6 : Business Ethics

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Fig. 1.2 Understanding ofBuslness Ethics

By what method do we decide on answers to questions of moralright and wrong in business? There is no special or unique process todo this, nothing more or less than is involved in any disciplined enquiryinto complex problems, whether in business or anywhere else.

We can subject this to three different kinds of tests.. Test of agreement with the evidence: Does the evidence

support or deny the explanation we have put forward? Example.we are arguing for the benefits of greater worker participationin the running of companies. what is the evidence thatemployees actually want such involvement?

Test of internal coherence: Are all the parts of the explanationin agreement with each other or is itself contradictory in someway? Does it say things which are somehow in opposition andso cannot be or are unlikely to be. equally true at the same

. time?

Example: We cannot accept the workers who are exclusivelyinterested in maximising wages and argue for the importance to themof an enhanced self esteem that would come from participation indecision making.

. Test of its compatibility (with our more general system inbelief): Does it fit in with what we generally take to be true inthis area or does it somehow contradict our assumptions. orat least test uncomfortably with them? How well. for example.does the claim that the workers are exclusively interested inmaximising wages. fit in with what we generally accept abouthuman motivation?

We attempt to solve ethical problems in much the same way as wewould solve any other complex and contentious questions. There is thesame range of test available and the same kind of critical relationshipto theory.

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1.6 Ethical Performance

Business frequently demonstrates a high level of ethicalperformance toa. Ethical business performance means adhering tosociety's basic rules that define right and wrong behaviour. The followingexamples reyeal the same.

(1) Johnson and Johnson protected its customers by recall1ngstocks of Tylenol capsules twice within 5 years p~riod whenpoison was found in some Tylenol bottles on store shelves.

(ii) Parker Brothers voluntarily withdrew its all time best sellingtoy wh~n it found that two children were choked to death byswallowing some of its parts which they never anticipated.

(11i)Even in India, HMT Ltd,; a reputed public sector undertaki~witl1drew all its milk separators supplied througn!ts dairymachinery unit. Aurangabad. when it found that one of themilk separators"lid at the customers end flew off while runningand hit the roof. No major accident took place, Owing to this.it withdrew all the separators supplied to the customers forre~checking and to ma}te design changes for some time, sothat the same should not be repeated, Later on, HMT replacednew separators to its customers. AU this was done only toregain the customers confidence in them. by incurring heavyexpep.ses.

,By doing jugglery like this, the companies have to spend millionsof rupees or dollars on recalls/resupply etc.

One of the major social challenges faced by business is to balanceethics and economics. Society wants business to be ethical andeconomically profitable at the same time.

The three terms used to define ethics are:

. Right

. Proper

. Just

and the question is "what is right, proper and just?"

These are highly important terms in the future, compared to thepast, as our economy is more competitive. the society is becoming morecrowded and technology is becoming more complex. These terms andquestions are important for any business executive who has to takemulti-decisions in ways that are beyond his own control.

The ethics of management is coined with the above tl1ree termsand the determination of what is 'righ(' 'proper' and 'just' in thedecisions and actions that affect other people -goes far beyond simplequestions of bribery. theft and coll'..lsion. Collusion is a secretagreement to deceive. ,~

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8 : Business Ethics

1.7 Ethics In Business

Allover the world. there is a growing realisation that ethics isimportant for any business and to achieve the progress of any society.Ethics give rise to efficient economy. It is not the government or lawwhich will protect the society. But ethics alone can protect it. Ethicsare good in itself. Ethics and profits go together in the long run. Anethically responsible company is one which has developed a culture ofcaring for people and environment, a culture which flows downwards.from the top managers and leaders. Ethics can be described as theconscious appeal to norms and values to which. on reasonable grounds,we hold ourselves obliged. as reciprocally. we hold others obliged to thesame norms and values, As a reflection, ethics are the methodical andsystematic elaboration of the norms and values we appeal to in ourdaily activities. Where these activities are organised under businessissues, we face ethics in the practical and reflective variety of businessethics.

On innumerable occasions. people in business are facing ethicalquestions in which a balance has to be found between the different andoften conflicting rights and interests of the parties involved. One mayeven say that the weighing of rights and interests, at stake indeterminat~ circumstances. constitutes the common domain ofbusiness ethics.

Ethical rules are guides to moral behaviour. For example: Allsocieties have ethical rules forbidding, lying. stealing. deceiving andharming others, similar to the other ethical rules that approve ofhonesty. keeping promises. helping others and respecting the right ofothers. These are the basic rules of behaviour which are of much usefor the preservation and continuation of organised life.

Most of the people find major source of ethical guidance and moralmeaning in religious beliefs and organisations. The family institutionis equally important as it imparts a sense of right and wrong in childrenwhen they grow up, as schools and other similar institutions likecultural associations and television etc. The totality of these exposureswill create in them a concept of ethics. morality and socially desirablebehaviour.

Ethical rules are present in all societies. all organisations and allindividuals. though they may vary greatly from one to another. What isconsidered ethical by one society may be forbidden by another society.One particular religious notion of morality may differ with others. Stillethics is a universal human trait. All people wherever they are. needrules to govern their conduct. rules that tell them whether their actionsare right or wrong. moral or immoral. approved or disapproved.

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1.8 The Common Domain of Business Ethics.

Majority of the business practition~rs and ethicists alike show agood and clear competence in handling more dilemmas. Experience

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Introduction to Business Ethics: 9 Gand reflection have taught them how to spot the ethical implications ofa given situation and how to approach them in an orderly way. 'Moralpoint of view' is to be adopted to track moral elements. adequately. Thisinvolves that one tries to determine the specific interests and rights ofall parties involved. Taking the moral point of view as the first moraldecision, one makes in a process of forming a moral judgement.

As an example, a young girl is suffering from neuro-blastom, theparties concerned are her parents, family doctor on one hand and theinsurance company on the other. All insurance companies might haveexcluded from their policies willingly or inadvertently. cases facing lethalillness of clients, similar to the one of the young girl. If equity is thebasic moral concept, one cannot accept a moral obligation in one case,and reject it in another that. in all re1.evant respects is similar to thefirst.

The morai core issue is to be determined in addition to two orthree possible core issues in a given situation. Once the core issuehas been identified. however. it is another thing to come up with a wellargued position to give good reasons. that is for a moral preference in'the case. The real. hard work of ethical analysis takes place ~ith theJoint effort of the concerned (preferably) who are in a position toinfluence the decision and with some support of ethical expertise ifrequired.

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1.9 Objectives of Ethics .The objectives of ethics are as shown in figure 1.3 below:

Study of human behaviour: Makes evalutative assessmentabout that as moral or immoral (a diagnostic goal)

Establishes moral standards/norms of behaviour

Makes judgement upon human behaviour based on thesestandards and norms

Prescribes moral behaviour; makes recommendations abouthow to or how not to behave (therapeutic goal)

Expresses an opinion or attitude about human conduct ingeneral.

Fig. 1.3 Ethical Objectives

(i) The primary objective is to define the highest good of manand set a standard for the same. Here we have to considerethics to deal with several interrelated and complex problemswhich may be of psychological. legal. commercial.philosophical, sociological and political in nature.

10 : Business Ethics

(ii) The other objectives are many. These are

Study of human behaviour: making evaluative assessmentabout them as moral or immoral (a diagnostic goal).Establishing moral standards and norms of behaviour.Making judgement upon human behaviour based on. .these standards/norms. .

Prescribing moral behaviour and making recommendationsabout how to behave or vice versa (therapeutic goal).

Expressing an opinion or attitude about human conductin general.

1.10 Nature of Ethics

The. concept of ethics deals with human beings only. Onlyhuman beings are endorsed with the freedom of choice.The study of ethics has become a set of systematic knowledgeabout moral behaviour and conduct; study is a science - afield of social science.The science of ethics is a normative science. Normativesciences judge the value of the facts in terms of an idea:concerned with judgements of 'what ought to be.' but not withfactual judgements.

Ethics deals with human conduct which is voluntary and notforced or coerced by persons or circumstances. Eg. Injuring oreven killing a person who has come to kill you is notconsidered a moral or legal offence. but a cold blooded murderis considered to be the highest kind of moral or legal crime.Ethics is basically an area dealing with moral judgementregarding voluntary human conduct.

Business ethics is nothing. but the application of ethics in .

business.

Business ethics can be, and has been, ethical and can stillmake profits.

More interests shown today in the application of ethicalpractices in business dealings and the ethical implications.

Profit maximisation and discharging of social responsibilitiesat the maximum limit cannot be done simultaneously as theyare at opposite ends. (eg. concern for task I.e., productivityand concern of workers).

By introducting advanced technology to replace occupationsof ageold inhabitants is an ethical dilemma. Many managerialdecisions have ethical implications and these decisions giverise to managerial dilemmas.

The nature of ethics is shown in fig. 1.4 which is self explanatory.

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. Voluntary;notforced orcoerced bypersons orcircumstances.(example:Injuringor killing a person whohas come to kill you Is not amoralor legal offence; A coldbloodedmurder is the highestkindof moral or legal crime)

. Deals withhuman beings onlyas they are en-dowed with freedomof choice andmeans of tree will.

. Human being can distinguishbetween good and evil, rightand wrong, just and proper. Human being can distinguishbetween the end he wishes topursue and the means to gainthat end. .. Only human being does thequestion of ethics, values andmoral conduct

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of thefacts In termsofanidealsituation.

. Conoernednot withfaotualJudgementsbut with judge-mentsof 'what ought to be'

. EthicsIs concerned with Judgementof value or what ought to be; seeksto determinethe nature of the normideal or standrds and seeks toenquire Into the fitness of humanBotlonsto this Ideal

. A set ofsystematicknowledge aboutmoral behaviourand conduct. A science -a

field of social science

Fig. 1.4 Nature of Ethics~

1.11 Sources of Ethics

Noone takes a course to learn business ethics. Ethics is a naturalmarket consequence of business as few ethics experts argue. Sixprimary sources of ethics have been identified in the Americanbusiness area by ethics scholars George and John Stever as under:(1)Genetic Inheritance

In recent years. socio-biologists have lots of evidence andarguments to suggest that the evolutionary forces of natural selectioninfluenc« the development of traits such as cooperation and alterationthat lie at the core of our ethical systems.

(ii) Religion

The great world religions as we have seen are:. Judaism

. Christianity

. Islam

The business people in these religions believe that their religionprovides them with eth~cal principles/standards. which can be appliedin business. The Jewish tradition and the Christian tradition referthe religious ethical teaching as the 'Ten Commandments' which arebelieved to have been divinely revealed as the will of God.

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Steiner and Steiner identifiedthree primary categories ofcodes. Company codes. Company operating

policies. Codes of ethics

V.The legal system 41

Law is an everchangingapproximatio~ of currentperception of right and wrong.Laws represent a roughapproximation of society'sethical standards

IV.Codes of Conduct..-. John Steiner refers to the

rules, customs andstandards transmittedfrom generation togeneration as guidelinesfor appropriate conduct.Individual values areshaped in large measureby the norms of thesociety.

I. Genetic Inheritance

. The qualities of goodness isa product of genetic traitsstrengthened over time "bythe evolutinary process

II. Religion. Religious morality Is clearly a

primary focus in shaping oursocietal ethics (through arule exemplified by the goldenrule and the tencommandments)

III. Philosophical Systems

. The quality of pleasure to bederived from an act was theessential measure of itsgoodness as per theepicureans. The stoics likethe puritans and manycontemporary Americansadvocated a discussedhardwoklng, thrifty life style.Suoh philosophies have beenInstrumental In our society'smoral development

Fig. 1.5 Six Primary Sources of Ethics

The Ten Commandments

These are one of the earliest recorded codes of conduct as found inthe Bible.

The ethical commands in this are:

. Honour your father and your lTIother, that you may have along life in the land which the Lord, your God, is giving you.You shall not kill

You shall not commit adulteryYou shall not st.:al

You shall not bear false witness against your neighbours

You shall not covet your neighbour's house. You shall not covetyour neighbour's wife, nor his male or female slave, nor hisox or ass, nor anything else that belongs to him.

Tradition in both cases - and reinforced for Christians by theteaching of Jesus - has come to view these commandments from Godas ethical principles which forbid doing anything to destroy or harmanother 'person's life or marriage or reputation or property'.

Religion can also include beliefs about God's other actions whichhave ethical implications. In the Judoeo-Christian traditit:>n: God is

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18 : Business Ethics~

1.12 Six Primary sources of Ethics in the AmericanBusiness are

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George and John Steiner,noted scholars have identified sixprimary sources of ethics in the American business arena. These arealready explained in fig. 1.14.

Fig. 1.8 stx Primary sources ofEthLcs aReligion

The religion is as explained in page 11-19.. Via a rule exemplified by the Golden Rule (or its variations in

many religions) and the Ten Commandments. religiousmorality is clearly a primary force in shaping ~Uf' societalethics

The applicability of religious ethics to the business communityis the concern

The question is all the more relevant since the Golden Rul! C1Jis not limited to western thought

Could the Golden Rule serve as a universal, practical, helpfuJstandard for the business persons conduct?

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Philosophical Systems

. To the Epicureans, the quality of pleasure to be derived fron 1.an act was the essential measure of its goodness. The stoics -like the puritans and many contemporary American!advocated a disciplined. hardworking. thrifty life style. Thesl ma:philosophers like other philosophers. have been instrumenta orgiin Qur society's moral development stre

The Legal System has. Laws represent a rough approximation of society's ethica indl.

standards. Thus. the law serves to educate about the ethica on tAmt

Six Primary Sources of Ethics

. The LegalSystem

. Religion

. Genetic Inheritance

. Philosophical Systems

. Code of Conduct

. Cultural Experience

Introduction to Business Ethics: 19 @;

causes in life. The law should not be treated ~s a vehicle forexpressing all of society's ethical preferences.

Codes of Conduct

Steiner and Steiner identified three primary categories of suchcodes:

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Company codes, ordinarily brief and highly generalisedexpress broad, expectations about its conduct.Company operating policies often contain an ethicaldimension. Express policies as to gifts, customer complaints,hiring and other decisions serve as a guide to conduct and asa shield by which the employee can protect against unethicaladvances from these outside the firm.

Affirmative ethical principles of the American Institute ofCertified Public Accountants: Many professional and IndustryAssociations have developed codes of ethics as above. Codesof conduct seem to be a growing expression of the businesscommunity's sincere concern about ethics. However the utilityof such codes remains unsettled.

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Genetic Inheritance

. As already said in page II, Socio-biologists .in the modern agehave amassed persuasive evidence and arguments suggestedthe evolutionary forces of natural selection influence thedevelopIT1ent of traits such as cooperation and altruism thatlie in the core of our ethical systems.

Those qualities of goodness often associated with ethicalconduct may in some measure be a ,product of genetic traitsstrengthened over time by evolutionary process.

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Cultural Experience

. Steiners refer to the rules, customs and standards transmittedfrom generation to generation as guide lines for appropriateconduct. Individual values are shaped in large measure bythe norms of the society.

1.13 A Model of Ethics-A model of ethics is presented below in Fig. 1.7. Ethics consists of

mainly two relationships as indicated in the figure. A person ororganisation is ethical. if these relationships (combined together) arestrong and positive.

The Time magazine article has said "large sections of the ethical roofiitghas been sagging badly from the White house to churches, schools,industries, medical centres, latL'J irms and stock brokers - pressing downon the institutions and entLi ;)rises that make up the body and blood ofAmerica." .

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Fig. 1.7 A Model of Ethics

Everyone makes ethical decisions or unethical decisions everyday.

Example

. Too many changes in the work - you may not tell your assistantall the changes.

Professors may err in your favour in computing your grade.CEO may favour one of his assistants who is less experienced.with only one time contact and on the impression he gets andsends him abroad on an important assignment. neglectingother experienced capable personnel.

Minor private decisions are unimportant. But decisions in smallmatters tend to set a pattern for the more important ones you maymake as managers.

A multi-industry survey conducted at USA indicated that 40% ofthe managers said that their superiors had at some time told them todo certain things unethical. Despite the ambiguity. ethics appears tobe moving up in the corporate priority-list. Many of the companies haveintroduced codes of ethics. Industry associations adopt such codes. thenrecommend to members.

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Refer figure 1.7. The sources of ethical guidance should lead toour beliefs or convictions about what is right or wrong.. People have aresponsibility to avail themselves of these sources of ethical guidance.Individuals should care about what is right and wrong and not just beconcerned with what is expedient. The strength of the relationshipshould be between what is right and wrong and not just be concernedwith what is expedient. . .

The strength of the relationship between what an individual or anorganisation believes to be moral and correct and what available sourcesof guidance suggest is morally correct is "Type I Ethics."

E.g.. A student copies in the examination. though every onecondemns this practice. This student is unethical. but perhaps only ina type I sense (Here the student believes it is acceptable to copy anotherstudent's paper in the examination).

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