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Ethics in Business
The handout contains material on the following inputs: 1. 2. 3. 4. 5. An introduction to ethics Ethics in practice Evolution of ethical thought in India and the west Why ethics makes logical sense Society, individuals and ethics
Introduction to Ethics
Theoretical foundation –Concepts • Link between holism, ethics, business ethics and codes of conduct • Definitions of ethics in business; need for ethics in business; • Ethics and its relation to law, values, morality, religion, philanthropy; • Relativism versus absolutism • Four guidelines for ethical decision making, Practical Analyses – • Common rationalizations used for justifying ethically questionable behaviour. Mental resistance to ethicality • Basic Human Values and values as applicable to business • Evolution of a Corporate on the Ethical Dimension • Stakeholders of an organisation and their relative ranking
Linkages: The link between holism, ethics and values, business ethics and codes of conduct may be depicted through the following diagram: Holism / Healthy living for all
Ethics (norms for behaviour)
Business Ethics Codes of conduct
VESIMSR, MMS, Jan 2011 Ethics in Business - Piya Mukherjee
Holism or healthy living for all may be shown as the superset that defines every act of the individual, exemplified by “Live and let live”. The manner in which this tenet get codified differ from place to place and these then become the norms for behaviour and are called, rules or ethics. Within the category of ethics, lie the specific norms designed for business interaction, under the label of “business ethics”. Norms exclusively for organizational stakeholders such as customers, employees, shareholders, lenders, agencies, government and society, fall in this group. Although these are governed by the two above categories, there is greater scope for flexibility in their interpretation. Hence different countries have different laws, say, for insider trading, infringement of customer privacy and so on. A further sub-category of norms, subject to more frequent changes across time and place, are codes of conduct and charters of governance. As these emerge as responses to contemporary demands, their nature is topical tailor-made to deliver desired results. For example, a rash of corporate scams and frauds in the recent past have seen stringent norms for financial disclosure emerging across industries. Thus, ethics means… Text-book definitions: A set of standards, codes and values, determined from human reason and experience, by which free human actions are determined (classified) as right or wrong, good or evil. It may be described as a set of man-made principles governing human interaction and conduct, with a view to leading a “civilized”, orderly life. The term “Ethics in business” refers to those principles that guide corporate actions and decisions. Practical, yet profound perspective: Knowing what’s the right thing to do and doing it the right way. • Ethics (unwritten codes of conduct, as well as written rules which become laws) are needed to regulate human behaviour. Productive human efforts can exist only when there are ground rules to establish the “do’s and don’ts” of interactive endeavour.
While the former believes that standards change as per place and time. the local. the latter supports the absoluteness of values. time. Ethics and Philanthropy – Though laudable.Which course of action is practical and feasible in the given circumstances? • 3 . MMS. However. there are practices that are legal. However.g. Values form the foundation on which the principles of ethics are based. ethical principles are derived from values enshrined in traditional religions. and often arbitrary fashion. conceding that their interpretations may change depending on the context. claiming a corporate reimbursement by signing a relevant authorization.g. Consequences . though not ethical (e. guiding human thought and behaviour. Practicality . The disadvantage of relativism is that standards are decided in a subjective. charity and philanthropy do not fall under the ambit of sound business ethics. custom. Ethics and Religion Very often. Jan 2011 Ethics in Business .disclosing the HIV positive status of a patient to his / her family or prospective spouse) Ethics and Morality and Values – Values may be defined as positive attitudinal and behavioural traits. • Are ethical standards absolute? The two schools of thought (relativism and absolutism) hold opposite points of view on this issue.VESIMSR. It may be safely said that the basic principles of peaceful existence are unchanging. though the expense may be partly or wholly fictitious) and acts that may be ethical but not legal (e.Piya Mukherjee It is important to distinguish between: Ethics and law – Although there is a very high degree of overlap. interpretation of these principles change as per place. the ritualistic aspect of religion is distinct from the universal tenets of ethics.Which decision best serves the rights of the people concerned? 3. Four criteria to guide ethical decision making: 1. convention and so on. It is perfectly possible to be totally ethical without donating to charity.Which course of action will do the most good and the least harm? 2. Rights .Which decision is consistent with my values and the values of my company? 4. Consistency .
written contract.a slightly detailed look: • Western approach: Integrative Social Contracts Theory: (Source: Pages 43-47. this theory places itself as a global. Don’t lie in negotiations. Business Ethics – A Global and Managerial Perspective.Piya Mukherjee • Common rationalizations used for justifying ethically questionable behaviour: These are statements we make to ourselves or others. with right to exit Micro Social Contracts: Honour all contracts. Right to subsistence. but an informal agreement concerning behavioural norms that are developed from shared goals. Free consent. The theory states that corporations exist to enhance social welfare by serving consumers. This is a social contract between the corporation and society. Hypernorms: Personal freedom. These are basic principles fundamental to human existence. Physical security and well-being. Ownership of property. When an organization fulfills the contract. political and philosophical thought Macro-social contracts = values and norms that function at the global level Micro-social contract = community-specific contracts that guide business activity.VESIMSR. “The other party deserves to be deceived / robbed…” Basic human Values . Informed consent. “I was only following orders”. Political participation. MMS. “Everyone does it”. “It’s not technically wrong”. The “social contract” in discussion is not a formal. I’ll take them myself!”. “It is very minor”. Fritzsche) Proposed by Thomas Donaldson and Thomas Dunfee. “I deserve certain rewards. Provide a safe workplace 4 . “This is the last time I will do it”. beliefs and attitudes in society. Equal dignity Macro Social Contracts: Moral free space. it can be said to have done well. They are a convergence of religious. to justify doing something that’s ethically questionable. David J. The three components of the theory are: Hypernorms =universal values that impose certain restrictions on all business activities. normative theory for business ethics. Jan 2011 Ethics in Business . It allows for cultural diversity while maintaining certain universal norms. These must be decided in order of priority. since the system does not give me. “It will not be discovered”.
Values and Ethics in Organizations. While this is an improvement on the former stage. profits are sought at any cost and the achievement of goals is all that is considered in decision making and action. the values of purity. MMS. “rajas” or “tamas”. values (positive traits) and disvalues (negative traits) may be listed as follows: Values: Honesty. loyalty.K. envy. delusion and confusion reign in the mental and moral fibre of the individual. jealousy. fairness. sincerity. displays the above values and disvalues. vanity. Consistency. impatience. arrogance.Chakraborty in his book. a clear-headed and balanced approach to life and work is seen in individuals with predominantly “sattwa” guna.VESIMSR. where traits such as negligence. Accountability. kindness. generosity. Among others. forgiveness. anger. The ethical evolution of the corporate The ethical evolution of the corporate may be depicted through the following sequential stages: 1. hatred. Presence of “rajas” is determined by continual dynamic action linked to results. patience. gratitude. gentleness and sharing Disvalues: Jealousy. pride. it falls short of understanding and using the true principles of ethical behaviour. sincerity. The immoral or amoral firm – where might is right. accordingly. procrastination. deceit. often driven by motives stemming from disvalues such as greed. Justice. ethics) analyses personal inclinations and traits on the basis of which “guna” or basic human characteristic is predominant in the individual – “sattwa”. 2. hypocrisy. honesty. Loopholes in the law are merrily exploited. The focus of an organisation in this stage of ethical development is “Do what you have to but don’t get caught!” Post-facto analyses and rationalizations are often used to 5 . “Tri – guna” The Indian approach to values and their application (namely. generosity. though often not in spirit. arrogance. simplicity and contentment are indicative of sattwa. sycophancy Human values as applicable to business: Transparency. Slothful inertia points towards a “tamasic” temperament. serenity. dignity. vindictiveness. suspiciousness. Integrity. according to his predominant “guna”.Piya Mukherjee • Indian Approach: Values and “Disvalues” As analysed by Dr.S. Jan 2011 Ethics in Business . anger. greed. covetousness. forgiveness. Theory and Practice. humility. Each individual. humility. equitable behaviour. The law is followed in letter. Accordingly. It may be surmised that the teleological theory is at work in an organization operating at this stage. The legalistic firm – where ethics is equated to lawful conduct. forgetfulness.
The responsive and emergent ethical firm – firms at this stage grow increasingly conscious of their duty towards various stakeholders. The lawyer’s word is considered final and decisions are accordingly taken. All these elements are collectively called “stakeholders” of the business enterprise. the situation (normal business year or depression/ recession) and the stage of growth of the company Stakeholder Responsibility of an Organisation: The term can be described as “the ethical responsiveness of business to the members of its environment”. Decision-making is on the basis of justice. profits are tempered by the aim to serve the needs of the country / world. MMS. regulators and the general public.Piya Mukherjee condone unethical acts. Employees are routinely rewarded for refusing to act unethically. Not only are the prime stakeholders’ (shareholders. Basic human values. Here. regulators and the general public. Thus the SR of business is to ensure that its dealings with its stakeholders are ethical. The approach towards work is long-term in nature and from the macro perspective. The organization moves from the narrow “prime stakeholder-centric” paradigm to the “socio-centric” paradigm. All these elements are collectively called “stakeholders” of the business enterprise. employees.which represents the apex of ethical evolution in the corporate world. through distributors and agencies. there is an awareness of the need to work for social good in the long run. Jan 2011 Ethics in Business . as applicable to persons and companies. shareholders. employees and shareholders to be the three most crucial categories. in tandem with other members of the industry. depending on the industry. A ranking of stakeholders in order of importance usually reveals customers.VESIMSR. working for consumers and markets. financiers and suppliers. through distributors and agencies. in tandem with other members of the industry. 3. financiers and suppliers. The ethical firm . 6 . 4. they do change their positions. are articulated and nurtured. Inter se. Stakeholders of an organisation and their relative ranking: An organisation comprises a network of employees. An organisation comprises a network of employees. shareholders. fairness and profitability. customers) interests considered. working for consumers and markets.
7 .VESIMSR. Jan 2011 Ethics in Business . Society’s Interests Profits Wants of the Consumer For example. This apparently simple condition poses ethical dilemmas when one considers that the complexity of products and the consequent plethora of choices. is an ally or an obstacle to the layperson. – Richard De George Hence for marketing to be morally defensible. fulfilling of consumer wants and profits for the organisation. often hamper rational decision-making by the unassisted consumer. the above criteria should be satisfied. advertising. The question then becomes whether the contemporary brand of aggressive marketing.Piya Mukherjee Ethics in practice Analysing the application of ethical principles to the functional areas of Marketing. customers may want detergents that wash whiter. Finance. personnel management Production. the parties entering into it should do so freely and fully informed. and position its product to attract the discerning consumer. He proposes a balance of the troika of social interests. purchase Electronic transactions Marketing and ethics: For a transaction to be morally defensible. offered by marketers. MMS. but the resultant use of harsh chemicals in the detergent leads to higher water pollution. So an ethically aware company would include this awareness along with its usual marketing strategies. so popular today. • • “An organisation must satisfy society’s needs in a way that preserves or enhances the well-being of society” – Societal Marketing Concept of Laurence Feldman.
is desirable and ethically defensible. markets where there is no fraud or coercion and where the participants are adequately informed about the transactions. • An ethically inclined marketing manager would focus.Should conform to the stated specifications.unless they are accompanied by actual product changes (e. among other issues.Piya Mukherjee • According to Adam Smith.g. The company’s civic image may be one of the most potent customer preference builders”. “One fairly sustainable basis for differentiation (between competing companies) is the company’s civic character.g. where necessary Creation of barriers to availability of products (e. the illegal sale of pharma products that are supposed to be destroyed) Ensuring that products past their expiry date are removed from the distribution system and destroyed. on: • Product . without a real change in the product) Ensure genuine improvement / changes as claimed in ads and promotion schemes Place No artificial scarcities Transparent and consistent vendor development methods and franchising Control on distribution channel (e. a new colour / design on the package along with POP tools. mobile phone or credit card to be used for free entry into a shopping mall) PriceWhether the pricing of a product is ethical can be said after examining the following criteria: • Is the product a necessity or comfort good or luxury? • Is the product directly linked to human life and welfare? • Does the market have several sellers or is there a monopoly or oligopoly? • Is there a crisis situation (such as war) or are consumers living through normal times? • Is the product a pioneer in the market? • Is the product a pioneer and based on considerable Research and development? • What is the life cycle stage of the product? • What are the national and international norms regarding pricing of this product? • • 8 . Jan 2011 Ethics in Business .VESIMSR. MMS.g. in terms of quality and performance Minimize “bells and whistles” which the customer does not really want / need but has to eventually pay for . As the redoubtable Philip Kotler says in “The Organisation of The Future”.
the genuineness (of implementation) of promotion schemes Compliance with legislation Advertising and Ethics: Responsible and ethical advertising is fair. (eco-friendly packaging would be a further improvement) Promotion . Jan 2011 Ethics in Business . Moreover. There should be no deliberate loopholes in product guarantees and warranties. Rightful application of policies related to warranties. “Advertising leads to wastage of resources” – some believe that ads simply add to the selling cost of the product.Piya Mukherjee • Is there a cartel or does the market offer a level playing field? Are there barriers to entry? Is there dumping by other nations? Also: Discounts. the correlation between higher ad spends and higher sales is not very clear. an • 9 . Overall consumption in the economy may also be increased and shifting of choices. such advertising aggravates the “use-and-throw” lifestyle that is socially and ecologically harmful. Though it is not denied that ads do convey information. buy-back and “sale” should be authentic. does not deliberately mislead. defective products should not be knowingly clubbed with good ones. the elements of exaggeration. buy-backs and after-sales service should be enforced. hype and aggression do add to the vicious circle of reenforcement of materialistic ambitions at the cost of personal growth. Statistically. on the basis of advertised product information. Others contend that ads simply tap the existing sentiment of the consumers and that consumers will change their attitudes and habits only when they are willing to do so. MMS. • • • Packaging . accurate. does not offend public sentiment (is not in bad taste). are other aims. is aggressive without running down the competitor/s and does not use deceptive testimonials or “bait words” and intends to dissuade viewers from hazardous acts through adequate warnings A Few Contentions on Advertising by Ethicists: • “Advertising debase public taste” – some believe that ads subtly inculcate materialism and make individual equate happiness with ever-increasing consumption. While ads do mirror real life aspirations.VESIMSR. truthful. without enhancing the value / utility in any way.adequate and factually correct labelling. Defenders say that ads transmit information on the nature and availability of products.
Subliminal ads too circumvent human reasoning. as the consumer simply “blocks out” these ads as “white noise” (e. should be at par with stated objectives of company. this can be countered with market savvy tactics. and acceptable to prime stakeholders No laundering of money through sister companies No personal misuse of corporate funds 10 . ads with misleading words. word-of-mouth campaigns. This means the consumer is lured to purchase what the advertiser wants him to purchase not something that is necessarily good for him. to make him desire their product. • • Finance and ethics Ethical issues are linked broadly to the following aspects of corporate finance: • • Raising resources legitimate source Legal and fair process. the impact of cable television with ads on colas. or is not appropriate in his milieu (e. on viewers in rural markets.Piya Mukherjee overdose of visual or aural stimuli in the form of ads becomes counterproductive. • “Advertising leads to the creation of entry barriers” – this refers to the huge ad campaigns mounted by financially strong companies. repeated ads for a product. deceptive mock-ups. ads that copy famous brands or logos and ads that disparage competitors.VESIMSR. MMS. The ad spends on such advertising are thus a wasted selling cost. “Advertising is often deceptive” – perhaps the most common grouse of ethicists is that ads are often deceptive. as companies with smaller financial strength find themselves unable to penetrate a market dominated by a large player. bait ads. even when it is clear that the product will not improve the quality of his life. who may move towards inappropriate spending on such products). no misrepresentation Deployment of resources end-use of funds should match pre-determined purpose of raising them Level of risk taken. ‘Advertising manipulates human desires” – proponents of this statement believe that ads cleverly manipulate the psyche of the consumer.g. However. involving untrue / misleading testimonials. during a live telecast of a popular sports tournament). such as POP promotions. The counter argument is that supply creates its own demand. This is treated as violating the individual’s right to being treated as a rational person. This may lead to a reduction in market competition. shown at frequent intervals. Jan 2011 Ethics in Business . that may block all media space and thereby stop entry to a newer market entrant. competitive pricing and so on.g.
Some of these involve: • The CEO will personally have to testify to the accuracy of the annual financial statements. contingent liabilities) GAAP Internal norms and audits must encourage honesty. Jan 2011 Ethics in Business . exceptions to be minimized • Fair hearing (formal and informal) to be given to any aggrieved parties in a dispute • Norms. not merely to large. to be adhered to by the top management • Employee-friendly systems (e. but also to minority stockholders • • Since the passing of the Sarbannes-Oaxley Act in USA in July 2002.g. job fit. certification norms and the rules of this act. non-discriminatory policies to be created. institutional stakeholders. mentoring. not deviousness Payment of taxes and Charges timely and accurately Communication of financially-sensitive information to the market – to be done on a consistent basis. consistently communicated and enforced • Decisions to be in synch with stated policies. no window dressing of the Balance Sheet (e. MMS. Future re-casting of these statements could mean imprisonment for the CEOs and CFOs. through revaluation of assets) Treatment of special accounts (e.VESIMSR. Personnel management and ethics Basic guidelines: • Fair. deferred revenue expenditure. Pay and perks. newer and tighter norms for transparency and accountability have come into force in the international scenario.g. safety 11 . working conditions. Recruitment.Piya Mukherjee • Accounting consistency Transparency. counselling) to be created and practised Ethical issues related to personnel and human resource management usually pertain to the following areas: 1. induction 2.g. especially of integrity. • Companies listed on the NASDAQ with headquarters and operations not in USA will also have to follow listing norms.
vendor and distributor (merit based choice) • Use of clear and consistent policies while transacting with them • Transparent bidding and tender system • Determining prices and rates on commercial bases (no cartelisation) Evolution of Ethical Thought 12 . Promotions. if need be. for product modifications • In the case of hazardous products. incentives. transfers.VESIMSR. redressal of grievances. Appraisals and training 5. Jan 2011 Ethics in Business .g. dealer. customer complaints regarding non-performance of the product must be considered. use of “six sigma” process) • Quality checks should be sufficient in frequency and stringency • Potential defects must be addressed before launch of the product. regulations pertaining to quality must be strictly adhered to For purchase and distribution: • Integrity in the choice of supplier. trade unionism 6. voluntary retirement schemes Purchase. production. MMS. job rotations 4. durability and performance norms must be more than adequately met (e. collective bargaining. Discipline enforcement. at the drawing-board stage. Administration of benefits. quality and ethics The production and operations-related areas of management are linked to ethics in the following ways: For production: • The product or service must conform to its stated specifications • Safety.Piya Mukherjee 3.
Jan 2011 Ethics in Business . teleology and deontology. The means are not considered significant in the ethical analyses.which focuses on the benefit of the final results. existentialism A few ethics-related concepts from the Vedas. (“Telos”. at the cost of desired goals. Hence the Theory of Existentialism is focussed on individual behaviour that profits all people concerned. “The world is one family” extends the above concept into the realm of day-to-day decision making in the family. Proponents of this theory opine that the former causes the individual to act as per individual passions and inclinations (especially hedonism) while the later might lead to a slavish adherence to rules.Piya Mukherjee • • Teleology and deontology. In Greek. and “What is good for me is ethical for me” • Deontology:. MMS. • Indian Approach: Some Useful Concepts: • Vasudaiva Kutumbakam This concept.which is aimed exclusively at the benefit of the decision-maker / leader. This approach leads us to the maxim: “The greatest good for the greatest number” Hedonism . Existentialism: Traditional western theory on ethics begins with an understanding of the following approaches to ethics: • Teleology :. community 13 . The two prime tenets of this theory are: freedom and responsibility. the Upanishads and the Mahabharata Teleology and Deontology.VESIMSR. Hence this stands for a means driven theory and is usually supported by religious thinking. The purpose of the action is all that is seen. which means.This theory believes in an act being ethical if the ends obtained are useful / beneficial / good. Existentialism: This theory emerged in Europe (primarily Germany and France) as an intellectual revolt against the limitations of both. in Greek. The limitation of this theory is that it is not concerned about ends. means ends or purposes) Two well-known offshoots of this theory are the principles of: Utilitarianism . than on the ends. “Deon” stands for duty.This theory places a far greater importance on the means. This approach leads us to maxims / opinions like: “Might is right”.
uncompromising degree of involvement and commitment towards the task on hand. anger. arrogance. This concept is of great importance to the manager involved with corporate governance and the rights of stakeholders. Slothful inertia points towards a “tamasic” temperament. MMS. displays the above values and disvalues. regulators and other stakeholders. employees. according to his predominant “guna”. honesty. generosity. ethics) analyses personal inclinations and traits on the basis of which “guna” or basic human characteristic is predominant in the individual – “sattwa”. The goals and the means are both given significance. a clear-headed and balanced approach to life and work is seen in individuals with predominantly “sattwa” guna. forgetfulness. An acceptance and assimilation of this concept often leads to ethically sound decisions. forgiveness. pride. Perfectly epitomised in the Mahabharata. sincerity. “rajas” or “tamas”. serenity. shareholders. jealousy. Perhaps this is best explained through the term “detached involvement” meaning a high. the values of purity. hatred. Each individual. Consequently. through the teachings of Krishna to Arjuna. selfless though sincere. envy. simplicity and contentment are indicative of sattwa.Piya Mukherjee and at the work place. covetousness. with the added element of tempered dynamism.guna The Indian approach to values and their application (namely. delusion and confusion reign in the mental and moral fibre of the individual. • Nishkam karma This helps in the sound understanding of the art and science of work. rather than what might fetch short-term rewards to the doer of the action. distributors. where traits such as negligence. Among others. accordingly. Presence of “rajas” is determined by continual dynamic action linked to results. kindness. since all persons affected by the decisions are treated as kinsmen and there is a sincere attempt to balance the rights and stakes of each person or group of person. with an equally sure detachment from the ultimate outcome of the work. procrastination. since it gives a sound foundation to the entire exercise that seeks to codify the duties of an organisation towards its customers. Accordingly. often driven by motives stemming from disvalues such as greed. the ego of the doer is not to link himself to the actual results of the work. This leads to a calm approach towards work. this important concept reminds the doer of the work to focus on the work alone and remain detached from the fruits of the outcome. humility.VESIMSR. yet. • Tri . Jan 2011 Ethics in Business . impatience. 14 . suspiciousness. Ethical behaviour is believed to stem from a predominantly sattwic temperament. suppliers. with a clear tilt towards what is best and desirable for all.
Moreover. since all energies are concentrated on work.Piya Mukherjee motives arising from negative states of thinking and feeling. This seemingly simple. This means understanding and working with the moral law of cause and effect (Doctrine or Law of Karma) . Ethical codes that are derived from this concept are thus invariably based on the idea that good leads to good and evil begets only evil. Society. stress finds no place in the life of such a manager. are nipped in the bud. nri rin (debt to humanity at large) and bhuta rin (debt to plants. Law of Karma (“Karma” here. which takes care of the rights of others. such as pride. yet amazingly foolproof system works as the law of conservation of moral energy. egoism. Individuals and Ethics 15 . Jan 2011 Ethics in Business . pitri rin (debt to the ancestor. clear-hearted attitude towards work. variables that may or may not ultimately affect outcomes are not allowed to contaminate the spirit of work. The five types of debts incurred by every individual at birth and throughout life are deva rin (debt to the gods and higher forces of energy). or an effect of past actions or both). rishi rin (debts to those who have taught the sacred). Acknowledging these debts accordingly leads to a selfless. • Panch Rin This explains how each individual has specific duties towards five categories of people / existence. animals and such living creatures). there is no mutual cancellation. vanity and a lust for power. instead of merely taking more from society. like effect • The effect returns to the source of the cause • Each cause produces its own effect. may be interpreted as thought. The focus is thus on one’s own duties and responsibilities.which has the following prime tenets: • A cause at present must produce some effect in future • An effect at present must have had a cause in the past • Like cause. Thus the concept seems to suggest working from the paradigm of giving back to society. word or action that is either a cause of subsequent actions. MMS. Thus the maxim “Do unto others as you would be done unto” finds relevant usage here.VESIMSR. owing to whom one has physical existence).
g. demand for bribe / grease money for transactions that are anyway supposed to be done as part of one’s work) 16 . I might as well do it”. he would seek to train himself further along the ethical dimension (and increase the sattwic element. monetary versus non-monetary and intangible forms of unethicality Victim type – can think of no solution to a dilemma that achieves the goal without compromising on principles.Piya Mukherjee • • • • Typical responses of the individual when faced with institutionalised unethicality. in a life and death situation and ignore the ethical dimension. monetary versus non-monetary and intangible forms of unethicality Principles for working around systemic obstacles – individual and collective Resolving ethical dilemmas – guidelines for the individual Whistle-blowing Typical responses unethicality: of the individual when faced with institutionalised The typical responses of the individual in such situations may be: a) Rationalizations – “Everyone is doing this anyway. Perpetrator type – chooses the unethical option / approach as it is seen to bring money / power / status or some such desired result. it must be clearly understood that an ethically sensitive person would never rationalize such a choice of action. or consequence. even at the time of taking the decision to deliberately do the unethical act. Jan 2011 Ethics in Business . holistic solution.VESIMSR. in spite of having ethical options within reach (e. he would bear in mind the fact that there would be a price to be paid in future for this deed. “This is too small a matter to discuss. would accrue to him. “One person cannot change the system” c) Indifference – “Everything goes”. very quickly. he is able to arrive at a healthy. if faced with a similar crisis. paying grease money at a hospital in an emergency) Yet. or clarity and purity in his thought. On the contrary. Moreover. and that he may not be able. so that next time. hence individual may choose to achieve results (say. word and deed). MMS. (e. at that point of time. to predict the manner in which this price.g. it isn’t a scam!” b) Resignation – “What’s the use?”. victim versus perpetrator type of unethicality. “Why should I bother if I am not directly harmed?” Victim versus perpetrator type of unethicality. “To each his own”.
Bribes. such as deception. What are my resources? – time available. Be willing to treat the exercise as a personal lesson in patience / determination / ingenuity. knowledge and experience.Piya Mukherjee Monetary type – this refers to unethical acts that are manifested in their currency-quantifiable forms. systemic unethicality must be steadily weeded out. Ideally. Work only if you are sure your motive is clear (i. theft. by engaging in such a process. denial of equal opportunities where warranted. Don’t assume people or systems will support you simply because you are working on worthwhile cause. coercion. the individual is in turn able to discharge his debts and obligations to the Universe. what would I like the situation to be / how would I want the issue to be resolved? 4. Checklist of questions for the individual / organizations: 1. support systems (this includes family. MMS. are nonmonetary and sometimes intangible in nature. nepotism. Be prepared for delays and obstacles. skills and talents. What is the specific issue I feel strongly about? (this would be an exercise in accurately identifying the specific unethicality that has caused a disturbance / dissonance in the individual or organization) 3. Jan 2011 Ethics in Business .VESIMSR. Non-monetary type – all forms of unethicality.. financial frauds and grease money are invariably in this category. unfair discrimination and their subsets like favouritism at the workplace. How best can I use my available resources (answer 1) to arrive at the desired goal (answer 3)? It may help to remember these… • • • Examine your own motives. friends. acquaintances who may help if need be) 2.e. when faced with systemic unethicality is this: sustained individual progress is impossible without the progress and well being of the environment. This will allow you to step out from the judgmental approach (“He / she / they should be doing this” “How dare they behave in this 17 . More significantly. finances. Principles for working around systemic obstacles – individual and collective: The primary rationale for working towards ethicality. you are not addressing an issue merely because you stand to gain). back-biting and so on. For the latter to happen. mental and emotional energy.
whistle-blowing needs conscience and courage Apparent dilemma – job loyalty versus whistle-blowing This gets sorted out when one realises the true definition of corporate loyalty. Hence the dilemma gets sorted out in favour of whistle-blowing. character defamation and loss of the job 6. Don’t act hastily – consider the consequences of the action on people’s jobs and so on 4.a brief look: Meaning of the term – making known to outside agencies. Have provable facts 2. First follow the usual channels of communication and hierarchy 3. remind yourself of these: “This too shall pass”. the actions or conditions in a firm which are illegal and / or harmful to the stakeholders of the firm. MMS. Such an approach will allow the process as well as the end result to gain quality. Why Ethics makes good business sense 18 . the industry and the competitors) Used when – individual values clash against low standard of organizational values Rules: 1. Get support from others.Piya Mukherjee • • way”) which invariably leads to frustration and loss of mental and emotional clarity and energy. Whistle-blowing . A note of caution – examine your own motives before blowing the whistle. don’t make empty threats that you cannot or will not carry out 5. transfers. When things are tough.VESIMSR. Types – internal (announcing to top management) or external (telling the media. Prepare to follow through till the end. namely. working for the best long-term interests of all stakeholders of the firm. Jan 2011 Ethics in Business . Let these and your direction for work be determined instead by what you think is the best way of reaching the most appropriate end result. Expect the worst – demotions. if possible At the individual level. Are you doing this for personal glory? As a measure of vindictiveness? To “get even” with someone? Or because you genuinely believe in setting something right? Only the latter gets a clean chit on the moral front. enthusiasm or drive. Don’t allow short-term outcomes to determine your morale.
leading to dissatisfaction after purchase. thereby reducing productivity and wealth. unfair discrimination and theft) impinge upon the above three conditions of an efficient market system. Consequently. Hence the need for ethical conduct.Piya Mukherjee An analysis from the macro as well as micro points of view • • • Common unethical practices and their adverse impact on the economy Trusteeship and the Gandhian principles of wealth management Wisdom leadership –Concepts from the Indian ethos Macro Perspective: Basic contention: Unethical behaviour harms the national economy by hindering genuine free market operations. deception implies that information available to the customer is not accurate but is misleading. dissatisfaction means that the resources allocated for production have been sub-optimally spent and that the market system is not functioning efficiently. national productivity and wealth are seen at levels far lower than the true potential for performance Common Unethical Practices in Business and the impact of some practices on the economy: 19 . bribery. MMS. Conversely.VESIMSR. All types of unethical behaviour (e. coercion.g. unethical acts are directly correlated to poorly functioning market systems. The market system (free market economy) calls for. deception. Hence. When such satisfaction is high. For example. the implication is that the resources spent on producing those goods have been well utilised. the following conditions: a) the right to own and control private property b) freedom of choice in buying and selling goods and services (implying competition) c) easily available and accurate information about these goods and services Goods and services are purchased to satisfy one’s needs and wants. Explanation: The market system of distribution of resources for production of goods and services in the national economy is considered more efficient than the command system. among things. Millions of purchases thus determine what goods and services are available in an economy. Jan 2011 Ethics in Business .
giving. stealing • Property may be physical or conceptual (e. Theft: • Taking of something that belongs to another. MMS. “ponzi” schemes) Deception reduces customer satisfaction. price collusion and cartelisation to create economic barriers to entry in a market. intellectual pilferage) • May be included to include a wide range of ethical transgressions (e. soliciting of something of value (money. using insider information. dishonesty in making and keeping contracts) 20 .VESIMSR.Piya Mukherjee • • • • • Bribery and tipping / “greasing” / paying speed money Deception Theft Unfair Discrimination Coercion Bribery: • Offering. Gift giving during Diwali). misrepresenting data pertaining to a fact/ situation • Common ethical transgression (e. falsifying / distorting research data. to influence the action of an official in the discharge of his / her duty • Given to influence official to favour the bribe-giver • Creates conflict of interest between the person receiving the bribe and the organisation • Difficult to determine intent of gift-giver when cultural norms allow for exchange of gifts during festivals (e. receiving. ‘creative’ accounting) • Ranges from a white lie to elaborate schemes to defraud people (e. kickback or other asset).g. intentional misleading by spoken / written falsehood.g. The gift works as a bribe if its nature or value is such that it attempts to influence the receiver • May be distinguished from “speed money” / “grease” which is given in the ‘normal’ course of work to speed up transactions Bribery leads to reduced quality of products /services (since something that is not sub-standard would have existed on its own merit) + increased costs (when the cost of the bribe is loaded on to the cost of the product / service) Deception: • Act of deceiving.g. service.g. product counterfeiting. misleading advertising. Jan 2011 Ethics in Business . misrepresentation of a product.g.
during transactions. Trust (in business) calls for two prime ingredients: . dependability and faith • It must be noted that ethical behaviour is a necessary but not sufficient condition for trust in relationships. as well as on a continuing basis in relationships) • Hence. Unfair discrimination: • Unfair treatment or denial of normal privileges because of their race. religion or other “group” criterion • A failure to treat all equally when no reasonable distinction can be made between those favoured and those discriminated against (Relevant criteria for discrimination usually includes merit.Piya Mukherjee Theft leads to increased costs. contribution to the firm) Unfair discrimination leads to increased costs as productivity ratios worsen.g. trust calls for ethical behaviour (between stakeholders. business needs the foundation of ethical behaviour A brief look at the dimension of trust: • Trust implies predictability. when direct force is used) or implied. as the legitimate users effectively end up paying for those who use the products / services but don’t pay. MMS. legal and constructive (e. Jan 2011 Ethics in Business . Coercion: • Controlling people by force or threat • Creates compulsions and constraints in behaviour • Could be actual. forcing a retailer to stock certain products.g. direct and positive (e. age . experience. if he wants to carry other products) • May be for a one-time transaction or a series of transactions in a business relationship Coercion leads to reduced quality of products /services + increased costs Micro Perspective: Basic contentions: • To function effectively.professional competence (skills) and fiduciary responsibility (values in application) • The dimension of trust gains prominence in the following relationships between the business and stakeholders: 21 . qualification.VESIMSR. sect. sex . business needs trust (in its transactions with all stakeholders) • In turn.
brand loyalty and goodwill for the company. Jan 2011 Ethics in Business . d) Suppliers and business – equitable handling of transactions leads to improved reliability in terms of quality and quantity of supplies. This ensures a continuing and steady source of funds. accountability and efficient financial running of the corporation leads to the nurturing of shareholders’ trust. belongs to society and the rewards accruing from their use must revert to society at large. The idea is that all wealth.Piya Mukherjee Ceteris paribus a) Customers and business – high levels of customer trust. in turn aiding the business in its performance. a healthy valuation of the share in the stock exchange and a high probability of garnering additional funds at competitive rates of return. covering up for unexpected loopholes in written contracts and bringing stability to the relationship Ethical behaviour with all these (and other) stakeholders assures the corporation of a reliable base for resources (people. c) Shareholders and business – transparency. Traditional take on wealth = tilted towards owners of corporations Therefore. financial and technological resources. won through transparent. MMS. Trusteeship and the Gandhian Philosophy of Wealth Management • • • Trusteeship = holding and managing resources on behalf of the stakeholders of the firm. by smoothening out negotiations.VESIMSR. e) Collaborators / partners and business – trust plays an extremely significant role in this relationship. low turnover of labour and speedier change management. customers and society on the same rung as large and small shareholders. trusteeship => element of equity. translate into sustainable profits and market shares. customers et al). fair and equitable policies. earned through consistent quality-price equations of products or services. low collection costs. ensure high morale and performance. b) Employees and business – employees’ trust. including human. placing other stakeholders such as employees. 22 • . funds. lesser time being consequently spent on quality checks and order processing transactions and better chances of procurement of supplies in times of scarcity.
Briefly. The increasing instances of ethical transgressions on the part of leaders and CEOs indicates the need for better balance in the risk-reward relationship. • The small investor has as much a say in decisions as the large investor. Thus the overall approach is towards the macro and the long-term perspective. would ensure efficiency as well as effectiveness. • “Trusteeship might lead to a disincentive for efficiency and efforts”: When individual and group efforts are correctly aligned with social needs. But the reward must be in proportion to the skills and expertise supplied. Moreover. these are: • Resources must be held and utilised for the benefit of society. 23 . in turn. coupled with the commitment of top leadership.VESIMSR. even if profits were to be the only determinant of policies. Jan 2011 Ethics in Business . • “Corporations exist for profits”: They exist to fulfill the needs of society and in the process. Conviction in the utility of the concept. the possibility of de-motivation or deliberate inefficiency does not arise. not merely maximizing shareholder value. goodwill and trust.Piya Mukherjee Principles: The principles of trusteeship can be traced to the concept of collective endeavour and community living. alignment of rewards with performance of company Intangible criteria of progress such as customer trust and goodwill given increasing importance Greater power with small shareholders • • Common protests against its application: • “The owner/s must be rewarded for bearing risks and supplying expertise”: Definitely. Old Model • • • • Pre-determined rewards to employees Sharing of wealth with shareholders Occasional forays into philanthropy Negligible role society in policy-making • New Model Stock Options for employees. leads to higher profits. since better wealth management automatically leads to more lasting and stable equations with stakeholders. • Managers are the trustees of the stakeholders and must work towards optimizing stakeholder value. generate profits. trusteeship would still score over inequitable sharing of wealth. MMS. This. rather than the short-term. micro perspective which is often geared exclusively to suit the shareholder and top management.
He will be a source of guidance even though he may or may not have formal authority. It is a very difficult task to take on the role of a leader. “What can I do to help everyone give their best in this process of meeting society’s needs and wants?” Thus it is seen that the organization serves society and the leader serves the organization.” Swami Vivekanand ”…The sixth level leader will be a servant leader. a leader then is the person who asks. It’s the spirit of service that’s the hallmark of servant leadership. A good manager will be one who serves others. The wisdom of this approach lies in the fact that such a leader will have clarity of perspective. whose prime objective will be helping everyone optimise their potential. never lose sight of the long-term in favour of the temporary shortterm scenario and will prioritise social and organizational welfare over personal preferences.” Stephen Covey “Dashasya Dasaha” : Organizations exist to serve society by meeting its needs and wants. Profits are made in the process and sometimes act as indicators of the effectiveness of this process. The Arthashastra of Kautilya and The Kural of Tiruvalluvar both describe the role of the king as trustee.Piya Mukherjee The Indian perspective: The wisdom of the Vedas and Upanishads point towards holistic progress. servant of servants and must accommodate a thousand minds. the cycle of give-and-take is explained at great length. 24 . Given that any organization stands for a group of people with a collective purpose. Jan 2011 Ethics in Business . One must be a “dashasya dasah”.VESIMSR. the only right he has is that to an honorable livelihood. The Gandhian philosophy of wealth management is based on the principle that a wealthy man does not truly have the right to hoard wealth solely for the self. including customers and employees. Wisdom leadership – its meaning and relevance: “Be the servant of all. hence he is one who is willing to be a “servant of servants”. Moreover. MMS. then you are a leader. There must not be a shade of jealousy or selfishness. and do not try in the least to govern others…kill self first if you want to succeed. not fragmented movement in which one section gains at a cost to others. with respect to the citizens and the wealth of the land.
MMS.Piya Mukherjee 25 . Jan 2011 Ethics in Business .VESIMSR.
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