Ethics should be distinguished from ‘prudence’ (self-interest narrowly

defined), ‘legality’(following the law in letter and spirit) and professional

guidelines and codes of conduct.Ethics is more than that and fills the

gaps in perception and pronouncements.

Value Based Decision Making

Management by Values There are four major rationales used by professional

managers to justify unethical behavior ( not paying heed to values)

1. Belief that the activity is within the reasonable ethical and legal limits– not really illegal or immoral

2. A belief that the activity is in the individual’s or organization’s best interest

3. A belief that the activity is safe and would not be found out or publicized

4. A belief that the activity helps the organization and the management will condone even when detected.

Organizational Traps- why we ignore ethics in corporate decision making?

• We are social animals and our judgments are influenced by environment

• The judgment of some is influenced by (i) the desire to please others, (ii) to avoid conflict, to be in step with others and avoid future criticism

• Groupthink has a potential side effect of strong team identity and strives at consensus

• Problems generate undue optimism. Responses to be on factual basis.

• Groups decisions are generally more acceptable than individuals.

• The ethical value system of the members of the group could be at wide variance

Smart and Ethical Decision

• Improved decisions by the employees at every level can have a major impact on the value of the business. Even small improvements make a big difference

• To improve decisions, adopt a rational decision process, train personnel to use the process and the tools, and improve implementation of the process through repeated use.

• When introducing a new decision process, start small and expand the process as it demonstrates its value. Enlist top management support, but localize control and responsibility

• Encourage improvement and value added judgment.

Rationality Flowchart (Value Based)

The problem is clear and unambiguous A single well defined goal All alternatives and consequences are known Preferences are clear and (value) based Preferences are (ethical) stable and constant No time or cost constraints Final choice will (optimize) maximize economic payoff

Lead To

Value based Rational Decision Making

Current Management Thought

ManagerSubordinatesPeers / Suppliers

Technology Resources Profits sole criteria

Value Based Management Thought

PeopleProducersConsumers

Ethical action(CSR)

Technology & resources

Profits with joy

Value based management looks at the concept of management differentlyand may be defined as ‘a series of ethical actions done by people, usingtechnology and resources, to achieve a state of joy and happiness in theminds of both producers and consumers’.

Ethics built into the decision making process

Ethics said to be important but not institutionalized

Problem of ethics recognized after the decision is made; Ethics briefly considered but considered irrelevant

No consideration of ethics at all

Organizational Types based on Ethical Consideration

Value has been defined as ‘that is desired’. It has reality only in its fulfillment, and therefore, needs to be actualized before it can truly become value (instrumental). It is not always the end results, but also the means to realize it (intrinsic). Value based actions and decisions ensure the welfare of all people belonging of the society.

A set of basic values can help people to make decisions even in the face of uncertainty and in new situations that he has never encountered before. Values enhances the quality of life of the individuals and the society.

For the last 1000 yrs, man has attempted to establish the ethical value systems to regulate their conduct; none of them are perfect.

Value Analysis

The Ethical Theories

• Ethics is a normative study, that is, an investigation that attempts to reach normative conclusions. It aims to identifying good or bad or right or wrong.

• There are different normative perspectives and principles that often contradict each other. In organizational context we can identify some of the ethical theories that have an impact on the manner in which ethics or lack of it could be identified in a business organization.

Normative Theories

Consequentialist –TeleologicalUtilitarianism

Non consequentialist –DeontologicalUniversalism

Egoism

Kantian theories

Classification of Normative Theories

Teleological Theories - (Utilitarianism)

• Actions are justified by the virtue of the end they achieve, (concept of goodness is fundamental in teleological theories) rather some features of actions themselves. Also referred to as “Utilitarianism”, our obligation or duty to perform in any situation will be guided by the result in the greatest possible balance of good over evil. (Ethics of welfare)

• Advantages: They are in accord with our ordinary moral reasoning and are relatively precise and objective for moral decision making. (Speaking the truth, honoring the contract, giving away the food for some other person to the beggars).

• Disadvantages: The concepts of rights and justice pose a difficult challenge (rights of free speech, donations to the orphanage vs the money to be spent on your own children)

The Two Giants of Utilitarianism• Jeremy Bentham version relates that the consequences be

measured in some way (pain or pleasure) and arrive at a mathematical figure. For this he outlined a procedure called the hedonistic calculus. Called as ‘pig philosophy’ as it failed to differentiate between the levels of pleasure (fulfillment of hunger, friendship aesthetic enjoyment). Stretched a little it would say “It is better to live the life of a satisfied pig than that of a dissatisfied Socrates”

• John Stuart Mill brought the concept of quality into being and claimed that human beings are capable of enjoying higher pleasures than those experienced by swine. He concluded better to be Socrates dissatisfied than a fool satisfied. And if the fool or the pig, are of a different opinion, it is because they know only their side of the question

Problems of calculating utility

• Classical utilitarianism requires that we be able to determine the amount of utility (pleasure minus pain) both for the individual as well as for the whole society. A difficult job indeed. The methods could be used as CB analysis, assigning monetary values to the parameters, should all values be monetised, and ancillary considerations (requirements of the analyst).

• However, Utilitarianism is a powerful and widely accepted ethical theory that has special relevance to problems in business. Not only does it enable us to justify many of the obligations of individuals and corporations, it also provides strong foundation for rights and justice

Egoism

The view that associates morality with self interest is referred as egoism. They assert that all actions are motivated by self interest and there is nothing like unselfish action. To them even the self sacrificial acts like whistle blowing is either to take revenge or become a celebrity. The criticism are:

• Egoism as an ethical theory is not really a moral theory at all (subjective self interest)

• Is not a sound theory in as much as it assumes that all actions are motivated by self interest (ignores the intrinsic goodness of human beings)

• Ignores blatant wrong doings (does not take clear stand against corruption, bribery etc)

Deontological Theories - (Universalism)• Two people give large sums in charity – one to impress his

friends and the other out of genuine concern to alleviate sufferings. Deontologists generally hold that the rightness of actions depends wholly on or part of the motives from which they are performed and not the consequences implying categorical imperatives (act according to the maxim which you think should become universal, treat humanity with respect) and not on hypothetical imperatives (if you want to improve your serve, work hard).

• All moral judgments must be universalizable (what is good has to be good for everybody unless under excruciating circumstances). This insists that we must be consistent in the judgments that we make. (Tax evasion – what if everyone did that?) The primary difficulty with this approach is its inflexibility

Kantianism

Immanuel Kant (1724 – 1804) is widely regarded as the most pragmatic business ethician in modern times. He said that for an action to be morally worth it should reflect goodwill. By goodwill he meant the unique human capacity to act from principles, must not be sought in the nature of man or in the circumstances in which he is placed, but sought a priori solely in the concepts of pure reason.

For Kant, reason is the final authority for morality. Blind beliefs or rituals cannot be foundations for morality. No matter how much good it might result from the act, lying is always wrong. The two corner stones of this theory are:

1. To act only in ways that one would wish others to act when faced with similar circumstances

2. Always treat other people with dignity

Virtue Ethics

• Aristotle described ‘virtue’ as a character trait that manifests itself in habitual action. Honesty, for example, can not consist in telling the truth only once. It is integrally related to practical wisdom – is the whole of what a person needs in order to live well – as a trait of character that is essential for leading a satisfying life (amassing wealth and power through ruthlessness or a successful life of crime and lechery be considered virtuous?). Aristotle lists justice among the virtues. A virtuous person not only has a sense of fair treatment but can also determine what constitutes fairness.

• The virtues are not merely means to happiness but are themselves constituents of it. Happiness does not consist solely on what we get in life but also includes who we are. (joy of parenting comes out of parental traits)

Virtue Ethics in Business

• The role of ethics is to enable us to lead successful and rewarding lives – the kind of life we call good life. The good life in Aristotle’s sense is possible only for virtuous persons – that is, persons who develop the traits of character that we call virtues.

• Virtue ethics could be applied to business directly by holding that the virtues of a good businessperson are the same as a good person. However, business people face situations that are peculiar to business and so they may need certain business related character traits

A Classical Example

• In the Indian epic Mahabharata, on the eve of the battle that is the central episode of the epic, the invincible warrior, Arjuna, expresses his profound doubts about leading the fight which will result in so much killing. He is told by his advisor, Krishna, that he must give priority to his duties, that is to fight, irrespective of the consequences. That famous debate is often interpreted as one about deontology versus consequentialism (utilitarianism), with Krishna the deontologist, urging Arjuna to do his duty, while Arjuna, the alleged consequentialist, worries about the terrible consequences of war.

Niti and Nyaya

• Niti stands for organizational propriety and behavioral correctness while Nyaya stands for a comprehensive concept of realized justice.

• A realization focused perspective highlights the importance of the prevention of manifest injustice in the world, rather than seeking the perfectly just.

• When people agitated for the abolition of slavery in the 18th and 19th centuries, they were not laboring under the illusion that abolition of slavery would make the world perfectly just. It was their claim, rather, that society with slavery was totally unjust. It was the diagnosis of an intolerable injustice in slavery that made abolition an overwhelming priority, and this did not require a consensus on how a perfectly just world would look like

A Practical Guide – Niti vs Nyaya

• In the battle of Mahabharata, Arjuna is concerned not only about the fact that, leading the charge on the side of propriety and justice, a lot of people, many of whom he has personal relations with and of the same family would get killed. His worries goes well beyond the process independent view of consequences. An appropriate understanding of the social realization – central to the justice as Nyaya – has to take the comprehensive form of a process inclusive broad account. It would be hard to dismiss is on grounds that it is narrowly consequentionalist and ignores the reasoning underlying deontological concerns.

Some More Normative Theories Of Business Ethics(Business Friendly Theories)

• Businessmen are neither philosophically inclined nor are trained philosophers. They are interested in solving the specific problems that confront them directly, rather than indulging in abstractions that look like road to nowhere. It is imperative, therefore, that business ethicist should produce a set of ethical principles that are both lucid and easy to comprehend by the business folks, who can place them in context of their day to day business and see whether they have any practical relevance.

• Presently there are three normative theories of business ethics that have evolved over a period of time

Some More Normative Theories Of Business Ethics

Normative Theories Of Business Ethics

StockholderTheory

Stakeholder Theory

Social ContractTheory

More orLess obsolete

Primary and Secondary stakeholders

1.Benefit consumers to maximize their wants2.Benefit employee to maximize perks and remuneration3.Ensure least damage to the environment

The Concept of Right• Rights play an important role in business ethics, they can be

conflicting, supportive or discriminatory ( debate over abortion, euthanasia).

• Rights can also be understood as entitlements

• Several kinds of rights can be distinguished viz (1) Legal and moral rights, (2) Specific and general rights (3) Negative and positive rights (4) One prominent foundation for rights focuses on “natural rights” or as now called “Human Rights” characterized by universality and unconditionality. Slavery, apartheid and torture are wrong as they violate minimal conditions for rational action or dignity and respect

Types of Ethical Value System -1

Utilitarianism: This approach comes from Teleology, which is concerned not with the act itself but with the consequences as well. A special version of teleology is Utilitarianism, which aims at creating the greatest degree of benefits for the largest number of people ( difficult, trade off ?) while incurring the least amount of harm possible. (does not provide the balance between the benefits to the majority and the sacrifice of the minority)

Universalism: It is based on the duties and obligations of an individual (Deontology) and says that the moral worth of an action of an individual should be judged by the intentions of the action, and not by the outcomes. Do unto others…. (difficult to be implemented in the organizations)

Types of Ethical Value System - 2

The system of Distributive Justice and Social Contracts: Justice is thought to be the most likely outcome of an of an ethical process of decision making. All laws, rules and regulations must, necessarily, first and foremost be just. Groups can either be collaborative (synergetic) or conflicting (the distributive system be such as to compensate the least fortunate members – greater equality). The essential feature of this system is transparency and full participation of the stakeholders in the decision making process.(individual efforts downplayed)

Types of Ethical Value System - 3

Individual Freedom of Choice: Individuals at perfect liberty to make enlightened (legal) choices without being curbed by other individual or society. Freedom should be available not only at the entry stage but at all levels.

The legal System and Professional Code: The value of action can also be determined through the legal systems, professional codes and value based norms of particular profession.

Though apparently simplistic, suffers from serious limitations of interpretations. Ethics is more than mere rules and regulations.

Nash’s Criteria of Ethical Decision Making 1

1. Have you defined the problem accurately.

2. How would you define the problem if you stood on the other side of the fence

3. How did the situation occur in the first place

4. To whom and to what you give your loyalty as a person and as a member of the organization

5. What is your intention in making the decision

6. How does this intention compare with the probable results

7. Whom could your decision or action injure

8. Can you discuss the decision with the affected parties before you make the decision

Nash’s Criteria of Ethical Decision Making - 2

9. Are you confident that your problem will be valid over a long period of time, as it seems now

10. Could you discuss the qualms of your decision or action with others

11. What would be the symbolic action of your decision, if understood / misunderstood

12. Under what conditions would you allow exceptions to your stand

However, the approach may be irksome to the managers who have not been able to clarify their own values or who work in an unsympathetic climate. A guiding criteria is “is the action needs to be kept secret”.

Ethical Decision Making Models

Ferrel and Gresham (1985) developed a multi stage contingency model with three principal causatives (cognitive process) of ethical decision making

Individual Factors (actual cognitive map of the individual and his value system)

Organizational Settings (environment which promotes or hinders ethical action)

Opportunity for action (possibility of acting unethically) Four constructs which affect decision making process

through their moderating effect on ethical problems : Personal experience Organizational norms Industry norms Cultural norms

Ethical Decision Making

Effective managers are action oriented, resolve conflicts, tolerant to ambiguity, stress and change, and have strong sense of purpose for themselves and their organizations. However, they should be aware of the following dimensions of decision making and a process of ethical enquiry will help.

In a given situation, a certain course of action is imminent Some sensitivity to the potential harm and benefits for others A systemic method for determining and annexing the ethical

issues involved Adding a needed dimension of ethics to the deliberation

involved in decision making

The Ethical Decision Maker

1. Every manager wants to prove himself and be successful. This growth can be achieved either by holding to the principles and ethics or completely abandoning them.

2. Organizations need to train managers for their inner growth and skill development for effective and ethical decision making. The training should include conscious imbibing of compassion, charity, goodwill, transparency to get over the negative feelings of jealousy, pride, ego, hatred etc

3. A decision maker requires a calm and poised mind which is attained through karma, samskara and guna.

4. With the help of meditation, one acquires an increasing power to process one’s experience and information into durable and wider-perspective decisions

Bibliography

1. Ethical Management – Satish Modh

2. Business Ethics – Shyam L Kaushal

3. Values for Managers – Prof S.K.Chakraborty

4. Ethics and the Conduct of Business – John R Boatright

5. Ethical Choices in Business – R.C. Sekhar