charges of insider trading• The buying or selling of a security by

someone who has access to material, nonpublic information about the security

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• Rajat Gupta, being on the board of Goldman Sachs, was found to be providing confidential information about Goldman Sachs to

• Raj Rajaratnam • Who was leading a hedge company called

Galleon Group– Hedgingmeans reducing risk

– Risk is usually a function of return (the higher the risk, the higher the return), and a hedge fund manager is expected to reduce risk without cutting into investment income.

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• In the anxiety to maximise the returns, Rajaratnam resorted to insider trading with help of conspirators like Rajat Gupta• Which, he must have thought, is risky free!

• Providing insider information amounts conspiracy and securities fraud• Rajaratnam sentenced to 11 years in prison and fined a

total penalty of over $150 million

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Why did they do what they did?• Rajat Gupta

– Rajat Gupta is an MBA form Harvard Business School (1973)

• It was only in 2003 that a class called “Leadership and Corporate Accountability” was introduced into required curriculum at HBS to allow the students to discuss the perils of chasing dollars down ethical sewers (see P157, “What they teach you at Harvard Business School”, by Philip Broughton)

– Managing Director of “McKinsey & Company” from 1994 to 2003 and a business leader in India and the United States

– Cofounder of Indian School of Business

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Why did they do it?

• Rajaratnam is an MBA from Wharton School (1983)

• Both of them are billionaires

• Good societal recognition

• They have a happy family – There were tears in Gupta’s eyes when he was

sentenced.

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Why did they do it?

• They were inherently good

• Truth is, no body wants to bad (unless one is mentally disturbed)

• We just want to be happy!!

• It is in the pursuit of happiness, wrongly placed, that ethical trespasses happen!

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Could the story have been different?

• Would the story be different if Rajat Gupta & Rajaratnam were to be ethical?

• What would you do if you were under pressure or temptation?

• Activity Based Learning

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Why does it happen?

In Pursuit of pleasure we seek

Material wealth (Money)

Righteousness –Ethical framework

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Influencers of ethical behaviour

Personal Upbringing at home, school,

peers, misplaced intelligence….

Time, Place

ConsumerismPressure, both internal and external, to succeed (see

“The Parable of the Sadhu”)

System: Politics, Bureaucracy….

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The Ethics Triangle

Pressure

Opportunity Rationalisation

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Individual at the centre

• Yet, Individual is at the centre of ethical or unethical behaviour– But if systems are not supportive, even a person

with good intention will be shaken

• One may not be changed but may be sensitized through a study of ethics

• So, what is ethics?

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Ethics, what is it?

• What is ethics?– “Ethics deals with things to

be sought, things to be avoided and with ways of life and with telos”

• Epicurus

– Telos is the chief aim or end in life

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How is ethics different from morals?• Dos & Don’ts absorbed from family, school,

religion…are the morals

• Examining the one’s moral or the moral standards of a society is the ethics

• (P 10 of “Business Ethics – Concepts and Cases” by Velasquez)

• Vandivier case

– Doing ethics: questioning the morals absorbed from family, school..

• Ref 2, Page 11: What is the basis of his obligation to tell the truth and why is the obligation to tell the truth greater or lesser than a person’s obligation towards himself or his family?

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Ethics in a nutshell

• You can have any rights as long as you don't harm other people

• “Your right to swing your arm ends where other person’s nose begins”

• Voltaire

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Ethics & business

• If finding and following ethics is not easy in life, it is even difficult in business

• Ethics issues are complex, especially business ethics!• 1964: US Surgeon General Luther Terry declares Cigarettes to

be a cause of cancer • “I see nothing wrong with the (tobacco) business…I see

nothing wrong in selling products they don’t need”– Michael Mile, CEO,

Phillips Morris, Tobacco Company, 1991-94• Full marks to Miles for honesty, but for ethics?• The answer is not a simple yes or no!

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Business Ethics• Business ethics is an application of ethics to the

special case of business– What is the “special case”?

• Make profit, but without harming individuals or the society as a whole

– While profit is legitimate, profiteering isn’t

– There is a “value judgement” – “What ought to be”• History is about what was, journalism is about what is,

futurism is about what will be, law is about what must be, ethics is about what ought to be

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Business Ethics

• Business ethics is normative (prescriptive) –value judgmental rather than a mere description of what it is (descriptive or positive)

• Business Ethics is a specialised study of moral right and wrong that concentrates on moral standards as they apply to business institutions, organisations and behaviour (p 12, Ref 2)

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Business Ethics

• Business ethics (or, any ethics for that matter) does not depend on authority but on reasoning

• It calls for examining our daily business decision – “Was Goodrich right testing certifying the brakes

by itself”? and – With due reason (“provided testing is carried out

diligently”) • One may end up with the same decision but

reasoned out

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Branches of business ethics• In fact, ethics goes beyond mere compliance

with law and extends to returning the favor to the society by way of Corporate Social Responsibility (CSR)

• Thus, the branches of business ethics are:– Personal ethics

– Professional ethics

– Corporate Governance

– Corporate Social Responsibility

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Is ethics good for business?

• Some times – No

– See the case of “Malden Mills” in Course Material

– Perfectly ethical company like Malden Mills went belly up

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Case 1: Malden Mills

• Malden Mills

• Did Malden Mill fail because of ethics or in spite of it?

• Did Aaron Feuerstein go beyond what was required?– Why did he do it?

• Ethic of care (See page 119-110 of Ref 2, Seventh ed)

• “Shunning a low margin…Polartecthat the company workers had discovered..”

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• Arguments against business ethics (P 35- 41, Ref 2)

– Managers should stick to the maximising profit by efficient production and distribution and not impose their personal values on business

• Read Milton Friedman’s article “The Social Responsibility of Business is to Increase its Profits” (pp 253-258, Perspective in “Business Ethics” by Laura Hartman and Abha Chatterjee)

– A Loyal Agents of the employer, managers should do what will advance employer’s interest

– It is enough to obey the law

– Times have changed since Friedman and most people agree if the business is to be sustainable, it be ethical

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• Is ethics good for business?• Some times

– Yes– Perfectly ethical company like Infosys has

succeeded• $ 230 capital in 1981 to $31.11 billion as on 31 March

2014• See interview with NRN Murthy, HBR, November 2011

– “Why don’t we try to be India’s most respected company?”

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Is ethics good for businss?

• Case for business ethics– Business is a voluntary activity and standards that apply

to life should also apply to business

– Business ethics build trust which is the foundation for exchanges

• In the absence of trust and unrestrained self-interest, it will be “a war of every man against every man”

– History has shown that ethics does not distract companies from profit

• HP, Levi Strauss, P&G, Infosys… companies

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It pays to be ethical

• See the article, “Profitable Ethical Programs”

• Customers prefer a ethical company (eg., Tata)

• Employees prefer an ethical employer

• Employer prefers an ethical employee

• Goverment prefer law abiding companies

• Societies respect ethical companies

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• Unethical companies like – Enron failed

• See the movie “Enron: The smartest guys in the room”

– Satyam had to be rescued • Read “Resurgence of Satyam” by Zafar Anjum

– Put in other words, had Ramalingam Raju and Jeffrey Skilling were to be ethical, these losses could have been avoided

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Ethics and Competency are complementary

• Ethics alone does not give you success

• Neither will competency devoid of values!

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What is expected of you? (The Business Manager)

CharacterIntegrity

CompetenceCapabilitiesIntent Results

Source: “The speed of trust

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Summary of the module

• Ethics involves judgement as to – Good and bad, – Right and wrong– And what oughtto be

• Business ethics is an application of ethics to specific case of business– Profit but without harming individuals or society

• Business ethics matters because there is plenty of evidence that unethical behaviour costs a company reputation, hard cash and reduces share value

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Summary of the module

• Companies that are perceived as ethical are more likely to build trust amongst the stakeholder

• Ethics alone will not ensure success of a company– Neither will competence devoid of character– What is required is character with competence– Remember the imagery of tree!

– End of module

Documents

EVM Module