Chapter 60 Business Ethics in the Indian Context – Indian Economy

60

Business Ethics in the Indian Context

Introduction

Ethics reflects a society’s notions about the rightness or wrongness of an act. Ethics also involves the evaluation and application of certain moral values that a society or culture has come to accept as its norms. It is generally described as a set of principles or moral conduct. Business ethics, therefore, is a sum total of principles and code of conduct businessmen are expected to follow in their dealings with their fellowmen such as stockholders, employees, customers, and creditors and comply with the laws of the land enacted to protect all these stakeholders.

The word ethics is derived from the Greek word ethikos meaning custom or character. The  Concise Oxford Dictionary defines ethics as the treating of moral questions. But this definition is imprecise and leaves a number of loose ends. Whose morals? Which moral questions? Business ethics are supposed to cover areas as diverse as labour practices, free and fair trade, health concerns, euthanasia to animal welfare, environmental concerns, to genetic modification, to human cloning. Perhaps the definition provided by the Chambers Dictionary comes closer to providing a workable definition: ‘Ethics is a code of behaviour considered correct’. What the society considers correct may have been arrived by the crystallization of consumer pressure on corporations and governments and regulatory forces. It is the science of morals describing a set of rules of behaviour. Business ethics itself is an offshoot of applied ethics. The study of business ethics essentially deals with understanding what is right and morally good in business.

Ethics, as a science, involves systemizing, defending and recommending concepts of right and wrong behaviour. The principles of ethical reasoning are useful tools for sorting the good and bad components within complex human interactions. For this reason, the study of ethics has been at the heart of intellectual thought since the early Greek philosophers, and its ongoing contribution to the advancement of knowledge and science makes ethics a relevant, if not vital, aspect of management theory.

Principles of Ethics

Ethics is a conception of right and wrong behaviour, informing us when our actions are moral and when they are immoral.

Personal Ethics

Personal values are the conception of what an individual or a group regards as desirable. Personal ethics refer to the application of these values in everything one does. Personal ethics are often equated with the morality, since they are the reflections of the general expectations of individuals or the society, acting in some capacity or the other. These are the principles we try to inculcate in our children, and expect of one another without any need to express openly or formalize it in any way. The principles of personal ethics include the following: (i) Concern for the well-being of others; (ii) Respect for the autonomy of others; (iii) Trustworthiness and honesty; (iv) Willing compliance to law; (v) Basic justice: being fair; (vi) Refusing to take unfair advantage; (vii) Benevolence: doing good, and (viii) Preventing harm to any fellow being.

People are motivated to be ethical in their dealings for the following reasons:

  1. Personal reasons of conscience: Most human beings are by nature conscientious and under normal circumstance will act ethically.
  2. Social need of non-injury: In whatever activity people do, it is their natural behaviour that ensures that their actions do not cause any injury, physical or mental, to other beings.
  3. Legal need to obey the laws and rules of the government: Most people in almost all circumstances will obey the law of the land and be within the confines of government rules and regulations.
  4. Ultimately, one’s survival depends on being ethical: The social and material well-being of a person very much depends on one’s ethical behaviour in society.

Professional Ethics

There are certain basic principles people are expected to follow in their professional career. These are the following:

  • Impartiality: objectivity
  • Openness: full disclosure
  • Confidentiality: trust
  • Due diligence/duty of care
  • Fidelity to professional responsibilities
  • Avoiding potential or apparent conflict of interest

Business Ethics

Business ethics is the application of general ethical ideas to business behaviour. Ethical business behaviour is expected by public, prevents harm to society, improves profitability, fosters business relations and employee productivity, reduces criminal penalties, protects business against unscrupulous employees and competitors, protects employees from harmful actions by their employer, and allows people in business to act consistently with their personal ethical beliefs. Ethical problems occur in business for many reasons, including the selfishness of a few people, competitive pressures on profits, the clash of personal values and business goals, and cross-cultural contradictions in global business operations. Similar ethical issues, such as bribery and corruption, are evident throughout the world, and many national governments and international agencies are actively attempting to minimize such actions through economic sanctions and international codes. Although laws and ethics are closely related, they are not the same; ethical principles tend to be broader than legal principles. Illegal behaviour by business and its employees imposes great costs on business itself and the society at large.

To be precise, ‘Business ethics is the art and discipline of applying ethical principles to examine and solve complex moral dilemmas.’1 Business ethics proves that business can be and have been ethical and still make profits. Till the last decade, business ethics was thought of as being a contradiction in terms. But things have changed; today more and more interest is being shown on the application of ethical practices in business dealings and the ethical implications of business. ‘Business ethics is that set of principles or reasons which should govern the conduct of business whether at the individual or collective level.’2

Ethical solutions to business problems may have more than one right answer or sometimes no right answer at all. Thus, logical and ethical reasoning are tested in that particular business situation. ‘A business or company is considered to be ethical only if it tries to reach a trade-off between pursuing its economic objectives and its social obligations, i.e., between its obligations to the soc iety where it exists and operates; its obligations to its people due to whom it can even think of pursuing economic goals; to its environment, from whom it takes so much without it demanding anything back in return; and the like.’3

Business ethics is based on the principle of integrity and fairness and concentrates on the benefits to the stakeholders, both internal and external. Stakeholder includes those individuals and groups without whom the organization does not have an existence. It includes shareholders, creditors, employees, customers, dealers, vendors, government and the society. Ethical corporate behaviour is nothing but a reiteration of the ancient wisdom that ‘honesty is the best policy’. The dramatic collapse of some of the Fortune 500 companies such as Enron and Worldcom or the well-known auditing firm Andersen showed that even successful companies could ultimately come to grief, if they did not practise the basic principles of integrity. For every profession ‘we would think of a code of conduct or a set of values, which has a moral content and that would be the essence of ethics for that profession’. There should be transparency in operations leading to accountability, which should ensure safety and protect the interests of all the stakeholders.

What is not Business Ethics?

It is also equally important to clarify what is not ethics.

  1. Ethics is different from religion: Though all religions generally preach high ethical/moral standards, they do not address all the types of problems people confront today. For instance, cyber crimes and environment-related issues are totally new in the context of most religions. Moreover, many persons today do not subscribe to religious beliefs and have turned agnostics. But ethics applies to all people, irrespective of their religious affiliations.
  2. Ethics is not synonymous with law: Generally, a good legal system may incorporate many moral/ethical standards. However, there are several instances where law deviates from what is ethical. Legal systems may vary from society to society depending upon its social, religious and cultural beliefs. For instance, the US law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is an accepted way of doing business. Similar contradictions may be seen in child labour, employee safety, work hours, wages, gender discrimination and environmental protection laws. Law can be corrupted and debased by dictators and made to cater to serve interests of narrow groups. Sometimes, law could be unreasonable and even stupid, as for instance, it is illegal in Israel for a hen to lay an egg on a Friday or Saturday!4 It is also slow to respond to ethical needs of the society. People are often sceptical about the objectives of any legal system and comment ‘Law is an Ass’, while few people question ethical standards.
  3. Ethical standards are different from cultural traits: The English adage ‘When in Rome, do as the Romans do’, leads to an unethical cultural behaviour. Some cultures may be ethical, but many of them are not. They may be quite oblivious to ethical concerns. For instance, our system of castes reflects an unethical streak inasmuch as it tends to take for granted that some people are superior to others in God’s creation.
  4. Ethics is different from feelings: Our ethical choices are based on our feelings. Most of us feel bad when we indulge in something wrong. But many, especially hardened criminals, may feel good even when they do something bad. Most people when they do something wrong for the first time may feel bad, but if they find that it is beneficial or brings them pleasure, may habituate it without feeling any remorse.
  5. Ethics is not a science in the strictest sense of the term: We draw data from the sciences to enable us make ethical choices. But science does not tell us what we ought to do in certain situations leading to ethical dilemmas. But ethics being prescriptive offers reasons for how humans ought to act under such situations. ‘Moreover, just because something is scientifically or technologically possible, it may not be ethical to do it,’ as for instance, human cloning.
  6. Ethics is not a collection of values: Values are almost always over-simplifications, which rarely can. be applied uniformly. Values tend to be under-defined, situational by nature and subject to flawed human reasoning such that by themselves they cannot assure true ethical conduct. Consider the much-discussed value of employee loyalty. Should employees be loyal to co-workers, supervisors, customers, or investors? Since it is impossible to be absolutely loyal to all the four simultaneously, in what order should these loyalties occur? Employers who demand employee loyalty rarely can answer this question completely or satisfactorily.

Alvin Tofler said,

A corporation is no longer responsible simply for making a profit or producing goods but for simultaneously contributing to the solution of extremely complex ecological, moral, political, racial, sexual and social problems. Instead of clinging to a sharply specialized economic function, the corporation prodded by criticism, legislation and its own concerned executives, is becoming a multi-purpose institution.

There may be instances where some managers may fall into the trap of allurements and become ‘hired killers’ in business. They are exceptions and not examples. But the majority of the present-day managers believe that professions cannot serve two masters at once—the classes and the masses, the ‘propreitorial’ and the proletariat, Jesus and Judas, the deprived Pandavas and the grabbing Kouravas and so on. In the exercise of their duties and responsibilities, managers must observe certain ethical values such as integrity, impartiality, responsiveness to the public interest, accountability and honesty. Ethics are to business what values are to individuals.

Evolution

If we trace the history of ethics in business, we would realize that ethics had been a part of theological discussions prior to 1960. Before 1970s, there were a few writers like Raymond Baurnhart who dealt with ethics and business. Ethical issues were mostly discussed as part of social issues. Men of religion and theologians continued writing and teaching on ethics in business. Professors in B-schools wrote and continued to talk about CSR, the handmaid of ethics. However, the catalyst that led to the field of business ethics was the entry of several ‘philosophers, who brought ethical theory and philosophical analysis to bear on a variety of issues’.5 Norman Bowie dates the genesis of business ethics as November, 1974, with the first conference on the subject held at the University of Kansas. In 1979, three anthologies on business ethics appeared. They were: (i) Ethical Theory and Business by Tom Beauchamp and Norman Bowie; (ii) Ethical Issues in Business: A Philosophical Approach by Thomas Donaldson and Patricia Werhane; and (iii) Moral Issues in Business by Vincent Berry. In 1982, Richard De George brought out Business Ethics, while Manuel G. Velasquez published his Business Ethics: Concepts and Cases. All these books created a lot of interest on the subject and business ethics courses were being offered in several management schools. The  emergence of business ethics, however, was not restricted to textbooks and courses in B-schools. By 1975, business ethics became institutionalized at many levels through writings and conferences. By 1980s, the subject was taught in several universities in the United States and Europe. There were also, by this time, many journals of business ethics, apart from centres and societies established to promote ethical practices.

By the year 1990, business ethics as a management discipline was well established. ‘Although the academicians from the start had sought to develop contacts with the business community, the history of the development of business ethics as a movement in business, though related to the academic developments, can be seen to have a history of its own’.6

Parallel to these academic pursuits, around the time from the 1960s to 1980s, the Consumers’ Association in Britain multiplied its membership and campaigned hard on issues such as consumer rights, quality, safety, price, customer service and environmental concerns. The late-1980s and early 1990s saw increased concern for the environment and by 1989 environment was the issue of greatest concern in Britain. In 1988, more than 50 per cent of the people in West Germany called themselves green consumers, i.e., those who preferred to select one product over another for environmental friendly reasons. The USA followed with 45 per cent, Australia with 27 per cent, Great Britain with 14 per cent, which within a year shot up to 42 per cent.

Simultaneously with these developments or even anticipating them, religion also lent its powerful voice. Catholic teachings such as Papal Encyclicals emphasized the need for morality in business, such as workers’ rights and living wages as in Rerum Novarum of Pope Leo XIII. Some of the Protestant seminaries developed ethics as part of their curriculum. During the 1960s, we saw the rise of social issues in business. During this period many business practices came under social scrutiny. President John F. Kennedy’s Consumer Bill of Rights reflected a new era of consumerism. During the 1970s, professors teaching business began to write about business ethics and philosophers began to involve themselves in the theoretical evolution of the subject. Businessmen became more concerned with their public image and addressed ethics more directly. From this historical development, we could see that business ethics as a field of study and research is a fairly nascent subject.

Need

Ethics is closely related to trust. Most of the people would agree on the fact that to develop trust, behaviour must be ethical. Ethical behaviour is a necessity to gain trust. Trust will be used as an indicator variable of ethics. Basically, trust is three dimensional, that is, trust in supplier relationships, trust in employee relationships and trust in customer relationships. In such a situation, the entire stakeholders of the company are taken care of. If the company is able to maintain this trust-relationship with the internal as well as external stakeholders, then we can call that company as an ethical company.

Trust leads to predictability and efficiency of business. Ethics is all about developing trust and maintaining it fruitfully so that the firm flourishes profitably and maintains good reputation. Lack of ethics would lead to unethical practices in organizations as well as in personal life. One wonders why sometimes even educated, well positioned managers or employees of some reputed companies act unethically. This is because of lack of ethics in their lives. We can point out to a number of examples of companies whose top managements were involved in unethical practices, Enron, WorldCom, to name a few.

Earlier it was said that ‘business of business is business’, now there is a sudden change in the  slogan. In the contemporary scenario where ethics has got due importance, the slogan has taken the form ‘business of business is ethical business’. Applying ethics in business makes good sense because it induces others to follow ethics in their behaviour. Ethics are important not only in business, but also in all aspects of life. The business of the society which lacks ethics is likely to fail sooner or later.

There are thousands of companies which have succeeded in making profits and enhancing public esteem by following ethical practices in their realm of business. Johnson & Johnson, Larson & Toubro, Wipro, Infosys and Tata Steel are some of such companies. They have gained the trust of the public through ethical practices. In India, the Tatas, for instance, adhere to, and communicate key ethical standards in several ways. The Tata Code of Conduct affirms as follows:

‘The Tata name represents more than a century of ethical conduct of business in a wide array of markets and commercial activities in India and abroad. As the owner of the Tata Mark, Tata Sons Ltd., wishes to strengthen the Tata brand by formulating the Tata Code of Conduct, enunciating the values which have governed and shall govern the conduct and activities of companies associating with or using the Tata name and of their employees’.7

Significance

In the beginning of the new millennium, events in corporate America, Europe and in many emerging economies have demonstrated the destructive fallouts that take place when the top management of companies do not behave ethically. Lack of ethics has led highly educated, resourceful and business-savvy professionals at mega corporations like Enron, Tyco, Waste Management, WorldCom and Adelphia Communications to get themselves into a mess. In India too, we have had several instances of highly successful corporations like ITC, Satyam Computers and Reliance get into severe problems when the top brass misled them to unethical practices. Recently, the chairman of the South Korean automobile giant, Hyundai, Chung Mong-Koo was arrested and jailed for diverting more than USD 1 billion from the company for paying bribes to government officials.

People often wonder why employees indulge in unethical practices such as lying, bribery, coercion, conflicting interest, etc. There are certain factors that make the employees to think and act in unethical ways. Some of such influencing factors are: ‘pressure to balance work and family, poor communications, poor leadership, long work hours, heavy work load, lack of management support, pressure to meet sales or profit goals, little or no recognition of achievements, company politics, personal financial worries, and insufficient resources.’8 The statistical data given by the US-based Ethical Officers Association in 1997 shows how certain practices or factors contribute to unethical behaviour.9

Contributory Factors to Unethical Behaviour

 

From this statistics it is very much evident that conflicting interests lead to most of the unethical practices. The fact that by and large business has a negative image cannot be overstressed. Books, journals, movies and TV shows invariably depict business in bad light. Although businessmen may not want to be unethical, factors such as competitive pressures, individual greed, and differing cultural contexts generate ethical issues for organizational managers. ‘Further, in almost every organization some people will have the inclination to behave unethically necessitating systems to ensure that such behaviour is either stopped or detected and remedied.’

If we analyse the reasons as to why such unethical practices take place in corporations, we may come across several dimensions to the discussion on the importance and significance of business ethics. There are quite a few businessmen and entrepreneurs who are of the opinion that business and ethics do not go hand in hand, as there is no proven evidence that following ethical practices brings profits to the firm. They think that an ethical company may not be in a position to reap the benefits offered by the business environment if they were to worry about how ethically they should run the organization which would also bring them profits. It may not be able to take advantage of the opportunities provided by circumstances if they have to worry about ethical considerations all the time. Besides, the choice of an ethical alternative among many other alternatives and getting due benefits after investing on ethical practices may take time which may act as a constraint. There are others to whom making profit and increasing market capitalization are the only imperatives and yardsticks of efficiency and successful corporate management. To them, ‘end justifies the means.’ There are hundreds of CEOs who hold this opinion and acted unethically though many of them were proved wrong when nemesis caught up with them as in the cases of top executives of WorldCom and Enron.

However, real-life situations have shown that use of ethical practices in business does create high returns for companies that are run on ethical principles. There have been many empirical studies that have shown that companies that follow ethical practices are able to double their profits and show increased market capitalization compared to companies that do not adhere to ethics. In our country, Tata Steel and Infosys are two classic examples that illustrate this line of thinking.

Running a business ethically is good for sustaining business. Applying ethics in business also makes good sense. The corporate that behaves ethically prompts other business associates, by its good example, to behave ethically as well. Organizations work on synergy and delegation. It is the feeling of the oneness with the company which is called as feeling of ownership that enhances the sincerity of a worker in an organization. Organizations cannot work in a manner where the employees are not given due importance in their affairs. For example, if a management exercises particular care in meeting all responsibilities to employees, customers, and suppliers, it usually is rewarded with a high degree of loyalty, quality and productivity. Likewise, employees who were treated ethically will more likely behave ethically themselves in dealing with customers and business associates. A  supplier who refuses to exploit his advantage during a seller’s market condition retains the loyalty and continued business of its customers when conditions change to those of a buyer’s market. A company such as Sakthi Masala Pvt. Ltd that does not discriminate against elderly or handicapped employees and uses every opportunity to convince them that they are wanted as much as others discovers that they are fiercely loyal, hard-working and productive.

There is a cultivated belief in society for thousands of years, may be due to religious influence or an unwavering faith in morality, that a ‘good man’ who steadfastly tries to be ethical is bound to  overtake his immoral or amoral counterpart in the long run. A plausible explanation of this view on ethical behaviour is that when individuals operate with a sense of confidence regarding the ethical soundness of their position, their mind and energies are freed for maximum productivity and creativity. On the other hand, when practising unethical behaviour, persons find it necessary to engage in exhausting subterfuge, resulting in diminished effectiveness and reduced success.

We can be quite sure that well-endowed business’ professionals like Kenneth Lay, Martha Stewart, Dennis Kozlowski or Bernard Ebbers, the CEO of WorldCom who paid themselves millions of dollars salary and bonus packages at a time when their companies were in dire financial straits and were laying off thousands of people or encouraging their workers to invest in stocks of their failing companies were aware of what constitutes ethics. They either were too far removed from the ethical standards they expected their subordinates to follow or they were too blinded by their self-interest, or they simply did not care.

More often than not, managers get themselves into a quandary on the ethical side of their actions. For example, the decision of a manager to halt a process in a company due to his concern for the environment may backfire on him, if his company believes that profits are more important than the environment. In this context, the manager will have to make a careful analysis of whether or not the proposed action is in terms with the goals of the firm. If that is not so, he need not follow the advice of superiors because ultimately a man is responsible for his own actions.

The top brass of an organization are expected to share the burden of cost reductions and belt-tightening during difficult times. Senior executives of companies who freeze their salaries or take personal pay cuts in a difficult year rather than lay-off employees to cut costs deserve the utmost respect of everyone. However, this does not mean that a company should lose flexibility in adjusting its cost structure during bad times, replace old factories by new ones, or change technology in ways that would require few people to do the work. Such decisions should be made with empathy and financial support to those who are adversely affected by them.

Moral or ethical behaviour can neither be legislated nor taught in a vacuum. Authority, it is said, cannot bring about morality. The best way to promote ethical behaviour is by setting a good personal example. Teaching an employee ethics is not always effective. One can explain and define ethics to an adult, but understanding ethics does not necessarily result in behaving ethically. Personal values and ethical behaviour is taught at an early age by parents and educators.

The innate human belief that is so deeply ingrained in people’s psyche that ethical, moral or good behaviour will find its reward ultimately is demonstrated millions of times in stage plays and films by the ‘virtuous’ hero winning over the ‘wicked’ villain. The fact that people would rarely accept the success of evil or unethical forces over the ethical or good ones has been demonstrated time and again by the failure in box office of such plays or films depicting such on unconventional formula.

Ethics are important not only in business but in all aspects of life because it is an essential part of the foundation on which a civilized society is built. A business, as much as a society, that lacks ethical principles is bound to fail sooner than later.

Values and Ethics in Business

Business ethics are related to issues of ‘what is right’ and ‘what is wrong’ while doing business. The constituents of business ethics include adherence to truth, a commitment to justice and public integrity. What values are to individuals, ethics are to businesses.

Personal values refer to a conception of what an individual or group regards as desirable. A value is a view of life and judgment of what is desirable that is very much part of a person’s personality and a group’s morale. Thus, a benign attitude to labour welfare is a value which may prompt an industrialist to do much more for workers than the labour law stipulate. Service mindedness is a value which when cherished in an organization manifests in better customer satisfaction. Personal values are imbibed from parents, teachers and elders and as an individual grows, values are adapted and refined in the light of new knowledge and experiences. Within an organization, values are imparted by the founder-entrepreneur or a dominant chief executive and they remain in some form, even long after that person exits.

J. R. D. Tata once said this when asked to define the House of Tata and what links that forge the Tata companies together: ‘I would call it a group of individually managed companies united by two factors: First, a feeling that they are part of a larger group which carriers the name and prestige of Tata’s, and public recognition of honesty and reliability-trustworthiness. The other reason is more metaphysical. There is an innate loyalty, a sharing of certain beliefs. We all feel a certain pride that we are somewhat different from others’. The several values that J. R. D. Tata refers to, have been derived from the ideals of the founder of the group, Jamsetji Tata.

Business ethics operate as a system of values and ‘is concerned primarily with the relationship of business goals and techniques to specifically human ends’. This would mean viewing the needs and aspirations of individuals as part of society. It also means realization of the personal dignity of human beings. A major task of leadership is to inculcate personal values and impart a sense of business ethics to the organizational members. While values and ethics, on one hand, shape the corporate culture and dictate the ways how politics and power will be used, on the other, they clarify the social responsibility in the organization.

The Importance of Values and Ethics

A typical dilemma faced by people in business is to somehow reconcile the pragmatic demands of work which often degenerate to distortion of values and unethical business practices and the call of the ‘inner voice’ which somehow prevents them from using unethical means for achieving organizational goals. This dilemma stems from the fact that apparently the value system of the organization has already been contaminated beyond redemption. Some analysts attribute this to the acceptable behaviour in society at a particular point of time or justify it in terms of the rapid transition of a developing society where social mechanisms become obsolete.

Corruption in industry, which is a major by-product of degradation of values and ethics, is also related to the inability of industry to stand up to the discretionary powers of a regulatory system designed and administered by an unholy alliance of bureaucrats and politicians. But repeated observations have shown that it is values, and not avarice, that drive the recognition of the importance of economic growth and profits. The accuracy of these observations have been borne out by several excellent organizations which have explicit belief in values. It has been possible for Indian companies such as Infosys, Tata Steel, Asian Paints, Bajaj Auto, Dr. Reddy’s Lab and Wipro to excel on the basis of superordinate goals—a set of values and aspirations and corporate culture. Managers, therefore, have to provide the right values and ethical sense to the organizations they manage.

Take, for instance, such issues as consumers being taken for a ride on matters such as warranty, annual maintenance contracts, consumers being asked to pay very high prices for components, discriminating prices, managements collusion with union leadership, FEMA violations, insider trading, lack of transparency, lack of integrity and false presentation of financial statements, feeding top managements only with information they want to hear, window dressing of balance sheets, backdating of contracts, manipulation of profit and loss accounts, hedging and fudging of unexplainable and inordinate expenditures and resorting to suppressio very, suggestio falsi, and continuous upward revaluation of assets to conceal poor performance, etc. These are only the tips of the iceberg.

The Distinction between Values and Ethics

At this point, it is necessary to differentiate between values and ethics. Values are personal in nature (e.g., a belief in providing customer satisfaction and being a good paymaster) while ethics is a generalized value system (e.g., avoiding discrimination in recruitment and adopting fair business practices). Business ethics can provide the general guidelines within which management can operate. Values, however, offer alternatives to choose from. For example, philanthropy as a business policy is optional. An entrepreneur may or may not possess this value and still remain within the limits of business ethics. It is values, therefore, that vary among managers in an organization and such a variance may be a source of conflict at the time of business strategy formulation and implementation.

Managers have to reconcile divergent values and modify values, if necessary. A typical situation of value divergence may arise while setting objectives and determining the precedence of different objectives. One group of managers (may be a coalition) is interested in production- oriented objectives—standardization and mass production—while another group may stress marketing-related objectives—product quality and variety, small-log production, etc. These interests may be legitimate in the sense that they arise from their functional bias. It is for the chief executive to reconcile the divergent values. Obviously, this can best be done in the light of strategic requirements and environmental considerations.

Modification of values is frequently required for business strategy implementation. A particular business strategy, say of expansion, may create value requirements such as stress on efficiency, risk-taking attitude, etc. Implementation maybe sub-optimal if existing values do not conform to these requirements. In such cases, modification of values is necessary. But what was said of corporate culture is true for values too; they are difficult, if not impossible, to change. A judicious use of politics and power, redesigning of corporate culture, and making systematic changes in organizations can help to modify values gradually.

Values, Ethics and Business Strategy

Personal values and ethics are important for all human beings. They are especially important for business managers as they are custodians of immense economic power vested in business organizations by society. Having personal values by managers is one thing but is it right to let them affect the considerations for strategy formulation and implementation? This is a tricky question. A more relevant question is: Can managers prevent their personal values affecting business strategy formulation and implementation?

Christensen and others attempt an answer: ‘Executives in charge of company destinies do not look exclusively at what a company might do or can do. In apparent disregard of the second of these considerations, they sometimes seem heavily influenced by what they personally want to do’. Guided by this, it can be added that ‘purity of mind’, can come only from having the ‘right connection between values, ethics and strategy. It is imperative that executives have to take business decisions not only on the basis of pure economic reasons but have also to consider values and ethics’.

‘Using ethical considerations in strategic decision-making will result in the development of most effective long term and short term strategies. Specifically, ethical criteria must be included as part of the strategic process in before-profit decisions rather than after profit decisions in order to maximize corporate profits and improve strategy development and implementation’.10

Why Should Businesses Act Ethically?

An organization has to be ethical in its behaviour because it has to exist in the competitive world. We can find a number of reasons for being ethical in behaviour, few of them are cited below: Most people want to be ethical in their business dealings. Values give management credibility with its employees. Only perceived moral uprighteousness and social concern brings employee respect. Values help better decision-making. There are a number of reasons why businesses should act ethically:

  • To protect its own interest.
  • To protect the interests of the business community as a whole so that the public will have trust in it.
  • To keep its commitment to society to act ethically.
  • To meet stakeholder expectations.
  • To prevent harm to the general public.
  • To build trust with key stakeholder groups.
  • To protect themselves from abuse from unethical employees and competitors.
  • To protect their own reputations.
  • To protect their own employees.
  • To create an environment in which workers can act in ways consistent with their values.

Besides, if a corporation reneges on its agreement and expects others to keep theirs, it will be unfair. It will also be inconsistent on its part, if business agrees to a set of rules to govern behaviour and then to unilaterally violate those rules. Moreover, to agree to a condition where business and businessmen tend to break the rules and also they can get away with it is to undermine the environment necessary for running the business.

Hard decisions which have been studied from both an ethical and an economic angle are more difficult to make, but they will stand up against all odds, because the well-being of the employees, public interest, and the company’s own long-term interest and those of all the stakeholders have all been taken into account.

Ethics within organizations is a must, as only then it can be conveyed through the activities they perform. Ethics should be initiated from the top management to the bottom of the hierarchy. ‘Ethical behaviour starts at the top. Before a company can expect to be viewed as ethical in the business community, ethical behaviour within its own walls too and by employees is a must, and top management dictates the mood. Ethical behaviour of the leaders of an organization will inevitably set the tone for the rest of the company—values will remain consistent. Further, a well-communicated commitment to ethics sends a powerful message that ethical behaviour is considered to be a business imperative. If the company needs to make profits and also wants to have a good reputation, it must act within the confines of ethics. The ethical communication within the organization would be a healthy sign that the company is marching towards the right path. Internalization of ethics by the employees is of much importance. If the employer has properly internalized ethics, then his or the organization’s activities will have ethics in it.

Ethical Decision-making

Ethical decision-making is a very tough prospect in this dog-eats-dog world. However, in the long run all will have to fall in and play fair. The clock is already ticking for the unscrupulous corporations. In this age of liberalization and globalization, the old dirty games and unethical conduct will no longer be accepted and tolerated.

Norman Vincent Peale and Kenneth Blanchard in their book, The Power of Ethical Management, have prescribed some suggestions to conduct ethical business.

  • Is the decision you are taking legal? If it is not legal, it is not ethical.
  • Is the decision you are taking fair? In other words, it should be a win-win-equitable risk and reward.
  • The Eleventh Commandment—‘Thou shall not be ashamed when found’, meaning when you are hauled up over some seemingly unethical behaviour, if one’s conscience is clear, then there is nothing to be ashamed of.

Organizations have started to implement ethical behaviour by publishing in-house codes of ethics which are to be strictly followed by all their associates. They have started to employ people with a reputation for high standards of ethical behaviour at the top levels. They have started to incorporate consideration of ethics into performance reviews. Corporations which wish to popularize good ethical conduct have started to reward ethical behaviour. Codes promulgated by corporations and regulatory bodies continue to multiply. Some MNCs like Nike, Coca-Cola, OM and IBM and Indian companies like ICICI, TISCO, Infosys, Reddy’s Lab, NTPC, ONGC, Indian Oil and several others want to be seen as ‘socially responsible’ and have issued codes governing all types of activities by their employees. SEBI, the Indian capital market regulator, CII and such organizations representing corporations have issued codes of best practices and enjoin their members to observe them. These normative statements make it clear that corporate leaders anxious for business growth should not make plans without looking at the faces and lives of those oppressed by poverty and injustice. In fact, today managers and would-be entrepreneurs are groomed to be ethical and socially responsible even while being educated. The Indian Institutes of Management (IIMs) and highly rated B-schools like Xavier Labour Relations Institute (XLRI) and Loyola Institute of Business Administration (LIBA) have courses in their curriculum and give extensive and intensive instruction in business ethics, corporate social responsibility and corporate governance. Many corporations conduct an ethics audit and at the same time, they are continuously looking for more ways to be more ethical.

Ethical Challenges in the Changing Business Environment

Companies these days respond to the changing business environment by adopting new and effective tools to communicate their ethical culture. The fast-changing external environment of business necessitates positive changes in the approach of the response of individual organizations. The change that is created by information and technological explosion is such that organizations cannot resist changes any more. With these changes, several ethical issues have to be faced and solved to the  satisfaction of all stakeholders. Owing to the increasing shift in the business growth, most of the organizations tend to give more powers to the lower levels of the organization leading to decentralization of powers and decision-making. The process of decentralization leads to a number of ethical issues in the organization. Conflicting goals of the individual and of the organization are the root cause of several unethical practices. ‘As the nature of business competition changes, companies are increasingly involved in a web of partnerships and strategic alliances with other firms and with suppliers. This has raised new and complex ethical challenges especially those around conflicts of interest, and has created the potential for damaging ethical decisions to increase. The sheer volume of information gathered from partners, purchasers and competitors can lead to unethical or even illegal use of proprietary information’. When such conflicts of interest arise, companies have to solve them through ethical practices alone; otherwise in the long run they will not be able to survive in the modern fiercely competitive world.

The ethical implications of a firm’s behaviour in a fast-changing business environment were considered by McCoy who thought ethics to be the core of business behaviour. He states: ‘Dealing with values requires continual monitoring of the surrounding environment, weighing alternative courses of action, balancing and (when possible) integrating conflicting responsibilities, setting priorities among competing goals, and establishing criteria for defining and evaluating performance. Along with these goes learning ways to bring this ethical reflection directly and fully into the processes by which policy is made, implemented, and evaluated. Increasingly, skills in dealing with values as integral components of performance and policy-making are being recognized as central for effective management in a society and a world undergoing rapid change’.

Benefits of Managing Ethics in the Workplace

The following benefits accrue to an enterprise if it is managed ethically:

  1. Attention to business ethics has substantially improved society: Establishment of anti-trust laws, unions and other regulatory bodies has contributed to the development of society. There was the time when discriminations and exploitation of employees were high, the fight for equality and fairness at workplace ended up in establishing certain laws which benefitted the society.
  2. Ethical practice has contributed towards high productivity and strong teamwork: Organizations being a collection of individuals, the values reflected will be different from that of the organization. Constant check and dialogue will ensure that the value of the employee matches the values of the organization. This will in turn result in better cooperation and increased productivity.
  3. Changing situations require ethical education: During turbulent times, where chaos becomes the order of the day, one must have clear ethical guidelines to take right decisions. Ethical training will be of great help in these situations. Such training will enable managers manning corporations to anticipate the situations and equip themselves to face these firmly.
  4. Ethical practices create a strong public image: Organizations with strong ethical practices will possess a strong image among the public. This image would lead to strong and continued loyalty of employees, consumers and the general public. Conscious implementation of ethics in organizations becomes the cornerstone for the success and image of the organization. It is because of this ethical perception that the employees of TISCO and the general public protested successfully in 1977 when the then Minister for Industries in the Janata Government, George Fernandes, attempted to nationalize the company.
  5. Strong ethical practices act as an insurance: Strong ethical practices of the organization are an added advantage for the future function of the business. It would benefit the organization in the long run if it is equipped to withstand the competition.

Characteristics of an Ethical Organization

Mark Pastin in his report, The Hard Problems of Management: Gaining the Ethical Edge, provides the following characteristics of ethical organizations:12

  1. They are at ease interacting with diverse internal and external stakeholder groups. The ground rules of these firms make the good of these stakeholder groups part of the organization’s own good.
  2. They are obsessed with fairness. Their ground rules emphasize that the other persons’ interests count as much as their own.
  3. Responsibility is individual rather than collective, with individuals assuming personal responsibility for actions of the organization. These organizations’ ground rules mandate that individuals are responsible to themselves.
  4. They see their activities in terms of purpose. This purpose is a way of operating that members of the organization highly value. And purpose ties the organization to its environment.

There will be clear communications in ethical organizations. Minimized bureaucracy and control paves the way for sound ethical practices.

Recognizing Ethical Organizations

There are certain characteristics by which we will able to identify an ethical organization:

  1. On the basis of corporate excellence: Corporate excellence mainly centres on the corporate culture. Practice of such values constitutes the corporate culture. Values of the organization give a clear direction to the employee. Values are found in the mission statement of the organizations. Often these values remain as a principle and are not explicitly stated. Only the practised values create the organization culture. When values act in tune with the goals of the organization, we call it the corporate culture of that organization. Often we see conflicting interests between the value and the organizations’ goal. Organizations must eradicate such impediments to be an ethical organization.
  2. In relation to the stakeholders: Meeting the needs of stakeholders by the activities of the managers determine whether the organization is ethical or not. The top management represents the stakeholders and every decision taken must satisfy the needs of the stakeholder. It need not be stressed here that it was the stakeholders’ pressure that has been instrumental in bringing ethical issues into the centre stage of corporate agenda. Consumers in most developed societies want corporations to demonstrate ethical responsibility in every area of their functioning and impacting on treatment of employees, the community, the environment, etc. Companies have been prompted to change their way of thinking and working so that ethical issues and corporate responsibility become an integral part of their business. The management while taking decisions must see that the stakeholders enjoy the maximum benefit of that decision. For example, Marico, the makers of Parachute Oil, discovered a harmless tint in the oil from one of its production lines. The company withdrew the batch from the market, shut down the production line, but kept the workers on payroll and involved them in the investigation of the cause. Shortly, the workers located the cause, rectified it and resumed normal production.
  3. In relation to corporate governance: Managers are only stewards of the owners of the corporate assets. Thus, they are accountable for the use of the assets to the owners. If they perform well in the prescribed manner, then there would not be much question of corporate governance. Such behaviour of the top managers would generate ethical practices or at least would encourage ethical practices in the organization. If only the top management is paid on the basis of their performance, this approach would work.

Key Terms

Applied ethics 968

Ethical challenges 980

Ethical organization 981

Insider trading 977

Personal ethics 969

Professional ethics 969

Reasons of conscience 969

Social need of non-injury 969

Sustaining business 975

Unethical behaviour 974

Values and ethics 976

Discussion Questions

60.1. What is business ethics? Describe its nature. Is business ethics a necessity?

60.2. What are the major ethical issues that business faces today? Discuss them with suitable examples.

60.3. Explain what business ethics is, and what it is not.

60.4. What is the importance of ethics in business? Give suitable examples.

60.5. Explain the role of values in the making of business ethics. How these can be incorporated in working out a business strategy?

60.6. What is corporate governance? How can ethics make corporate governance more meaningful?

60.7. What benefits accrue to business if ethics is made part of its strategy?

60.8. How would you recognize an ethical organization? What are its characteristics?

References

1. Weiss, Joseph W. (1988), Business Ethics: A Stakeholder and Issues Management Approach (Orlando, FL: Harcourt Brace College Publishers) p. 7.

2. Cowton, C. and Crisp, R. (1998), Business Ethics: Perspective on the Practice Theory p. 9.

3. Raj, Rituparna (1999), A Study in Business Ethics (Bombay, India: Himalaya Publishing House), p. 3.

4. Strange Laws—Canada and other Countries, htrp://www.ftixya.coml post/fordac/1321/Strange_laws_-_Canada_and_other_Countries.

5. De George, Richard T. (2005), Business Ethics (London, UK: Pearson Prentice Hall).

6. Ibid.

7. Key, S. and Popkin, Samuel J. (1998), ‘Integrating Ethics into the Strategic Management Process: Doing Well by Doing Good’, Management Decision, 36/5(1998): 331–338.

8. www.management.advantage.com.

9. Study conducted by EOA in 1997[0] ‘The Impact of Membership in the Ethics Officer Association’, The Journal of Business Ethics (Pages 39–56), http://www.springerlink.comlcontent/ n7631 uh2r21760q2/

10. Quoted by Robert F. Drinan, S. J. (2000), former US Congressman and Professor at George Town University Law Center during the Tenth JRD Tata Oration of Ethics in Business at XLRI, Jamshedpur on 21 December, 2000. The topic of the oration was ‘Globalization and Corporate Ethics.’

11. www.smartpros.com.

12. The Hard Problems of Management: Gaining the Ethical Edge (San Francisco, CA: The Jossey-Bass management series), 1986.

Suggested Readings

60.1. Andrews, Kenneth R. (ed) (1974), Ethics in Practice (Boston, MA: Harvard Business School Press).

60.2. Drucker, Peter F. (1974), Management (New York, NY: Harper & Row).

60.3. Friedman, M. (1970), ‘The Social Responsibility of Business Is to Increase Its Profits’, The New York Times Magazine, Sunday, 13 September. Reprinted in Leube, Kurt R. (Ed) (1987), The Essence of Friedman (Hoover Press).

60.4. Fritzsche, David J. (1997), Business Ethics: A Global and Managerial Perspective (Singapore: The McGraw-Hill companies, Inc.), p. 12.

60.5. Irwin, Terence (1985), Trans. Aristotle, Nicomachean Ethics (Indianapolis, IN: Hackett).

60.6. Macintyre, A. (1984), After Virtue, Second edition (Notre Dame, IN: University of Notre Dame Press).

60.7. McCoy, C. S. (1985), Management of Values: The Ethical Difference in Corporate Policy and Performance (Boston, MA: Ballinger).

60.8. Mulla, Z. (2003), ‘Corporates in India Cannot Afford to be Ethical’, Management and Labour Studies, 28(1) (February 2003).

60.9. Novak, M. (1996), Business as a Calling (New York, NY: Free Press).

60.10. Novak, M. (1993), The Catholic Ethic and the Spirit of Capitalism (New York, NY: Free Press).

60.11. Novak, M. (1990), Toward a Theology of the Corporation, Revised edition (Washington, DC: American Enterprise Institute).

60.12. Pieper, J. (1966), The Four Cardinal Virtues (Notre Dame, IN: Notre Dame University Press).

60.13. Quoted by Drinan, Robert F., S. J., former U S Congressman and Professor at George Town University Law Center ‘Globalization and Corporate Ethics’. In Tenth JRD Tata Oration of Ethics in Business, XLRl, Jamshedpur, India, 21 December, 2000.

60.14. Raj, R. (1999), A Study in Business Ethics (Bombay, India: Himalaya Publishing House), p. 3.

60.15. Weiss, J. W. (1988), Business Ethics: A Stakeholder and Issues Management Approach, (Orlando, FL: Harcourt Brace College Publishers) p. 7.