Business Ethics

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Business Ethics Suggested Reading

• 1. Ethical Management Satish Modh
• 2. Ethics and the conduct of business John R.
  Boatright
• 3. Business Ethics An Indian Perspective by
  A.C.Fernando
• 4. Values for Managers Prof S.K.Chakraborty
• 5. Business Ethics, an Indian Perspective Prof
  P.S.Bajaj Dr. Raj Agrawal
• 6. Ethical Choices in Business R.C. Sekhar
• 7. Managing for values S.S.Iyer

2
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

• Todays leaders are respected for their ideas
• and not their positions

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Youtube references for Business Ethics start up

• http//www.youtube.com/watch?vghokREsbaoI
• http//www.youtube.com/watch?vklQYxYr6DHQ
• http//www.youtube.com/watch?vHtpbOm7MD3M
• http//www.youtube.com/watch?vhkihgw-PDbA
• http//www.youtube.com/watch?vWLIsGqz6X34

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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
arent 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
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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
  companys contribution of underage drinking and
  alcohol abuse among college students. Should the
  VP go along with the competition?

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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

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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 wont 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,
  heres 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

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Business Ethics -Preamble

• The concept of ethics comes from the Greek word,
  ethos, meaning both individuals character and
  a communitys 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.

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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 characters action rather than his
  thoughts or emotion.

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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.

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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

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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

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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

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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.

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The interactive nature of Management process
Planning Use logic methods to think
through goals actions
Organizing Allocate work, authority
resources to achieve organizational goals
Controlling Make sure the organization is
moving towards its objectives
Leading Direct, influence motivate employees to
perform essential tasks
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The management cycle and ethics
Source IUCN-WCPA Framework for MEE
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Issues of Ethics

• Reliability (Trust)
• Responsiveness
• Citizenship
• Loyalty
• Uprightness

• Transparency
• Fairness
• Fiduciary
• Propriety
• Dignity

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Transparency Conduct business in a truthful and
open manner

• Do I try to clarify a minor error with knowing
  that it wont 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

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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 companys van filled with explosives to
  continue or risk my colleague (traveling with the
  van) to be sent to jail

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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 teams
  health while surrounded by smoke.
• How wary should I be about an Iraqi fighters
  surrender when it has not been uncommon for
  surrendering Iraqi soldiers to shoot the soldiers
  who come to collect them.

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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 havent 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

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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

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Loyalty

• As a Muslim is it OK to stock alcohol in my
  stores in Non Muslim countries
• After I discover Im 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.

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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

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Ingredients of success of ethical practices in
organizations

• LeadershipExecutives 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

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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.

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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.

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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.

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Why Should Business Act Ethically ?
Ethical motivations 1. The desire to protect or
improve reputation 2. Adherence to corporate
governance guidelines and the need for robust
internal controls to manage business risks 3.
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 of law, regulations or company standards
and damage to reputation were 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
behavior or misconduct. Organizations should
develop strategies to address these aspects.
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Ethical Matrix
Organizations Ethics Members Ethics High Low
High (1) Most Desirable (Congruent) (2) Problematic (Incongruent)
Low (3) Problematic (Incongruent) (4) Least Desirable (Congruent)
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Types of organization
Moral Concerns
High
Holistic
Balanced
Low
Exploitative
Manipulative
Low
High
Economic Concern
Values Organizations Matrix
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Integrating ethics into organizational
culturesCreating Ethical Organizations

• Ethical behavior isnt 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.

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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

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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.

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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 measurements
10. Revision and refinements (development of ethical
    culture is a continuous process and not something
    that reaches completion)

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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

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An economic network
Alliance
Corporate Center
Wholly owned
Part owned
The fallout of economic upheaval is that the
evolving networks are transforming the
relationships within and between the companies.
Managing all these relationships to keep everyone
on board and avoid ethical conflicts has become
increasingly important.
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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

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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 countrys 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

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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.cauxroundta
  ble.org/documents/Principles20for20Business.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

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Lessons learnt
Business ethics management is largely about
managing the risk to an organizations
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 must be 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 ultimately depend on having the right
combination of spirit and structure. It will also
depend on the cause being championed and
supported by senior managers.
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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)

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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