Ethics in Business

Ethics in Business VESIMSR (MMS) - Dec 2014 – Feb 2015 [email protected]

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"Where the mind is without fear and the head is held high

Where knowledge is free Where the world has not been broken up into fragments

By narrow domestic walls Where words come out from the depth of truth

Where tireless striving stretches its arms towards perfection Where the clear stream of reason has not lost its way

Into the dreary desert sand of dead habit Where the mind is led forward by thee Into ever-widening thought and action

Into that heaven of freedom, my Father, let my country awake."

Rabindranath Tagore (1861Rabindranath Tagore (1861Rabindranath Tagore (1861Rabindranath Tagore (1861----1941), Gitanjali, 1912.1941), Gitanjali, 1912.1941), Gitanjali, 1912.1941), Gitanjali, 1912.


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Ethics in Business

Dear Student,

Welcome to the fascinating world of ethics, human values and business ethics. While the subject

is vast, this reference compendium has a brief, summarised description of some important

themes.

Please note:

1. This compendium is meant to supplement the conceptual discussions in class. It is not a

substitute for the latter.

2. Certain topics are explained and discussed only in the classroom.

3. It is important to read up on this subject, well beyond this compendium. If an

examination answer is solely derived from the given inputs here, it will be assumed that

the student has not understood the concept.

Happy reading!

The compendium contains material on the following inputs:

1. An introduction to ethics

2. Ethics in practice

3. Evolution of ethical thought in India and the west

4. Why ethics makes logical sense

5. Society, individuals and ethics

Think about it: Words are some of the most potent

forms of energy. How do you use your words?


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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 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.

Holism / Healthy living for all

Ethics (norms for behaviour)

Business Ethics

Codes of conduct


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• 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.

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:

Ethics = Knowing what’s the right thing to do and doing it the right way. Thus, ethics

implies two things, i.e. knowing + doing.

Think about it: When facing a challenging situation, are we willing to move beyond our “comfort zone”?

Why do we need ethics?

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.

It is important to distinguish between:

Ethics and law –

Although there is a very high degree of overlap, there are practices that are legal, though

not ethical (e.g. claiming a corporate reimbursement by signing a relevant authorization,

though the expense may be partly or wholly fictitious) and acts that may be ethical but not

legal (e.g.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, guiding human thought

and behaviour. Values form the foundation on which the principles of ethics are based.

Ethics and Religion -

Very often, ethical principles are derived from values enshrined in traditional religions.

However, the ritualistic aspect of religion is distinct from the universal tenets of ethics.


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Ethics and Philanthropy –

Though laudable, charity and philanthropy do not fall under the ambit of sound business

ethics. It is perfectly possible to be totally ethical without donating to charity.

Think about it: how does ethical behaviour correlate with achieving your dreams?

• Are ethical standards absolute? Can we say that ethics and values change with time and

place? Or so they remain constant?

The two schools of thought (relativism and absolutism) hold opposite points of view on this

issue. While the former believes that standards change as per place and time, the latter

supports the absoluteness of values, conceding that their interpretations may change

depending on the context. The disadvantage of relativism is that standards are decided in a

subjective, and often arbitrary fashion. It may be safely said that the basic principles of

peaceful existence are unchanging. However, the local, interpretation of these principles

change as per place, time, custom, convention and so on.

Think about it: In what way do you

interpret values? What is the relevance of values in your life?

When stuck in an ethical dilemma, what should one do?

• Four criteria to guide ethical decision making:

1. Consequences - Which course of action will do the most good and the least harm?

2. Rights - Which decision best serves the rights of the people concerned?

3. Consistency - Which decision is consistent with my values and the values of my

company?

4. Practicality - Which course of action is practical and feasible in the given

circumstances?


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What is the greatest ‘enemy’ of ethical behaviour?

• Common rationalizations used for justifying ethically questionable behaviour:

These are statements we make to ourselves or others, to justify doing something that’s

ethically questionable.

“Everyone does it”, “It’s not technically wrong”, “It is very minor”, “My boss asked me to do

it”, “It will not be discovered”, “This is the last time I will do it”, “I was only following

orders”, “I deserve certain rewards, since the system does not give me, I’ll take them

myself!”, “The other party deserves to be deceived / robbed…”

It is critically important to spot one’s own rationalizations – these are excuses we make to

justify ethically wrong choices. As a manager, it is also important to be able to identify

common rationalizations around us, so that we may help avoid the pitfalls of unethical

action being justified by such excuses.

Basic human Values - a slightly detailed look:

• Western approach: Integrative Social Contracts Theory: (Source: Pages 43-47, Business

Ethics – A Global and Managerial Perspective, David J. Fritzsche)

Proposed by Thomas Donaldson and Thomas Dunfee, this theory places itself as a global,

normative theory for business ethics. It allows for cultural diversity while maintaining

certain universal norms. The “social contract” in discussion is not a formal, written contract,

but an informal agreement concerning behavioural norms that are developed from shared

goals, beliefs and attitudes in society.

The theory states that corporations exist to enhance social welfare by serving consumers.

This is a social contract between the corporation and society. When an organization fulfills

the contract, it can be said to have done well.

The three components of the theory are:

Hypernorms =universal values that are basic principles fundamental to human existence.

They are a convergence of religious, political and philosophical thought

Macro-social contracts = values and norms that function at the global and national level

Micro-social contract = community-specific contracts that guide business activity. These

must be decided in order of priority.

Hypernorms: Personal freedom, Physical security and well-being; Informed consent; Political

participation; Ownership of property; Right to subsistence; Equal dignity

Macro Social Contracts: Moral free space, Free consent, with right to exit

Micro Social Contracts: Honour all contracts, Don’t lie in negotiations, Provide a safe

workplace


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Think about it: What are the values you want to find in your workplace?

• Indian Approach: Values and “Disvalues”

As analysed by Dr.S.K.Chakraborty in his book, Values and Ethics in Organizations, Theory

and Practice, values (positive traits) and disvalues (negative traits) may be listed as follows:

Values: Honesty, sincerity, loyalty, gratitude, humility, patience, dignity, forgiveness,

generosity, gentleness and sharing

Disvalues: Jealousy, greed, deceit, anger, vanity, hypocrisy, arrogance, vindictiveness,

sycophancy

Human values as applicable to business: Transparency, Accountability, Consistency,

Integrity, Justice, fairness, equitable behaviour.

“Tri – guna”

The Indian approach to values and their application (namely, ethics) analyses personal

inclinations and traits on the basis of which “guna” or basic human characteristic is

predominant in the individual – “sattwa”, “rajas” or “tamas”. Accordingly, a clear-headed

and balanced approach to life and work is seen in individuals with predominantly “sattwa”

guna. Among others, the values of purity, serenity, humility, kindness, honesty, generosity,

forgiveness, sincerity, simplicity and contentment are indicative of sattwa. Presence of

“rajas” is determined by continual dynamic action linked to results, often driven by motives

stemming from disvalues such as greed, anger, hatred, jealousy, envy, arrogance,

suspiciousness, pride, impatience, covetousness. Slothful inertia points towards a “tamasic”

temperament, where traits such as negligence, procrastination, forgetfulness, delusion and

confusion reign in the mental and moral fibre of the individual. Each individual, accordingly,

displays the above values and disvalues, according to his predominant “guna”.

Think about it: Which is your predominant tendency? Are

you satwwic, rajasic or tamasic? What do you want to be?


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The ethical evolution of the corporate

The ethical evolution of the corporate may be depicted through the following sequential stages:

1. The immoral or amoral firm – where might is right, profits are sought at any cost and the

achievement of goals is all that is considered in decision making and action.

2. The legalistic firm – where ethics is equated to lawful conduct. While this is an improvement

on the former stage, it falls short of understanding and using the true principles of ethical

behaviour. Loopholes in the law are merrily exploited. The law is followed in letter, though

often not in spirit. 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 condone unethical acts. The lawyer’s word is considered final and decisions are

accordingly taken. Needless to add, such organizations are heavily dependent on the advice

of their lawyers!

3. The responsive or emergent ethical firm – firms at this stage grow increasingly conscious of

their duty towards various stakeholders. Basic human values, as applicable to persons and

companies, are articulated and nurtured. Not only are the prime stakeholders’

(shareholders, employees, customers) interests considered, there is an awareness of the

need to work for social good in the long run. The organization moves from the narrow

“prime stakeholder-centric” paradigm to the “socio-centric” paradigm.

4. The ethical firm - which represents the apex of ethical evolution in the corporate world.

Here, profits are tempered by the aim to serve the needs of the country / world. Decision-

making is on the basis of justice, fairness and profitability. Employees are routinely

rewarded for refusing to act unethically. The approach towards work is long-term in nature

and from the macro perspective.

Think about it: Which companies do you respect? Other things being

equal, would you choose to buy the products of, or work for, a company that has higher ethical standards? Why?

Stakeholders of an organisation and their relative ranking:

An organisation comprises a network of employees, shareholders, financiers and suppliers,

working for consumers and markets, through distributors and agencies, in tandem with other

members of the industry, regulators and the general public. All these elements are collectively

called “stakeholders” of the business enterprise.

A ranking of stakeholders in order of importance usually reveals customers, employees and

shareholders to be the three most crucial categories. Inter se, they do change their positions,


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depending on the industry, the situation (normal business year or depression/ recession) and

the stage of growth of the company

Stakeholder Responsibility of an Organisation:

How does a company treat its stakeholders? Is it honest towards its customers? Caring towards

its employees? Diligent towards its financiers? These define its stakeholder responsiveness. SR -

the term can be described as “the ethical responsiveness of business to the members of its

environment”. An organisation comprises a network of employees, shareholders, financiers and

suppliers, working for consumers and markets, through distributors and agencies, in tandem

with other members of the industry, regulators and the general public. All these elements are

collectively called “stakeholders” of the business enterprise. Thus the SR of business is to ensure

that its dealings with its stakeholders are ethical.

Think about it: How do you “keep moving forward” when

times are tough?


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Ethics in practice

Analysing the application of ethical principles to the functional areas of:

Marketing

Advertising

Finance

Personnel management

Purchase, production, quality

Marketing and ethics:

• For a transaction to be morally defensible, the parties entering into it should do so freely

and fully informed. – Richard De George

Hence for marketing to be morally defensible, the above criteria should be satisfied.

This apparently simple condition poses ethical dilemmas when one considers that the

complexity of products and the consequent plethora of choices, offered by marketers, often

hamper rational decision-making by the unassisted consumer. The question then becomes

whether the contemporary brand of aggressive marketing, so popular today, is an ally or an

obstacle to the layperson.

• “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. He proposes a balance

of the troika of social interests, fulfilling of consumer wants and profits for the organisation.

Society’s

Interests

Profits Wants of the Consumer

For example, customers may want detergents that wash whiter, 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, and position its product

to attract the discerning consumer.

• According to Adam Smith, markets where there is no fraud or coercion and where the

participants are adequately informed about the transactions, is desirable and ethically

defensible.


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• As the redoubtable Philip Kotler says in “The Organisation of The Future”, “One fairly

sustainable basis for differentiation (between competing companies) is the company’s civic

character. The company’s civic image may be one of the most potent customer preference

builders”.

An ethically inclined marketing manager would focus, among other issues, on:

• Product - Should conform to the stated specifications

Minimize “bells and whistles” which the customer does not really want / need

but has to eventually pay for - unless they are accompanied by actual product

changes (e.g. a new colour / design on the package along with POP tools,

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.g. 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, where necessary

Creation of barriers to availability of products

• Price- Whether 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?

• 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, buy-back and “sale” should be authentic, defective products should not be

knowingly clubbed with good ones. There should be no deliberate loopholes in product

guarantees and warranties. Rightful application of policies related to warranties, buy-backs and

after-sales service should be enforced.

• Packaging - adequate and factually correct labelling, (eco-friendly packaging would be a

further improvement)

• Promotion - the genuineness (of implementation) of promotion schemes

• Compliance with legislation


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Advertising and Ethics:

Responsible and ethical advertising is fair, truthful, accurate, does not deliberately mislead, does

not offend public sentiment (is not in bad taste), 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

Think about it: Is advertising about “personality” or “character”? Are there

instances when both are given importance?

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. 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. While ads do mirror real life

aspirations, the elements of exaggeration, hype and aggression do add to the vicious circle

of re-enforcement of materialistic ambitions at the cost of personal growth. Moreover, such

advertising aggravates the “use-and-throw” lifestyle that is socially and ecologically harmful.

• “Advertising leads to wastage of resources” – some believe that ads simply add to the selling

cost of the product, without enhancing the value / utility in any way. Defenders say that ads

transmit information on the nature and availability of products. Overall consumption in the

economy may also be increased and shifting of choices, on the basis of advertised product

information, are other aims. Statistically, the correlation between higher ad spends and

higher sales is not very clear. Though it is not denied that ads do convey information, an

overdose of visual or aural stimuli in the form of ads becomes counterproductive, as the

consumer simply “blocks out” these ads as “white noise” (e.g. repeated ads for a product,

shown at frequent intervals, during a live telecast of a popular sports tournament). The ad

spends on such advertising are thus a wasted selling cost.

• “Advertising leads to the creation of entry barriers” – this refers to the huge ad campaigns

mounted by financially strong companies that may block all media space and thereby stop

entry to a newer market entrant. This may lead to a reduction in market competition, as

companies with smaller financial strength find themselves unable to penetrate a market


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dominated by a large player. However, this can be countered with market savvy tactics, such

as POP promotions, word-of-mouth campaigns, competitive pricing and so on.

• ‘Advertising manipulates human desires” – proponents of this statement believe that ads

cleverly manipulate the psyche of the consumer, to make him desire their product, even

when it is clear that the product will not improve the quality of his life, or is not appropriate

in his milieu (e.g. the impact of cable television with ads on colas, on viewers in rural

markets, who may move towards inappropriate spending on such products). This means the

consumer is lured to purchase what the advertiser wants him to purchase not something

that is necessarily good for him. Subliminal ads too circumvent human reasoning. This is

treated as violating the individual’s right to being treated as a rational person. The counter

argument is that supply creates its own demand.

• “Advertising is often deceptive” – perhaps the most common grouse of ethicists is that ads

are often deceptive, involving untrue / misleading testimonials, deceptive mock-ups, bait

ads, ads with misleading words, ads that copy famous brands or logos and ads that

disparage competitors.

Finance and ethics

Ethical issues are linked broadly to the following aspects of corporate finance:

• Raising resources - legitimate source

Legal and fair process, no misrepresentation

• Deployment of resources - end-use of funds should match pre-determined purpose

Level of risk taken, should be at par with stated objectives of

company, and acceptable to prime stakeholders

No laundering of money through sister companies

No personal misuse of corporate funds

• Accounting - Consistency

Transparency, no window dressing of the Balance Sheet (e.g.

through revaluation of assets)

Treatment of special accounts (e.g. deferred revenue

expenditure, contingent liabilities)

GAAP

Internal norms and audits must encourage honesty, 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, not merely to large, institutional stakeholders, but also to minority

stockholders

Since the passing of the Sarbannes-Oaxley Act in USA, newer and tighter norms for transparency

and accountability have come into force in the international scenario. Some of these involve:


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• The CEO will personally have to testify to the accuracy of the annual financial statements.

Future re-casting of these statements could mean imprisonment for the CEOs and CFOs.

• Companies listed on the NASDAQ with headquarters and operations not in USA will also

have to follow listing norms, certification norms and the rules of this act.

Think: How do you define your standards of ethical

behaviour? Which path do you choose?

Personnel management and ethics

Basic guidelines:

• Fair, non-discriminatory policies to be created, consistently communicated and enforced

• Decisions to be in synch with stated policies, exceptions to be minimized

• Fair hearing (formal and informal) to be given to any aggrieved parties in a dispute

• Norms, especially of integrity, to be adhered to by the top management

• Employee-friendly systems (e.g. mentoring, counselling) to be created and practised

Ethical issues related to personnel and human resource management usually pertain to the

following areas:

1. Recruitment, job fit, induction

2. Pay and perks, working conditions, safety

3. Promotions, incentives, transfers, job rotations

4. Appraisals and training

5. Discipline enforcement, redressal of grievances, collective bargaining, trade unionism

6. Administration of benefits, voluntary retirement schemes

Purchase, production, 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, durability and performance norms must be more than adequately met (e.g. use of

“six sigma” process)

• Quality checks should be sufficient in frequency and stringency

• Potential defects must be addressed before launch of the product, customer complaints

regarding non-performance of the product must be considered, if need be, at the drawing-

board stage, for product modifications


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• In the case of hazardous products, regulations pertaining to quality must be strictly followed

For purchase and distribution:

• Integrity in the choice of supplier, dealer, 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)

Think about it: In what way do the above words apply to the contemporary executive? And how

can he or she expand the application to the corporate world?


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Evolution of Ethical Thought

• Teleology and deontology, existentialism

• A few ethics-related concepts from the Vedas, the Upanishads and the Mahabharata

Think about it: What are the core beliefs that guide your life?

Do you have faith? In what or whom?

Teleology and Deontology; Existentialism:

Traditional western theory on ethics begins with an understanding of the following approaches

to ethics:

• Teleology :- This theory believes in an act being ethical if the ends obtained are useful /

beneficial / good. The means are not considered significant in the ethical analyses. The

purpose of the action is all that is seen. (“Telos”, in Greek, means ends or purposes)

Two well-known offshoots of this theory are the principles of:

Utilitarianism - which focuses on the benefit of the final results. This approach leads us to

the maxim: “The greatest good for the greatest number”

Hedonism - which is aimed exclusively at the benefit of the decision-maker / leader. This

approach leads us to maxims / opinions like: “Might is right”, and “What is good for me is

ethical for me”

• Deontology:- This theory places a far greater importance on the means, than on the ends. In

Greek, “Deon” stands for duty. Hence this stands for a means driven theory and is usually

supported by religious thinking. The limitation of this theory is that it is not concerned about

ends.

• Existentialism: This theory emerged in Europe (primarily Germany and France) as an

intellectual revolt against the limitations of both, teleology and deontology. 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,

at the cost of desired goals. Hence the Theory of Existentialism is focussed on individual

behaviour that profits all people concerned. The two prime tenets of this theory are:

freedom and responsibility.


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Indian Approach:

Some Useful Concepts:

• Vasudaiva Kutumbakam

This concept, which means, “The world is one family” extends the above concept into the

realm of day-to-day decision making in the family, community and at the work place. An

acceptance and assimilation of this concept often leads to ethically sound decisions, 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. This concept is of great

importance to the manager involved with corporate governance and the rights of

stakeholders, since it gives a sound foundation to the entire exercise that seeks to codify the

duties of an organisation towards its customers, employees, shareholders, suppliers,

distributors, regulators and other stakeholders.

• Tri - guna (Discussed in the first module)

The Indian approach to values and their application (namely, ethics) analyses personal

inclinations and traits on the basis of which “guna” or basic human characteristic is predominant

in the individual – “sattwa”, “rajas” or “tamas”. Accordingly, a clear-headed and balanced

approach to life and work is seen in individuals with predominantly “sattwa” guna. Among

others, the values of purity, serenity, humility, kindness, honesty, generosity, forgiveness,

sincerity, simplicity and contentment are indicative of sattwa. Presence of “rajas” is determined

by continual dynamic action linked to results, often driven by motives stemming from disvalues

such as greed, anger, hatred, jealousy, envy, arrogance, suspiciousness, pride, impatience,

covetousness. Slothful inertia points towards a “tamasic” temperament, where traits such as


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negligence, procrastination, forgetfulness, delusion and confusion reign in the mental and moral

fibre of the individual. Each individual, accordingly, displays the above values and disvalues,

according to his predominant “guna”. Ethical behaviour is believed to stem from a

predominantly sattwic temperament, with the added element of tempered dynamism.

Think about it: What do you “grow” in your mind? Do you stay aware of

negative thoughts and try to cut them down? Do you treat anger, hatred, envy and the like with great caution and

stop them from taking root in the mind? Do you work towards nurturing positivity, cheerfulness, optimism and

patience?

• Nishkam karma

This helps in the sound understanding of the art and science of work. This principle is also of

immense use in developing “Stress insulation”.

Perfectly epitomised in the Mahabharata, through the teachings of Krishna to Arjuna, this

important concept reminds the doer of the work to focus on the work alone and remain

detached from the fruits of the outcome. The goals and the means are both given significance;

yet, the ego of the doer is not to link himself to the actual results of the work. Perhaps this is

best explained through the term “detached involvement” meaning a high, uncompromising

degree of involvement and commitment towards the task on hand, with an equally sure

detachment from the ultimate outcome of the work. This leads to a calm approach towards

work, selfless though sincere, with a clear tilt towards what is best and desirable for all, rather

than what might fetch short-term rewards to the doer of the action. Consequently, motives

arising from negative states of thinking and feeling, such as pride, egoism, vanity and a lust for

power, are nipped in the bud. Moreover, stress finds no place in the life of such a manager,

since all energies are concentrated on work; variables that may or may not ultimately affect

outcomes are not allowed to contaminate the spirit of work.


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Think: How do you motivate yourself to stay on

track even when facing tough times?

• Law of Karma

“Karma” here, may be interpreted as thought, word or action that is either a cause of

subsequent actions, or an effect of past actions or both). This means understanding and working

with the moral law of cause and effect (Doctrine or Law of Karma) - 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, like effect

• The effect returns to the source of the cause

• Each cause produces its own effect; there is no mutual cancellation.

• There are 2 variables in this equation – time (taken for a cause to bring forth an

effect) and the agency (person or event through whom the effect returns to the

cause)

This seemingly simple, yet amazingly foolproof system works as the law of conservation of moral

energy. 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. Thus the maxim “Do unto others as you would

be done unto” finds relevant usage here.

Think: Is there any action you do for others, without

thinking, “What will I get out of this?”


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• Panch Rin

This explains how each individual has specific duties towards five categories of people /

existence. Acknowledging these debts accordingly leads to a selfless, clear-hearted attitude

towards 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), rishi rin (debts to those who have

taught the sacred), pitri rin (debt to the ancestor, owing to whom one has physical existence),

nri rin (debt to humanity at large) and bhuta rin (debt to plants, animals and such living

creatures). Thus the concept seems to suggest working from the paradigm of giving back to

society, instead of merely taking more from society. The focus is thus on one’s own duties and

responsibilities, which takes care of the rights of others.

Think about it: What qualities do you cultivate in yourself? And do

you conduct an “ego-audit” for yourself?


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Society, Individuals and Ethics

• Typical responses of the individual when faced with institutionalised unethicality, victim

versus perpetrator type of unethicality, 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 of the individual when faced with institutionalised unethicality:

The typical responses of the individual in such situations may be:

a) Rationalizations – “Everyone is doing this anyway, I might as well do it”, “This is too small a

matter to discuss, it isn’t a scam!”

b) Resignation – “What’s the use?”, “One person cannot change the system”

c) Indifference – “Everything goes”, “To each his own”, “Why should I bother if I am not

directly harmed?”

Victim versus perpetrator type of unethicality, 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, hence individual may choose to achieve results (say, in a life

and death situation and ignore the ethical dimension. (e.g. paying grease money at a

hospital in an emergency)

Yet, it must be clearly understood that an ethically sensitive person would never rationalize

such a choice of action. On the contrary, he would seek to train himself further along the

ethical dimension (and increase the sattwic element, or clarity and purity in his thought,

word and deed), so that next time, if faced with a similar crisis, he is able to arrive at a

healthy, holistic solution. Moreover, even at the time of taking the decision to deliberately do

the unethical act, he would bear in mind the fact that there would be a price to be paid in

future for this deed, and that he may not be able, at that point of time, to predict the

manner in which this price, or consequence, would accrue to him.

Perpetrator type – chooses the unethical option / approach as it is seen to bring money / power

/ status or some such desired result, very quickly; in spite of having ethical options within

reach (e.g. demand for bribe / grease money for transactions that are anyway supposed to

be done as part of one’s work)

Monetary type – this refers to unethical acts that are manifested in their currency-quantifiable

forms. Bribes, theft, financial frauds and grease money are invariably in this category.


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Non-monetary type – all forms of unethicality, such as deception, coercion, unfair discrimination

and their subsets like favouritism at the workplace, denial of equal opportunities where

warranted, nepotism, back-biting and so on, are non-monetary and sometimes intangible in

nature.

Principles for working around systemic obstacles – individual and collective:

The primary rationale for working towards ethicality, when faced with systemic unethicality is

this: sustained individual progress is impossible without the progress and well being of the

environment. For the latter to happen, systemic unethicality must be steadily weeded out. More

significantly, by engaging in such a process, the individual is in turn able to discharge his debts

and obligations to the Universe.

Think: Are there things about yourself and others that you want

to change?

Checklist of questions for the individual / organizations:

1. What are my resources?

– time available, finances, mental and emotional energy, skills and talents,

knowledge and experience, support systems (this includes family, friends,

acquaintances who may help if need be)

2. 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. Ideally, what would I like the situation to be / how would I want the issue to be resolved?

4. How best can I use my available resources (answer 1) to arrive at the desired goal (answer

3)?


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Think about it: At what stage

are you? Where do you want to be?

It may help to remember these…

• Examine your own motives. Work only if you are sure your motive is clear (i.e., you are not

addressing an issue merely because you stand to gain).

• Be prepared for delays and obstacles. Don’t assume people or systems will support you

simply because you are working on worthwhile cause.

• Be willing to treat the exercise as a personal lesson in patience / determination / ingenuity.

This will allow you to step out from the judgmental approach (“He / she / they should be

doing this” “How dare they behave in this way”) which invariably leads to frustration and

loss of mental and emotional clarity and energy.

• Don’t allow short-term outcomes to determine your morale, enthusiasm or drive. 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. Such an approach will allow the process as well as

the end result to gain quality.

• When things are tough, remind yourself of these: “This too shall pass”.

Whistle-blowing - a brief look:

Meaning of the term – making known to outside agencies, the actions or conditions in a firm

which are illegal and / or harmful to the stakeholders of the firm.

Types – internal (announcing to top management) or external (telling the media, the industry

and the competitors)

Used when – individual values clash against low standard of organizational values

Rules:

1. Have provable facts

2. First follow the usual channels of communication and hierarchy


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3. Don’t act hastily – consider the consequences of the action on people’s jobs and so on

4. Prepare to follow through till the end, don’t make empty threats that you cannot or will not

carry out

5. Expect the worst – demotions, transfers, character defamation and loss of the job

6. Get support from others, if possible

At the individual level, 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, namely, working

for the best long-term interests of all stakeholders of the firm. Hence the dilemma gets sorted

out in favour of whistle-blowing. A note of caution – examine your own motives before blowing

the whistle. 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.


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Why Ethics makes good business sense

Trusteeship and the Gandhian principles of wealth management

Wisdom leadership –Concepts from the Indian ethos

Why Ethics makes good business sense:

Macro Perspective:

Basic contention:

Unethical behaviour harms the national economy by hindering genuine free market operations,

thereby reducing productivity and wealth. Hence the need for ethical conduct.

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. The market system

(free market economy) calls for, among things, 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. When such satisfaction is

high, the implication is that the resources spent on producing those goods have been well

utilised. Conversely, dissatisfaction means that the resources allocated for production have

been sub-optimally spent and that the market system is not functioning efficiently. Millions of

purchases thus determine what goods and services are available in an economy.

All types of unethical behaviour (e.g. bribery, deception, coercion, unfair discrimination and

theft) impinge upon the above three conditions of an efficient market system. For example,

deception implies that information available to the customer is not accurate but is misleading,

leading to dissatisfaction after purchase. Hence, unethical acts are directly correlated to poorly

functioning market systems. Consequently, 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:

• Bribery and tipping / “greasing” / paying speed money

• Deception

• Theft

• Unfair Discrimination

• Coercion

Bribery:


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• Offering, giving, receiving, soliciting of something of value (money, service, kickback or other

asset), 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.g. Gift giving during Diwali). 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, intentional misleading by spoken / written falsehood, misrepresenting data

pertaining to a fact/ situation

• Common ethical transgression (e.g. falsifying / distorting research data, misleading

advertising, misrepresentation of a product, ‘creative’ accounting)

• Ranges from a white lie to elaborate schemes to defraud people (e.g. “ponzi” schemes)

Deception reduces customer satisfaction.

Theft:

• Taking of something that belongs to another, stealing

• Property may be physical or conceptual (e.g. intellectual pilferage)

• May be included to include a wide range of ethical transgressions (e.g. product

counterfeiting,

using insider information, price collusion and cartelisation to create economic barriers to

entry in a market, dishonesty in making and keeping contracts)

Theft leads to increased costs, as the legitimate users effectively end up paying for those who

use the products / services but don’t pay.

Unfair discrimination:

• Unfair treatment or denial of normal privileges because of their race, age , sect, sex , 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, qualification, experience, contribution to the firm)

Unfair discrimination leads to increased costs as productivity ratios worsen.

Coercion:

• Controlling people by force or threat

• Creates compulsions and constraints in behaviour

• Could be actual, direct and positive (e.g. when direct force is used) or implied, legal and

constructive (e.g. forcing a retailer to stock certain products, if he wants to carry other

products)


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• 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, business needs trust (in its transactions with all stakeholders)

• In turn, trust calls for ethical behaviour (between stakeholders, during transactions, as well

as on a continuing basis in relationships)

• Hence, business needs the foundation of ethical behaviour

A brief look at the dimension of trust:

• Trust implies predictability, dependability and faith

• It must be noted that ethical behaviour is a necessary but not sufficient condition for trust in

relationships. Trust (in business) calls for two prime ingredients: - professional competence

(skills) and fiduciary responsibility (values in application)

• The dimension of trust gains prominence in the following relationships between the

business and stakeholders:

Ceteris paribus -

a) Customers and business – high levels of customer trust, earned through consistent

quality-price equations of products or services, translate into sustainable profits and

market shares, low collection costs, brand loyalty and goodwill for the company.

b) Employees and business – employees’ trust, won through transparent, fair and

equitable policies, ensure high morale and performance, low turnover of labour and

speedier change management.

c) Shareholders and business – transparency, accountability and efficient financial running

of the corporation leads to the nurturing of shareholders’ trust. This ensures a

continuing and steady source of funds, a healthy valuation of the share in the stock

exchange and a high probability of garnering additional funds at competitive rates of

return.

d) Suppliers and business – equitable handling of transactions leads to improved reliability

in terms of quality and quantity of supplies, lesser time being consequently spent on

quality checks and order processing transactions and better chances of procurement of

supplies in times of scarcity.

e) Collaborators / partners and business – trust plays an extremely significant role in this

relationship, by smoothening out negotiations, covering up for unexpected loopholes in

written contracts and bringing stability to the relationship


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Ethical behaviour with all these (and other) stakeholders assures the corporation of a reliable

base for resources (people, funds, customers et al), in turn aiding the business in its

performance.

Trusteeship and the Gandhian Philosophy of Wealth Management

• Trusteeship = holding and managing resources on behalf of the stakeholders of the firm.

• Traditional take on wealth = tilted towards owners of corporations

• Therefore, trusteeship => element of equity, placing other stakeholders such as employees,

customers and society on the same rung as large and small shareholders.

• The idea is that all wealth, including human, financial and technological resources, belongs

to society and the rewards accruing from their use must revert to society at large.

Principles: The principles of trusteeship can be traced to the concept of collective endeavour

and community living. Briefly, these are:

• Resources must be held and utilised for the benefit of society.

• Managers are the trustees of the stakeholders and must work towards optimizing

stakeholder value, not merely maximizing shareholder value.

• 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, rather than the

short-term, micro perspective which is often geared exclusively to suit the shareholder and top

management.

Common protests against its application:

• “The owner/s must be rewarded for bearing risks and supplying expertise”: Definitely. But

the reward must be in proportion to the skills and expertise supplied. The increasing

instances of ethical transgressions on the part of leaders and CEOs indicates the need for

better balance in the risk-reward relationship.

• “Corporations exist for profits”: They exist to fulfill the needs of society and in the process,

generate profits. Moreover, even if profits were to be the only determinant of policies,

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, 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

• Social projects aligned with corporate skills,

involvement not limited to money


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trusteeship would still score over inequitable sharing of wealth, since better wealth

management automatically leads to more lasting and stable equations with stakeholders.

This, in turn, leads to higher profits, goodwill and trust.

• “Trusteeship might lead to a disincentive for efficiency and efforts”: When individual and

group efforts are correctly aligned with social needs, the possibility of de-motivation or

deliberate inefficiency does not arise. Conviction in the utility of the concept, coupled with

the commitment of top leadership, would ensure efficiency as well as effectiveness.

Think about it: How do you find a way to love your work?

The Indian perspective:

The wisdom of the Vedas and Upanishads point towards holistic progress, not fragmented

movement in which one section gains at a cost to others. Moreover, the cycle of give-and-take is

explained at great length. The Arthashastra of Kautilya and The Kural of Tiruvalluvar both

describe the role of the king as trustee, with respect to the citizens and the wealth of the land.

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; the only right he has is that to

an honorable livelihood.

Think: Are you a manager? Or a leader?

Wisdom leadership – its meaning and relevance:

“Be the servant of all, and do not try in the least to govern others…kill self first if you want to

succeed. It is a very difficult task to take on the role of a leader. One must be a “dashasya

dasah”, servant of servants and must accommodate a thousand minds. There must not be a

shade of jealousy or selfishness, then you are a leader.”

Swami Vivekanand


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”…The sixth level leader will be a servant leader, whose prime objective will be helping everyone

optimise their potential. He will be a source of guidance even though he may or may not have

formal authority. A good manager will be one who serves others, including customers and

employees. It’s the spirit of service that’s the hallmark of servant leadership.”

- 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. Given that any

organization stands for a group of people with a collective purpose, a leader then is the person

who asks, “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; hence he is one who is willing to be a “servant of servants”.

The wisdom of this approach lies in the fact that such a leader will have clarity of perspective,

never lose sight of the long-term in favour of the temporary short-term scenario and will

prioritise social and organizational welfare over personal preferences.

Think about it: Do you want to transform your life for the better?

Are you waiting for favourable circumstances before taking the first step?


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The voice of conscience is so delicate that it is easy to stifle it; but it is also so clear that it is impossible to mistake it. -Madame De Stael, writer (1766-1817)

Ethics in Business

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