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Business Ethics

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Title: Business Ethics


1
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

3
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

4
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
5
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?

6
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

7
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

8
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.

9
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.

10
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.

11
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

12
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

13
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

14
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.

15
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
16
The management cycle and ethics
Source IUCN-WCPA Framework for MEE
17
Issues of Ethics
  • Reliability (Trust)
  • Responsiveness
  • Citizenship
  • Loyalty
  • Uprightness
  • Transparency
  • Fairness
  • Fiduciary
  • Propriety
  • Dignity

18
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

19
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

20
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.

21
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

22
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

23
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.

24
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

25
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

26
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.

27
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.

28
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.

29
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.
30
Ethical Matrix
Organizations Ethics Members Ethics High Low
High (1) Most Desirable (Congruent) (2) Problematic (Incongruent)
Low (3) Problematic (Incongruent) (4) Least Desirable (Congruent)
31
Types of organization
Moral Concerns
High
Holistic
Balanced
Low
Exploitative
Manipulative
Low
High
Economic Concern
Values Organizations Matrix
32
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.

33
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

34
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.

35
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)

36
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

37
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.
38
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

39
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

40
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

41
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.
42
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)

43
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
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