BUSINESS ETHICS & VALUES

MBS - 106

UNIT 3

Lecture -7

• Understanding the Purpose of Organizations

• Moving towards holistic and sustainable organizations

CASE

• You have been offered an entrepreneurial opportunity that promises 50 percent return per annum .It involves an arrangement with some one who provides dentures saved from cadavers which a new dental technology would use for permanent teeth implants. The dentures which would normally be burnt or buried and therefore be wasted , can now be put to lucrative use.

Can you come to a consensus on the following Issues:

1. Is there anything wrong with the proposal?

2. If you feel uneasy ( even in the business sense) what is the basis of the unease?

3. Would it be important for you to know how the dentures are sourced? And why ?

4. How would you deal with religious sentiments if any ?

• Issues of what can be traded for money?

• Goods, services, sentiments , human beings !

• Are means important when do a commercial transaction?

• How and who will you decide if the dentures can be excavated.\ exploitation of poor

What is Business

• Is it a form of exchange involving goods , services and money based on equity? Then what is equity?

• A means to generate wealth? For whom?

• Are there any right or wrong means for the exchange? Why ?

• Is business an end in itself ? If Yes then why?

• Or is it a means to an end ? What is that end profits or some thing else ?

Relationship between Business ,Organizations Environment and Individuals

Organization & Business

• Organizations are new form of collectives engaged in economic activity ,that have emerged in the process of modernization .

• Their nature is quite different from traditional forms of collectives : family, village ,tribe and society

( Modernization subsumes forces of Scientific Revolution, Industrial Technology and Capitalist Free Market Economy)

• The scientific revolution has lead to values related to large and big (economies of scale); and salience to rational and secular values

• Information Technology has empowered people and organizations for the purpose of monopolistic and aggradizing self growth

Based on their purpose, organizations can be classified as:

• For-profits private enterprise

• Governments and social enterprise

• Nonprofits (NGOs) and disadvantaged

Economic Structure

FAMILY ORGANIZATION

1. life long membership that is unconditional

2. Biological investment

3. Relationship have divine sanctity ( sexual and filial )

4. Hierarchy depends on age and social status and is nurturing

5. Resource allocation is based on needs ( social and otherwise )

6. Goals are non material

7. Sustainable

8. Shared values & collaborative

1. Temporary with easy exit based on certain conditions

2. Investment is material and performance

3. Secular and contractual

4. Hierarchy is power driven and transactional

5. Resource allocation is based on material and sweat

6. Goals are material ( business)

7. Not sustainable?

8. Diversity & Competitive

Vulnerabilities of Business Organizations

• Remoteness of relationships- physical and emotional

• Inequity caused by differences in objective power-material and positional

• Majority rules at the cost of minority

• Governed by transactional value frame which increases instability

• Forces compartmentalization of psyche

Negative Outcomes

• Discrimination

• Exploitation

• Greed

• Prejudice & Bias

• Stress

Ethical Issues

• Hiring, Promotions, Discipline & Discharge and Remuneration

• Reorganization, Rationalization & Redundancy.

• Unions Tactics, Health & Safety

• Mergers & Acquisitions, Insider Trading, Financial Statements

• Discrimination -Gender ,Caste ,Sexual Harassment

• Product Safety, Price, Packaging & Labeling and Unfit Advertising

• Bribes & Kickbacks; Gifts & Entertainment ;Whistle Blowing

• Environment-Pollution ,Animal rights, forests etc

Need for Business Ethics

• Code of Conduct ( Articulation)

• Shared attitudes and values ( Culture)

• External agency ( Laws and regulations)

• Motivational agency ( Leadership)

Sustainable Organizations :Sacro -Secular Symbiosis ( S. K.Chakraborty)

• The purpose of business is to generate means ( ARTHA) for the fulfillment of wants , needs and desires ( KAMA) through right means ( DHARMA)

Rig Veda ( 3000BC or earlier)

Let a man think well on wealth

And strive to win it by the path of

Law and Worship:

And let him take counsel

With is own inner wisdom

And grasp with spirit still greater ability.

Oh God! bestow on us the best treasures

The efficient mind and spiritual lustre

The increase of wealth and health of body

The sweetness of speech and fairness of days

( Translated by A C Bose)

Kautiyla in Arthasashtra ( 300 BC)

• The term ARTHA has a broader sense beyond personal wealth and refers to state management of economic activity through governance .

• The king shall be ever active in the management of economy as in the absence of fruitful economic activity both current prosperity and future growth will be destroyed .

• Guidelines for foreign policy, taxation, revenue generation budget etc

Bhagavada Gita

• We have a reciprocal relationship with Devas ( Cosmic and powers of nature) – fostered by sacrifice they foster us with abundance and enjoyment .

( 3-10, 3.11 & 3.12)

From the West R. H. Tawney ( 1926)

Societies ----must rearrange its scale of values. It must regard economic interests as one element in life ----the instrumental character of economic activity is to be emphasized by its subordination to social purpose for which it is carried out .

P.A. Sorokin ( 1962)

• “The widespread notion that an improvement of economic condition necessarily leads to corresponding ennoblement of human conduct is largely a myth”.

E. F. Schumacher ( 1997)

The hope that the pursuit of goodness and virtue can be postponed until we have attained universal prosperity and that by single-minded pursuit of wealth , without bothering our heads about spiritual and moral questions , we could establish peace on earth , is an unrealistic , unscientific and irrational hope .

W. Rowland( 2003)

Progress is on the march. At the same time there is undeniable melancholy at the core of it all. Some thing seems amiss. For one thing we are making a mess of the planet. For another , the eternal goal s of justice and equity seem to be receding , and at an accelerating rate. Not just progress but meanness, obsessive self interest , callousness towards others increasingly reflected in our public institution , seem to be on the march. Mental Illness and Spiritual malaise are endemic.

Ideological Shifts

DUALISM

• Darwin's Theory of evolution

• Newtonian – Cartesian deterministic -mechanistic

• Logical positivist –scientific rational

• Freud & Pavlov legacy

• Existentialism & neo existentialism

HOLISM

• Taoism

• Vedas & Upanishads

• Zen Buddhism

• Quantum physics

• Nano Technology

• Biomedical & ecological frameworks

DUALISM HOLISM 1. Inherently weak- to be

conditioned and controlled

2. Survival of the fittest –competition\ Aggrandizing

3. Hostile environment –Overpower & Exploit

4. Hedonistic : consumerism & materialism

5. Mind -Body duality - Stress

6. EXCLUSIVE GROWTH

1. Innate potential to be discovered and nurtured.

2. Reciprocal interdependence-collaboration

3. Nature is to be nurtured

4. Going beyond sensual and material gratification

5. Unity of body , mind & spirit

6. INCLUSIVE GROWTH

Milton Friedman

• 1976 Nobel Prize Winner in Economics has been one of the most effective advocates of economic freedoms and free enterprise

• An advocate of limited government his theory asserts a corporation's primary and perhaps sole purpose is to maximize profits for the stockholder.

• The Nobel Prize winning economist Milton Friedman argues,

“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

Milton Friedman’s argument

Economist, Milton Friedman says:

“The social responsibility of business is to increase its profits.”

“What does it mean to say that "business" has responsibilities? Only people can have responsibilities.”

“…in a free society there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Milton Friedman- Rationale

–Stockholders are the owners of the corporation, and hence corporate profits belong to them.

–Corporate executives are the stockholder's agents and must operate in the interests of their principle (stockholders)

–This does not allow donations to charity by the corporation (corporate executives) because the income belongs to the stockholders, not the corporate executives.

– Individual proprietors are different in that if they choose to spend the income generated by their business they are spending their own money, not the money of other people.

Milton FriedmanStockholders/Stakeholders

– Stockholders are entitled to their profits as a result of a contract among the corporate stakeholders.

– A stakeholder in this context refers to employees, managers, customers, suppliers, the local community, and the stockholders.

– Each stakeholder group has a contractual relationship with the firm, since they receive the remuneration they freely agreed to in a pre-established agreement (contract).

• To what extent you agree with Friedman's arguments ?

• Are they fair?

• Why?

Charles Handy constructs a compelling argument that businesses have a moral obligation to move beyond the goals of

maximizing profit and satisfying shareholders above all other stakeholders.

Charles Handy’s Argument

“I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we . . . inevitably conclude that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately— they make a contribution to society, a phrase which sounds trite but is fundamental.”

Dave Packard, co-founder of Hewlett Packard:

“The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”

Archie B. Carroll, 1979

• The economics of survival require each entity to produce the results that generate the donations, taxes, or profits needed to operate.

• At the same time, these results must be attained by methods that are deemed acceptable to the larger society.

Organizations face constraints on their methods and results

• Although businesses exist for many reasons, survival depends on profits—which depend on revenues that only come about through customers, who are satisfied with the value the firm offers through its competent and motivated employees.

• The pursuit of profits, however, is so broad a mandate that it offers little guidanceabout where to begin or what to do.

The Pursuit of Profits

• Which stakeholders and what issues matter under the broad heading of responsible organization?

• The simple answer often depends on the for-profit’s strategy.

The problem that a firm’s decision makers face is simple to state:

A firm’s set of core competencies differentiate it from its competition and allow it to sustain a competitive advantage

Competing Strategy PerspectivesThe Resources Perspective

The industry perspective focuses on the firm’s operating environment (in particular, its industry) as the most important determinant of competitive advantage, shaped by: Five competitive forces in Porter’s model:

o suppliers

o new entrants

o industry rivalry

o buyers

o substitutes

Competing Strategy PerspectivesThe Industry Perspective

The ideal vehicle for the integration of CSR and strategy is a multi-stakeholder perspective

Competing Strategy PerspectivesA Stakeholder Perspective

“A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization’s objectives.”

R. Edward Freeman

Competing Strategy PerspectivesA Stakeholder Perspective is gaining ground

“The stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.”

Post, Preston, and Sachs

Competing Strategy PerspectivesA Stakeholder Perspective

The concentric stakeholder circles of:

• organizational

• economic

• societal

Prioritizing Stakeholders

Figure 2.2: A Stakeholder

Model

Globalization

Technology

Organizational Stakeholders

Economic Stakeholders

Societal Stakeholders

• Only 17 percent of Americans rate business executives’ ethics as high or very high, down from 25 percent a year ago, according to a Gallup poll sponsored by CNN and USA Today

• Some 59% [of college students polled] admit cheating on a test (66% of men, 54% of women). And only 19% say they would report a classmate who cheated (23% of men, but 15% of women

What do Stakeholders Think?

The rise of Sustainable Organizations

Research has led to the Sustainability Pyramid, identifying qualities associated with highly successful sustainability strategies.