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

Planning
Use logic &
methods to think through
goals & actions

Organizing
Controlling Allocate work,
Make sure the authority & resources
organization is moving to achieve organizational
towards its objectives goals

Leading
Direct, influence & motivate
employees to perform
essential tasks
The management cycle and ethics

Source: IUCN-WCPA Framework for MEE

 Issues of Ethics

• Transparency • Reliability
• Fairness • Responsiveness
• Fiduciary • Citizenship
• Propriety • Loyalty
• Dignity • 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
 Fiduciary
Act 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
 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?
 Dignity
Respect 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.
 Reliability
Keep 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
 Fairness
Deal 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
An economic network

Alliance

Wholly owned
Corporate
Center

Part owned

The significance of economic networks is that they are transforming the relationships
within 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 High Low

Member’s
Ethics

(1) (2)
High Most Desirable Problematic
(Congruent) (Incongruent)

(3) (4)
Low Problematic Least Desirable
(Incongruent) (Congruent)
 Types of organization
Moral Concerns

High Holistic Balanced

Low Exploitative Manipulative

Low High

Economic Concern
Values – Organizations Matrix
 Factors affecting ethical / unethical behavior

Individual Issue
characteristics Intensity

Stage of moral Ethical / unethical

Ethical
Development
Moderators behavior
dilemma

Structural Organizational
variables culture

Value based Management:

An approach to managing in which managers establish, promote and
practice 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 measurements
10. Revision and refinements (development of ethical culture is a
continuous process and not something that reaches completion)
Lessons learnt:
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 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.
 The Ethical Process
Epilogue
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